Aug 30, 2022
In today's episode of How To Scale Commercial Real Estate Podcasts, we are joined by Shawn Dimartile
Shawn is a founding member of Pac 3 Capital, He
directs and oversees capital improvement projects and is
responsible for identifying, analyzing, and underwriting all
acquisitions. Let’s hear more about Shawn’s story of how they made
40 Million In assets under management and how they are currently
moving into boutique hotels and properties.
Highlights:
[00:00 - 05:32] Opening Segment
- Shawn is a former traffic controller for the FAA
- He met his partners that were all interested in real estate and they jump right in liquidating their 401k taking their saved money to a 32-unit apartment complex
- Walking away from a 6 figure income W2 job is monumental for Shawn.
- Shawn adds that being an FAA while building a real estate portfolio is tough.
[05:33 - 11:14] How to Profit from the Boom in Boutique Hotels
- Investors can benefit from buying boutique hotels, which are becoming increasingly difficult to find.
- There is always a risk when investing in these types of properties, but with the right strategies, it can be a profitable venture.
- One way to mitigate risk is to list the hotel on Airbnb or another similar platform.
[11:14 - 16:31] How to Underwrite a Boutique Hotel
- Buying a boutique hotel can be more complicated than buying a multi-family property, as data collection and research are required to make accurate projections.
- Small-time operators typically have bad financials, and it can be difficult to find comparable properties.
- Returns for investors can be high, depending on the property's renovation potential and return profile.
[17:39 - 19:21] Closing Segment
- Reach out to Shawn Dimartile
-
- See links below
- Final words
Tweetable Quote
“Going into a boutique hotel space is always gonna be like, it's a little bit different than multi-family because when business is booming, it's booming and it fluctuates for example COVID really hurt the hotel industry more than they affect multifamily” -Shawn Dimartile
You can mitigate a lot of that risk and you can just increase your income by putting your boutique hotel and listing it on those kinds of platforms That's a great way to mitigate that risk because even in the economic downturns, people are going to Airbnb and trying to book those smaller units building..” -Shawn Dimartile
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Connect with Shawn Dimartile by visiting www.pac3capital.com/
or email him at shawnpac3capital.com
Connect with me:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
Like, subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, or whatever platform you listen on. Thank you for tuning in!
Email me → sam@brickeninvestmentgroup.com
Want to read the full show notes of the episode? Check it out below:
[00:00:00] Shawn Dimartile: the general business plan is to go and do our value. Add right away, take the property offline or half of it offline at a time, go in, completely renovate it inside and out. Add amenities, like some hot tubs, maybe some cool fire pit areas.
[00:00:13] Shawn Dimartile: And then after we have 12 full months of financials. So, with renovation, I'll probably take about 17 months to get a full 12 month PNL to show a bank and then refinance and pull all of our capital back return all the capitals.
[00:00:25] Shawn Dimartile: And then sell in year three or five, and our investors are, can see a 2.5 X to three X equity, multiple.
[00:00:32] Intro: Welcome to the how to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.
[00:00:45] Sam Wilson: Shawn Dimartile and his partners are multifamily, syndicators, boutique, hotel operators, and short term rental investors. He and his partners have over 52 million in assets, under management. And they're also hosts of the multifamily takeoff podcast and host their own real estate.
[00:00:58] Sam Wilson: Meet up in San Diego. Sean, welcome to the
[00:01:01] Shawn Dimartile: show. Thank you so much for having me on Sam. I'm
[00:01:04] Sam Wilson: stoked. Hey man, pleasure's mine. There are three questions. I ask every guest who comes from the show in 90 seconds or less. Where'd you start? Where are you now? How'd
[00:01:11] Shawn Dimartile: you get there? All right. In 90 seconds or less where I started as a, as an air traffic controller for the FAA.
[00:01:17] Shawn Dimartile: That was my w two job before I quit in March. I met my two partners air traffic control. We were all interested in real estate investing. And we jumped right in by liquidating our 401ks. Taking our saved money and buying a 32 unit apartment complex. Our, we have our own, we start our own podcast as well.
