We have a great interview today with Colin from Building-Income. His life journey is a fascinating one. Colin struggled with debt multiple times but has overcome many hurdles and is now a successful real estate investor.
Take it away Colin…
– Tell me a bit about yourself?
Currently, I’m a commercial real estate broker in Spokane, Washington. My background is varied in that I’ve served in the army, earned a bachelor’s degree in finance, went to work as a property manager, then changed gears and worked as a police officer before returning to commercial real estate. I’ve also owned several small businesses
My finances were a disaster throughout my twenties and thirties. I got out of personal debt once ($46,000) only to put myself back into debt ($49,000) six months later. Once I got free of that debt, I purchased a business that failed within a year and added an additional $60,000 more debt. It was a was long period of financial immaturity.
Part of my journey through my blog, Building-Income, is sharing the lessons that my poor choices taught me so that others can benefit from them. I’m making moves in my forties through real estate and aggressive savings that I wish I’d started in my twenties. That’s the other part of the story and the one that I am most excited to share.
I’m fortunate that I have a supportive girlfriend who understands the big picture of what we’re trying to accomplish and is a great financial partner, as well.
– How did you get started in real estate investing?
My friend, Kevin, taught me how to do it. I was 40 at the time and he was 26 years-old. (note from Guyon_FIRE: Kevin has a great story too read more here: A Real Rich Dad Poor Dad Story)
For some reason, I didn’t believe I could invest in commercial real estate. I thought it was for other people, for the big players. I even worked in the commercial real estate field, but wasn’t convinced I could do it.
Kevin showed me how to invest and he made it simple. I had to humble myself and admit I didn’t know as much as he did. I also had to admit that I was intimidated by the process. Admitting my fear was freeing. Once we completed our first deal, we immediately started looking for our second and haven’t stopped since.
– Why real estate?
Like most in the industry, I fell into it.
When I graduated from college, I thought I wanted to be a stock broker. However, I needed a paycheck and I needed it fast. I took a job as an executive assistant at a full-service brokerage firm. My job was to do some basic bookkeeping and assist a property manager. A bit later, I was promoted to a residential property manager position. Further into my career, I was a commercial property manager before becoming a full-time broker (independent contractor).
I was blind to the good fortune of that exposure to real estate for so many years. Unfortunately, I think a lot of people are like this. We go to work, keep our heads down and miss the actual opportunities around us every day. Then we go home with the small paycheck, complain about not getting ahead, and miss good fortune when it’s staring us in the face.
– How many properties do you own now?
Currently, I’m a partner in ten commercial buildings and I solely own two residential properties.
The residential properties are a single-family home and a duplex.
The commercial properties range in type from a single tenant retail building to a 10,000 sq. ft. retail strip center. All of them were purchased by separate limited liability companies (LLCs) that were formed specifically for each task. This allowed us to bring in different partners for the different deals.
– How has real estate investing positively impacted your life?
I told the full story in a blog post, but my finances were a complete disaster when I looked to buy my first property. I’d gotten out of debt once and then almost immediately put myself back in debt. It was immature behavior. I needed to focus.
Everyone talks about having a “why” to direct your activities. Usually, that’s something bigger like early retirement. For me, it was much more ground level; I needed to raise cash to invest in a single building.
Immediately, I reeled in my spending, sold a bunch of things I’d collected over the years and soon had enough to jump into a partnership. The feeling of owning a piece of a commercial building did something to me inside. It boosted my confidence, in a way, that a lot of things never had before. I reached a goal that I thought previously was unobtainable – I invested in a commercial property.
I’ve continued to grind on my expenses so I can go after real estate. I now have a bigger “why,” but real estate was what allowed me to understand I could reach my goals if I learned how to control my spending.
– Walk us through one of your deals.
That’s a great question, but tough to answer in a general way.
Commercial deals are very different than buying a residential property as many different factors might be the catalyst for the transaction.
A deal can be tenant driven when they are looking for a site and you help them. We did that for a national janitorial company and the deal has worked out fantastic. They wanted to relocate and we found them a spot, purchased the building and leased it back to them. We just renewed them for their third term.
Deals may be vision driven such as when we realized an under-utilized corner was suddenly in play. A check cashing store had just vacated a dilapidated building on one of the busiest streets in our city. We were the first to call the owner before he’d even been inside the building since the tenant had vacated. We bought the property, tore down the building and put Jacobs Java, a local coffee company, in place. It is a ground lease deal (we only own the dirt), but the income stream has more than doubled the value of the property.
A deal can also be “value-add,” such as buying a vacant building and installing all new tenants. We purchased a property that had been foreclosed and was completely vacant. By the time we closed on the property, we had the building fully leased. It was a great buy.