[00:01:33] Shawn Dimartile: We call it the multi-family takeoff and that's just kind of a play on word since we're all our traffic controllers, right. Fast forward. And. We got some mentors and we started growing over the past year, especially exponentially did two big syndications last year. Right now we're sitting at 300 multi-family units.
[00:01:50] Shawn Dimartile: We have our own portfolios of numerous Airbnbs, single family, and we've started purchasing boutique hotels. We close on the first one on Monday, man.
[00:01:59] Sam Wilson: That's a lot of moving pieces. I love that. And so it was just March here of 2022. When you waved goodbye to being an air traffic controller. That's
[00:02:07] Shawn Dimartile: right.
[00:02:08] Shawn Dimartile: I think it's a scary thing for anybody to do. No matter how many assets you have to quit that guaranteed income w two. And it was a really good job, high six figure income. Right. So, to walk away from that was definitely monumental, but it's definitely allowed me to focus on this real estate, more raising capital and putting all my energy into.
[00:02:26] Shawn Dimartile: Yeah.
[00:02:26] Sam Wilson: I mean, for people that don't know air traffic controllers, I mean, that's that, like you said, [00:02:30] it's a very nice paying job. I mean, those are, oh yeah. Those are hard things to to walk away from where'd you work
[00:02:35] Shawn Dimartile: out of. So I worked out of a, there's a facility here in San Diego and it's a radar only facility called SoCal TRACON and I control the approaches and departures for long beach airport, Fullerton, Los salamis, and Torrance.
[00:02:48] Shawn Dimartile: And I did that for six years.
[00:02:50] Sam Wilson: Wow. Wow. That's a, yeah, that's a, in some of the busiest airspace in the world. Exactly. there you are coordinating all those flights, man. I bet your stress level has gone down just slightly.
[00:03:02] Shawn Dimartile: Absolutely. Absolutely. And you're working crazy hours in that job. Like all shifts. I would work morning, night and graveyard shift in a five day span.
[00:03:11] Sam Wilson: Ooh, wow. Yeah. Wow. Yeah. That's yeah, that's that? That's awesome, man. Good for you. And you're stuck in a radar facility with probably no outside windows or anything else for that.
[00:03:22] Shawn Dimartile: Correct. It's a dark area. It's cold in there and you're working crazy hours, man. So, yeah.
[00:03:27] Shawn Dimartile: And trying to build a real estate portfolio while you're doing that is tough. Right,
[00:03:32] Sam Wilson: right. But you've done it. I mean, that's the thing is, as you guys have done it, tell me when, I guess, since this is so fresh for you, when did you know that, Hey, I'm onto something. I can , not only onto something, but I can now replace my income and, or at least I have enough momentum to know that what we're doing is gonna be worth the investment.
[00:03:50] Shawn Dimartile: It was a combination of getting the multifamily, syndications, the big ones closing on those last year. Which increased my net worth substantially enough to where I know that over the next couple years, as those refinance and sell, I'll have a lot of income coming in that I can use. But the biggest thing was building the cash flow.
[00:04:08] Shawn Dimartile: I needed to sustain myself. So I basically built enough cash flow through my short term rentals and everything to where I was meeting, what my take home was from the w two job. And that was the point where I realized, okay, now I can step away. This will sustain me. I can count on it. And then I'm just gonna go really hard on the real estate.
[00:04:28] Shawn Dimartile: So it was really, once I knew that my long term strategy was gonna be, was gonna be bringing in income over the next three or five years, and then my cash flow could sustain me over that period.
[00:04:39] Sam Wilson: Right. That makes a lot of sense. So you close two big multifamily syndications. You've got some short term rental.
[00:04:45] Sam Wilson: And then you said, Hey, wait, there's something to the boutique hotel space, walk us
[00:04:51] Shawn Dimartile: through that story. So it started with the fact that multi-family is so competitive right now. And it's so difficult to find deals. I mean, you know [00:05:00] how it goes, underwriting 100, 200 deals, and then a couple of those might make sense to make offers on, to meet your investor expectations.
[00:05:07] Shawn Dimartile: You might make some offers, but then they're hyper competitive. So it's tough. To find the deals right now, very tough. And you have to put in a lot of time and energy and resources into networking with brokers and underwriting, like a, having someone underwriting for you full time, whatever it is.
[00:05:21] Shawn Dimartile: So as we kept looking for deals, underwriting months going by and how difficult it was, we were realizing what our short term rentals, just how insane the cash flow was on like, Airbnb properties, et cetera. And we had heard of other people taking down these boutique hotels and what we liked about.
[00:05:38] Shawn Dimartile: Is that we can get a hotel, let's say, for example, this 10 unit that we're getting on the California coast of Northern California, we close next Monday. We can, you can find a lot of these boutique hotels that are operated by, family operated or mom and pop operated, just like a lot of the value add multifamily with a ton of value, add a ton of inefficiencies, just all kinds of leverage.
[00:05:59] Shawn Dimartile: You could pull to increase the NOI. And you could find those with relative ease. Now there's not as many as these of these boutique hotels as multifamily, but you could find some deals right off a loop net. That makes sense where you're buying at a higher cap rate. Like a 12 cap, for example, you can go in as cash flowing day one, and you can drastically increase the cash flow.
[00:06:20] Shawn Dimartile: So we're kind of. Combining what we've learned in short term rentals and Airbnbs and whatnot, and what we've learned in multi-family. And we're kind of combining the two, and now we get the benefit of all that value add on those short-term rentals and using the commercial form valuation and cap rates.
[00:06:37] Shawn Dimartile: Why? And so there, we just see a ton of opportunity here and we've pivoted because we're seeing that like, okay, we can put. All this time and energy into these assets right now, where there's just loads of them with virtually no competition. And we can accomplish the same thing for our investors as we are with our multi-family investments, but with higher cash flow.
[00:06:57] Shawn Dimartile: And so we're basically just kind of evolving with where the market is right now and going, where we see opportunity. And even more reason why is because so many cities and municipalities are either banning it, a short term rentals outright on single family homes, or they are restricting them and capping how many can be and making it a lot more difficult.
[00:07:17] Shawn Dimartile: And you can find these boutique hotels and markets like that and target those. And reduce the amount of competition on the short term rentals,
[00:07:27] Sam Wilson: right? Yeah. That, that, that was gonna be the the [00:07:30] question is because if it's already a hotel it's already a short term rental. The likelihood that there's retroactive, all that stuff gets grandfathered in or is already zoned for that.
[00:07:43] Sam Wilson: So
[00:07:43] Shawn Dimartile: exactly. If it's zoned for it, that's the big thing, because if it's zoned as a bed and breakfast or a hotel commercial, then those rules don't apply to you. Most of the time, these regulations are just targeting single family homes. They're not targeting for example, Airbnb. The regulation will read that a single family home, these are the restrictions if it wants to be a short term rental, so you'd completely avoid the regulations.
[00:08:05] Sam Wilson: Right, right. And that's the beauty of it is you can go into, and we've mentioned this several times on this show, which I'm not a favor of intervention or, the political risks that go along with investing in certain areas or just can be completely frustrating, but yet there's, it always creates some form of market distortion.
[00:08:23] Sam Wilson: I think and you have to be, you can get mad about it or you can find a way to exploit it and I'm gonna use that word, exploit it and, or use that market distortion
[00:08:31] Sam Wilson: We go there and there's all these there's taxes or there's this, or there's that. But I think it also creates market distortions. If you're prepared to exploit those market distortions, use an investor can benefit from those same political kind of risks that whatever are in that area.
[00:08:45] Sam Wilson: So in this case, it sounds like the ability to buy a boutique hotel is really advantageous. If you're in a climate where it's like, oh, Hey, short term runners are really getting clamped down on. Right. Does that sound about right?
[00:08:57] Shawn Dimartile: That sounds, that is exactly right. I couldn't have said it better myself.