Since each deal is so different, it’s important to have a good team in place as you start to invest. A mentor, broker, banker, lawyer and closing agent. There can be more members of the team, but that’s the core group when you get started. If you’re not going to manage the building, you should loop a property manager in to the process as well. They can help point out potential issues that you might miss.
– What is a lesson you have learned from your mistakes as a real estate investor?
The biggest lesson so far is to always be aware of your perspective. I also wrote about this previously, but the first investment property I had was a single-family rental. Originally, it was my home, but I bought another, larger house. I kept the smaller house, thinking it would make a good rental.
Unfortunately for me, I was desperate to rent it and leased it for less than my monthly escrow payment. For years, I thought I was losing $50/month on it. It bugged me, monthly. This was during the time my finances were out of control.
Had I changed my perspective, I would have realized I was really buying a house for $50/month, not losing $50/month. I also could have raised the rent, but I never did. Instead, I just complained about how terrible it was to lose $50/month for too many years.
Finally, I sold the property and breathed a sigh of relief that I was free of it. It wasn’t until a few years later when I woke up and realized I’d made a mistake by selling the property. Had I changed my perspective, things would have turned out quite differently.
– What do you hope to achieve through real estate?
Real estate will fund my retirement.
In my partnerships, we have a different philosophy than many other investors, because we don’t take disbursements currently. Instead, we are paying down debt on the properties. Commercial loans work differently than residential. Typically, you are forced to refinance or cash-out every ten years. Therefore, we’re attacking debt to force ourselves deeper into the amortization schedule.
When it’s time to refinance, we will for only what’s owed and then start taking distributions, or be paid off completely. We have one property that will be completely paid off in eleven years from the date we purchased it. From that point forward, it will be a cash flow machine and we won’t have to worry about market bumps or vacancies. We’ll have removed a giant chunk of risk for ourselves as many of us will ready for retirement.
On a personal note, I completely paid off the single-family home I bought in late 2015. It was a hit to my investment account, but that house is now debt free. If there is ever a vacancy, I won’t be anxious to get a tenant. I couldn’t have made a money move like that ten years ago when my finances were out of control.
Some will suggest I should have re-leveraged the single-family home, but I will say that there is something very satisfying about fully owning a rental property. I’m not arguing with the position on leverage. It’s just a different view point. However, I now have a free and clear asset that I have no intention of every re-leveraging.
– What advice would you give to someone who is looking to get into real estate but has not bought a property yet?
First, read. Before you buy your initial property, read a few books on real estate investing. I was given a free education as a property manager, but I still read several books by the time I bought that first one. Then keep reading. One of the deals we did last year (refinance – cash-out – purchase new) was from reading a story in a book. I might not have thought of doing that if I hadn’t read about it first.
Next, talk with someone who has done it. Take them to coffee or out for beers. Ask questions and then ask some more. Most investors love to share their stories and will give advice freely. Guys ask me to share stories and I’ll do it in a heartbeat. I still ask clients and other investors to share and they do as well. It’s fun to talk about real estate, both success stories and not-so-successful ones.
Third, work with a broker (or agent, depending on your state). As stated before, I’m a commercial broker, but if I buy a residential property, I work with a residential broker. Brokers know the market, they know what’s coming down the pipe that could affect your potential purchase and they will want to keep you as a client. I hear a lot of folks who think they’re smarter than a broker. Unless you deal with real estate on a daily basis, you’re not. Think about your profession. If I decided to read a book and then walk into your office, could I do your job as well as you? Not a chance. There’s a difference between reading how it’s done and actually doing it.
– What have I not asked you that I should? Or something that you would like to share with our readers?
For me, real estate is about control.
When the market crashed in 2007, I had been speculating in the stock market. I didn’t have a lot, but had gotten about $15,000 into various stocks. I was essentially gambling. Then it all came crashing down. One of my largest stock plays was Washington Mutual. One morning I woke up to find that the FDIC had put it into foreclosure and immediately sold it to Chase Bank. My stock essentially vanished.
My investing in stocks was part of my financial immaturity. I couldn’t gamble my way to wealth. It was going to take a slow, methodical approach to building wealth.
When I buy a property, I have a lot of control and can make very informed decisions, not emotional ones.
First, I can walk on to that property at any time. It’s not going to suddenly disappear if the market crashes.
Second, it’s insured in case a catastrophe does happen.
Third, if the market sours and I experience a vacancy, I have a lot of options. I can lower the rent, offer free rent for a period of time, or offer other incentives. I’m only limited to my imagination.
With stocks, I was on the sideline, hoping someone else would make a good decision with the company I had invested in.
Now, I’m the one in control and making sure the investment is pointed in the right direction.