[00:09:00] Shawn Dimartile: I mean, It, like you said, like in San Diego, for example, they're gonna severely restrict the number of Airbnbs or short term rentals, single family in the city. They're gonna cap it at 1% of the housing supply. There's all these other rules and San Diego is just an insane market for short term rentals.
[00:09:15] Shawn Dimartile: I mean, as an example, I have a duplex that grosses over $220,000 a year, one side is a two bedroom, the other side's a three bed and a city like this, where there's gonna be far less of those houses available for people to rent. You could take advantage of that if you can find a boutique hotel. That makes sense.
[00:09:34] Shawn Dimartile: Right? So you're just, you're evolving with the market. You're taken what the defense has given. And and making adjustments,
[00:09:41] Sam Wilson: right? Yeah, absolutely. What are the risks you see in moving into the boutique hotel
[00:09:47] Shawn Dimartile: space? So I think that the risk in, going into a boutique hotel space is always gonna be like, it's a little bit different than multi-family because when business is booming, it's booming [00:10:00] and, they just, it fluctuates more.
[00:10:01] Shawn Dimartile: Right. So there could be like, for example COVID really hurt the hotel industry. It hurt them bad. And then that was just an unforeseen black Swan event and things like those will affect. Those boutique hotels more than they would affect multifamily. Cuz then multifamily like yeah, people could maybe not afford to pay rent anymore, but they are on a lease and they owe you that money.
[00:10:22] Shawn Dimartile: Whereas with short term rentals, it is a little bit different. Now you can try and mitigate that risk in a lot of ways. And one of the things that we notice like Airbnb itself, that platform That they have more market share on short term rentals than all the major hotel companies. And these boutique hotels, you can list them on Airbnb.
[00:10:38] Shawn Dimartile: That's where people are increasingly looking to book. So, I see that you can mitigate a lot of that risk and you can just increase your income by putting your boutique hotel and listing it on those kinds of platforms. That's a great way to mitigate that risk because even in the economic downturns, people are going to Airbnb and trying to book those smaller units building.
[00:10:58] Sam Wilson: Have you seen any decline in demand on the short term rental
[00:11:03] Shawn Dimartile: side? There was a decline in demand last year, a little bit, there was a dip this year there's been a huge increase even with the hotels they've bounced back massively since this time, last year. And that's, it was COVID there was a lot of restrictions and that's gonna hurt everybody whenever you can't.
[00:11:20] Shawn Dimartile: Go out to dinner in a given city where like, if your boutique hotel is in little Italy, but you can't go to any of the restaurants it's not gonna do as well.
[00:11:27] Sam Wilson: Right. Absolutely. Talk to me about the underwriting of those. you're looking at a hotel, you're looking at buying it. It's been run, I'm assuming by some mom and pop or, similar operator.
[00:11:38] Sam Wilson: How do you underwrite that? How do you make projections? What are some things that, that you feel like our listeners should know if they're looking at this type of investment?
[00:11:48] Shawn Dimartile: So it's go, it's gonna be a lot more complicated than in some ways than underwriting a multi-family property. The data can be a lot harder to get.
[00:11:56] Shawn Dimartile: So, number one, if you're buying these from these small time operators, they're typically gonna have really bad financials. I had one send me a word doc with just like two paragraphs and they were missing the vast majority of expenses and stuff that you're just gonna have to expect that, that you're gonna get garbage.
[00:12:11] Shawn Dimartile: And you're gonna have to work around that. You're gonna have to either find somebody that's done this before and use some of their income and expense numbers to look at. We will use co-star reports, run reports on similar nearby properties. We like to look at air DNA data. Which is a short term rental data business.
[00:12:29] Shawn Dimartile: We'll combine [00:12:30] that with the co-star data because you can look at short term rentals on air DNA that are a shared room and fine data on nearby boutique hotels that way. And what kind of revenue they're bringing in. So you gotta use a lot of different sources on the 10 unit we're buying. We even went to the nearby properties and just straight up, asked the manager on site, Hey we're buying this one.
[00:12:50] Shawn Dimartile: We wanna ask you a couple questions. And they, a couple of them literally opened up their books and showed us everything. We wanted to know what their revenue was, all that kind of stuff. So I think a combination of those three strategies, you can collect enough data to help you find average nightly rates, occupancy, and things like that, to see what your baseline is.
[00:13:09] Shawn Dimartile: And then also what you think you can get with the renovations and. Better projections, but it takes a lot of digging because. There's so many factors with short term rentals,
[00:13:18] Sam Wilson: right? Yeah. And that's it. And I think your key point there's, it takes a lot of digging. It doesn't sound like there's one, 1 cent.
[00:13:25] Sam Wilson: Not that there is one central source for anything, but it sounds like this one takes a lot more just kind of craft and nuance to it than just like, Hey, we're gonna underwrite and look at the five, properties around. It's like, okay, we're gonna have to build our own data table
[00:13:36] Shawn Dimartile: here.
[00:13:37] Shawn Dimartile: Yeah, exactly. And like with like co-star and multi-family, you could pull just about any bit of information that you want on comps. Right. But if you're looking at boutique hotels, a lot of those boutique hotels aren't reporting their income and information to co-stars. So like that makes it a lot more difficult.
[00:13:53] Shawn Dimartile: And that's why you have to do a lot more boots on the ground and investigative work. You know what I mean? Why do you think these
[00:13:59] Sam Wilson: sellers are selling.
[00:14:02] Shawn Dimartile: A lot of, so the two sellers that we've, so the one we're closing on next week and another one we got an offer in both sellers are similar. They've, they're older in age and they wanna retire.
[00:14:10] Shawn Dimartile: They've owned these properties for just a really long time and they're ready to dump them. We've got an offering on a property with the lady wants, she's owned it and live next to it, this seven unit bed and breakfast for forever, and she's just ready to retire and doesn't wanna deal with it anymore.
[00:14:26] Shawn Dimartile: And so we run into a lot of that. And that's really what we target, to be honest with you. I'm, we're interested in the value add properties where we don't think they're running it right. And they're ready to get rid.
[00:14:36] Sam Wilson: Right, right. Fantastic. Talk to me about the return profile. I know you had mentioned that give a duplex there in San Diego, that's just, off the charts, revenue on the grocery revenue side of things, how does that differ when you start getting into the boutique hotel space?
[00:14:52] Shawn Dimartile: So when you get into the boutique style hotel space, you're definitely looking at smaller nightly rates, lower nightly rates, simply because it's not a standalone house and [00:15:00] it's a smaller room and whatnot, right. But, essentially the returns our investors are seeing, and what we're projecting, we're able to, the general business plan is to go and do our value. Add right away, take the property offline or half of it offline at a time, go in, completely renovate it inside and out. Add amenities, like some hot tubs, maybe some cool fire pit areas.
[00:15:22] Shawn Dimartile: And then after we have 12 full months of financials. So, with renovation, I'll probably take about 17 months to get a full 12 month PNL to show a bank and then refinance and pull all of our capital back return all the capitals. And in some cases, when we're underwriting all the cap investors capital plus a little more on top.
[00:15:39] Shawn Dimartile: And then sell in year three or five, and our investors are, can see a 2.5 X to three X equity, multiple. So really robust returns, basically what people were seeing in multifamily five to 10 years ago. Right,
[00:15:52] Sam Wilson: right. Yeah. Absolutely. Tell me about running these. I mean, other than, platform platforms like Airbnb, what does the day to day operations look like for you guys?
[00:16:03] Sam Wilson: How are you managing that
[00:16:04] Shawn Dimartile: side of the business? So it's a multi-pronged approach. What we do is we convert these into the main thing we do is convert them into a self check in operation, just like with an Airbnb property. Okay. And the reason is because we can reduce payroll because we don't need a manager on site to simply hand people keys.
[00:16:23] Shawn Dimartile: Or answer questions or whatever. So we can reduce that payroll drastically. And oftentimes that opens up an Inkeeper room or an office that we can also make a unit. So we put the keypad locks on every single door. We will put it on booking.com have its own private website listed on Airbnb and VRBO O and across all those platforms the guest will get self-checking instructions.
[00:16:44] Shawn Dimartile: We have 24 7 guest communication via virtual assistant and some full-time employees. So they'll be able to answer all the guest questions via phone call, direct message, whatever, if they have any trouble getting in, we also have. Right next to the key pad lock. We put a spare key lock just in case something like that happens.
[00:17:03] Shawn Dimartile: And so the day to day operation is made much easier. That way it can all be done remotely. And then we have full-time cleaners that can handle certain tasks with this. But if there's, a maintenance request that needs to be made our 24 7 staff will be able to get that message, call a handyman call a plumber, whatever needs to be done.
[00:17:21] Shawn Dimartile: So all of the management is done remotely and it's a lot more efficient that way. Yeah,
[00:17:27] Sam Wilson: absolutely. Absolutely. Yeah. So you [00:17:30] and you, and then you guys of course are the backstop to that management. So there's not a third party management or anybody else coming in, that's helping you run these,
[00:17:36] Shawn Dimartile: right? We do have a third party management, but it's owned by my partner, rich, my partner, rich summers has his own management company for short term rentals.
[00:17:43] Shawn Dimartile: And then we use his management company, but we're able to streamline pretty much everything. I mean, we even give our cleaners An Amazon account and multiple accounts where they can order supplies as they're going low. So that's all automatic and we don't have to do it ourselves. So automating a lot of the operations increases efficiencies helps us have more revenue and decreases the expenses.
[00:18:05] Sam Wilson: Absolutely. What is a cash on cash? Like on average, I know you probably can't talk, deal specifics, but for a limited partner coming into a deal, what do you guys target for an acceptable cash on cash return to your investors? Because these are heavy income producers. And so I'm just curious what that looks like.
[00:18:21] Shawn Dimartile: Absolutely 15 to 20% cash on cash plus. And as the years go on and after we've repositioned it, that could increase on some of these deals. So really nice cash flow, in multi-family. It's kind of the opposite. Like you might get, like, if you're getting six to 10% in cash on cash, you're doing pretty dang good.
[00:18:38] Shawn Dimartile: And then, obviously your investors, they make their money. When you sell or refinance, they'll get a big pop when you sell. And then their average annual return IRR will look really great. And with these boutique hotels, it's a, it's kind of in the middle because you're gonna get really nice cash flow and still get a good check when we sell.
[00:18:55] Shawn Dimartile: Right. No,
[00:18:55] Sam Wilson: that's absolutely cool. I love the ability that you guys have found to pivot and to pivot quickly, I mean, you started off, I think you said with two big multi-family syndications, you had some short term rentals and he said, wait, there's an opportunity here in the boutique hotel space.
[00:19:11] Sam Wilson: And that's that's really cool. And I love the kind of thought process behind it. How you guys have done your underwriting. How you've gone out to the street level literally. Yeah. To find out and make your own kind of market comps, if you will, for what these assets can produce.
[00:19:24] Sam Wilson: So that's that's absolutely cool, Sean. Thanks for coming on the show today. I certainly appreciate it. If our listeners wanna get in touch with you and learn more about you, what
[00:19:31] Shawn Dimartile: is the best way to do that? You can go to pack three capital.com. That's P a C the number three C a P I T a l.com. And you can click on the, contact us button and fill that out, and then I'll reach out to you within 24 hours.
[00:19:47] Shawn Dimartile: And you can also just email me directly, Sean, at pack three capital.com SSHA w n@pacthreecapital.com. Awesome.
[00:19:53] Sam Wilson: Thank you again for your time today. Chanon certainly appreciate it.
[00:19:56] Shawn Dimartile: Absolutely. Thanks for having me.
[00:19:57] Outro: Hey, thanks for listening to the how to scale [00:20:00] commercial real estate podcast. If you can do me a favor and subscribe and leave us a review on apple podcast, Spotify, Google podcast, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening.