How to Find a Mentor for Real Estate Investing with Shawn DiMartile

Welcome. This is the Insider's Edge to Real Estate Investing with James Nelson, the principal and head of Avis & Young's Tri State investment Sales Group. In this program you'll learn game changing strategies to outperform the market. James will teach you how to source, execute and capitalize on the best real estate opportunities in New York and around the world. Now here's your host.

Welcome everyone to show number 165 of the Insider's Edge to Real Estate Investing. This is your host as always James Nelson and really appreciate your joining. You're sharing this with friends. Your comments we are definitely getting the word out on how to gain the Insider's edge to real estate investing, helping you gain the advantage to outperform the market. And pleased to report that we are now a top 3.3percent podcast globally. Didn't even know these rankings were available. They are and so that means we are certainly doing something right and that is in large part, well actually entirely in part with your support. So really appreciate it. So today have a real treat for you. We have with us Sean Demartel and I was fortunate to be connected with Sean. He reached out and he's been doing some incredible things in San Diego. I've started following him online and he puts out great content so I definitely recommend that you follow him. As always, you can find his contact and show notes@james nelson.com so Sean is going to talk to us today about how to build a track record in a community. He's based in San Diego with more than 300 rental units, a boutique hotel, several Airbnbs with a value of more than $50 million. He's also the host of the podcast which I just appeared on the Real Estate Takeoff and co founder of Takeoff Capital. Sean has an incredible story. He's a U.S. navy veteran and he worked as an air traffic control prior to investing in real estate. And during his time as an air traffic controller he found that he lacked time, freedom, often working six days a week and putting in long hours. And after getting into real estate, he liquidated his 401k to partner with his now business associate on a 32 unit apartment complex in Indiana. Recognizing the need for guidance to scale his efforts, Sean found a mentor who had been an accomplished apartment investor over two decades and they went in on a 150 unit apartment complex in 2021. With an eye for San Diego, he has recognized a limitation for investors on low cap rates and landlord tenant laws. Although how however he found and implemented a program, the Accessory Dwelling Unit Bonus program to help resolve the housing crisis. What I really love about Sean's story is how he has found an opportunity. That's what the Insider's Edge is all about. Becoming an expert, finding value to that others might not be aware of. So I know you're going to learn a tremendous amount from this episode. So we're going to have a brief word from our sponsor and we'll get right into that interview with Sean D. Martel. A Different Approach to Putting Our Clients First Avis and Young's Tri State Investment Sales Group sells multifamily office, retail, development and and specialty sales throughout the New York metro area. As experienced thought leaders in our industry, our 35 member group is available to help you make informed investment decisions by advising you on your current holdings or identifying new opportunities in the marketplace. Our one unified team is built on an industry unique platform which promotes unparalleled collaboration and teamwork. We share core values of hard work, integrity and expertise. We we put our clients first, providing tailor made strategies to achieve superior results. Please Visit us at aytristateinvestmentsales.com and follow us on Twitter LinkedIn and Instagram amesnelsonnyc to learn more. Welcome everyone. Thrilled to have with us today Sean Demartel, who is the managing partner and founder of Takeoff Capital. You've probably seen him or if not, you should Definitely check out investorshawn.com that's S H A W N Sean, thank you so much for joining us today.

Thank you so much for having me, James. I really, really appreciate, I'm looking forward to it.

Awesome. Well, first of all, I know you've got the full podcast set up there. I know we were having a couple technical difficulties. That's okay, we're rolling with it. That's a lot of what what our business is like. But you know, for, for those of you who do not know you maybe give them a little bit of an introduction about your business and also maybe tell them about your podcast as well as your your book just so they can get a sense of your story.

Absolutely. Thank you, James. So yeah, as you said, I'm sure if your viewers are actually watching this, they can kind of see some blue lights behind me and whatnot. But I've got my own little podcast studio here and anyone that's done podcasts know that there's always every once in a while you get those technical difficulties. But anyways, yeah, so me and I have one business partner at Takeoff Capital, Mike Tai. We used to be air traffic controllers together for the FAA we controlled some of the busiest airspace in the world here in Southern California. And I was working that job full time while getting into real estate investing. My first investment ever into real estate was when I liquidated my 401k to partner with some guys to buy a 32 unit apartment out of state in Indiana. Flash forward I, I got a mentor, started syndicating properties. Today we have 300 multifamily units, we have a 10 room boutique hotel, and I have several Airbnbs as well. And now we are acquiring properties here in San Diego using the city's bonus ADU program, which we we'll chat a little bit about I'm sure here shortly. But and that's also what the topic of my ebook is. So in brief, many people, I'm sure many of your listeners have heard of adus, otherwise known as accessory dwelling units. They became popularized by the state of California and other states have also implemented them. And essentially what they let you do is skirt the municipal code so that if you have a single family home or even a small multifamily home, you can add additional units to that property that look, act, feel everything just like any other rental unit. Now, San Diego is unique because San Diego has a unique problem. It's geographically constrained by the ocean to the west, Mexico the south, mountains to the east, and a military base to the north. All of the flat land has been built on. San Diego has some of the least available flat land to build in the country. So essentially the city took that ADU policy and they expounded upon it to increase density throughout the city. So there's a lot of minutiae into like what properties qualify and whatnot. But essentially we're able to buy an existing property that we can then renovate and rent out and then add 10 units, 20 units. I even know guys adding 30 units or more. So as an example, we have a property less than a half a mile from the beach that was a two bedroom, one bath house and we're adding 12 units to the property. So it'll be a 13 unit multifamily right by the beach when we're done. So that's what my ebook is about. It explains the municipal code in more detail, how to find the right properties, etc. And again, that's a free ebook on my website that they could download. So I know that's a lot to unpack, so I'll let you know.

I love it Sean, and thank you for setting the stage and I want to definitely learn more about this and also really want to understand. We talk about the why of investing and the fact that you're sharing this with the whole world. In our audience, we're really grateful, so we're going to get to that. But Sean, I got to first ask you about being an air traffic controller because if I'm not mistaken, I can't remember where I saw this or heard, but if I believe it's considered one of the most stressful jobs out there, because obviously, you know, not to make this too dramatic, life and death, but. But this is not something where you can kind of, you know, beyond for 75% of the time, take a break. When you're on, you're on. So first of all, is that really the case? And if so, what did you learn from that? What did you take from that that is maybe propelled you here in life and now your real estate business?

Yeah. So air traffic control is an extremely stressful job for many reasons. I mean, a lot of the stress obviously is derived from the fact that when you're controlling these aircra. So just for a little bit of context, I controlled all of the approaches and departures for Orange county airports. So everything from Fullerton, Los Alamitos, Long Beach, John Wayne, Santa Ana Airport and Torrance, and a wide swath of airspace. Now, when you're making those calls and air traffic control, it's just you talking to a bunch of airplanes that come in and out of your airspace. Now it's stressful because not only the sequence delays and things that can be caused from your abilities as an air traffic controller, but like you said, like when you're on, you have to be on and you're busy, you're talking constantly, you're organizing and expediting the flow of traffic and obviously keeping people safe. So it was. It's also stressful because, I mean, there's one employer, so you get hired and a lot of people wash out and don't make it through training. But even once you're there, if you quit or if you're fired, there's only one entity that controls traffic at our airports, and that's the faa. So it's not like you lose a job as an engineer, you go apply for new engineering firms. That doesn't exist in air traffic control. So it adds a layer of stress in that way, too. Now, as far as how that's helped me moving forward, I was in the Navy before that doing air traffic control. Got out, did it for the faa, and I think it definitely taught me a lot about how to turn it on and off because you have to have that ability, like if you're stressed about something, you have to have the ability to turn it off and work through the situation, clean up the situation and keep your cool. So in that way, I do think air traffic control has taught me a lot of things, but it also just taught me a lot about, you know, I had to memorize so much as an air traffic controller. And so now, like, I love memorizing even the municipal code. I made flashcards, you know, things like that. So that I, I. Because you just can't make a mistake. You have to know the rules like the back of your hand.

And how about navigating complex situations? Because I would imagine, you know, you're trying to take a lot of data and make the best decision you can at the time. And for those of you who flown into, you know, Orange county, and it's great that there's a lot of airports, but there is a lot of activity, a lot of flights coming from a lot of different directions. And so, you know, how do you take a tremendous amount of data, simplify it and make that decision in a instantaneous timeframe?

Honestly, the, it really comes down to repetition and the ability to, you have to, you're thinking a couple moves ahead and you're, you have to, there's a lot of things, you know, you have to look at your radar scope and your, make this into a three dimensional space in your head, but you also have to think about a couple moves ahead. Okay, what's going to happen when I do this, this and this and how is that going to affect the airspace around me? So you're multitasking like you wouldn't believe. And so, you know, it's a job where you're sitting down the whole time, but when you get home, you're tired because your brain has been working and you're speaking so much during your shift. So I think really what helped me the most was after a long time of working that job and being in those stressful situations, you start to get kind of used to it. I clock in for work, I go sit down at my radar scope, I get in the zone and I've been working that airspace for years. Done it, talked to so many airplanes and you just get really good at it. It's reps and I feel like you can apply that to anything. I've applied it to real estate. Like the more you're doing something, the more you're involved in it, the more you're asking questions and you're Learning. And so over time, you gain. You get better at that skill of air traffic control, and you just like you do with real estate, I mean, you're gonna make mistakes. You're not gonna be that good when you first start out, but that's. You have to accept that.

So, Sean, I don't know if you just assumed this would be your career path and sounds like after going to the Navy, this is what you did. So what prompted the change?

The change was I had my dream job as an air traffic controller. I was making great money, but it wasn't sustainable for me and it wasn't the life I wanted to live for a couple reasons. Number one, you work a lot as an air traffic controller and you work a lot under stressful conditions. I was working mandatory six day work weeks. Typically, my only days off were Tuesdays. I would usually work Friday night, go back to work Saturday morning, then Sunday morning, go work early in the morning, and then go back Sunday night and work the graveyard shift until Monday morning. And I did that every single week. So my time, I didn't have time freedom. I had financial freedom in a sense that I had a lot of money coming in, but I didn't have any of my own time. That was really the biggest thing. And then in addition to that, there's mandatory retirement at 56 years old. And I see these people retiring and they look like they're 75 sometimes because they've been under stress a lot and they've worked six day work weeks most of their lives with a really bad sleep schedule. And I started to see that, and that was scaring me. But in addition to that, like, you know, I'm working all of these hours. I'm thinking doing this until I'm 56 years old just is not. It's good money. It's not the life I want to live. And it all changed when I sat down with my good friend Anthony Espinoza, and I was telling him, like, man, I'm making good money. I want to invest. I just. I don't know what I should be doing. And he said, go listen to this podcast. And this was back in probably 2015 or 16. And you can guess the podcast, yes, it was bigger pockets. And I went down the rabbit hole after that, and I realized that there were so many people just like me and even people, you know, in a different financial position than me that were going out there and achieving this time and financial freedom that I was dreaming of. So that was the catalyst.

That's awesome. Can you. Yes, we've referred to Bigger Pockets. We've had guests who collaborate with them. But just for those of our listeners who don't know, and this is, we really focus on commercial real estate transactions. We're talking about in commercial for me means five plus apartment units, someone who wants to go out, scale a portfolio. I know Bigger Pockets, you know, could be a lot more accessible for a lot of people, how to start off house hacking, that kind of thing. But maybe tell people about the Bigger Pockets community, how you're involved with it today and how that helped build the foundation for what you're doing now.

So, you know, with Bigger Pockets, like he said, you know, I would say Bigger Pockets is definitely geared more towards beginners to intermediate investors. They obviously have really big name investors on as well that talk commercial real estate. But you know what you're going to hear when you're in that community is people just like you being successful in real estate. So the first time I ever got involved was I put on the podcast on my way driving to Yosemite. I had a long drive and I listened to podcasts like the whole time. And I'm hearing stories of a school teacher that was a PE teacher and built a portfolio of multifamily units and retired a multimillionaire. And then I hear this mother that had four or five children while working a full time job that built a multifamily portfolio and was able to quit her job. And I'm thinking, if these people can do it, I have no excuse. And that was really just a huge motivator for me. So this community, I started getting on there obviously reading blogs, communicating with other people in those channels and forums and I started to learn a lot. I started to get recommendations on books, I started to bounce ideas off of people in the forums. And I realized that there's everything that you can need for the most part in real estate is out there. You don't have to reinvent the wheel. I don't know any real estate investors that I would consider like super innovative to where they came up with this strategy themselves. Most people are replicating what others did to be successful in real estate. And so, you know, that community provided me with a lot of opportunities to learn from people that have followed the same path. And I gave a lot of my success to it.

So the fact that you now have your own show, you have your own site, you're helping others learn about real estate investing. So for you, is this kind of the pay it forward or you know, why would you. And we're going to talk about what you're doing in San Diego. And with this ad, you opportunity that exists, but you're kind of sharing with the whole world what the. The secret sauce is, so to speak. So, you know, why. Why do you do what you do?

That's a great question. There's a couple reasons. Number one, like, when it comes to the podcast, et cetera, it had a couple reasons when we first started the podcast. Number one really was we were listening to other podcasts and would have all these questions that I wanted to ask the hosted and answer it. And the idea was, well, we could have a lot of these experts on our show, ask them the questions we want to ask them. So we're essentially having like a free mentor for an hour. And in addition to that, though, like, as you know, some of it was just self education, starting to get involved in the community. But if, if you're going to be in a business like this where you want to raise millions of dollars on a consistent basis, you have to get in front of people. Not only because people invest with people they know like, and trust. So even people that knew me before knew me as an air traffic controller, they don't know me as a real estate investor. So how are they going to know that I know what the heck I'm talking about if I don't start being loud about it? So it also helps build confidence with your investors and increases your credibility. If they're hearing you talk about the strategies, if they're hearing you bring on experts that are, you're communicating about those strategies and they're hearing about your deals and how they're going. All of this stuff starts to take people from thinking Sean the air traffic controller to Sean the real estate investor. And that's really important if you do want to raise capital. So I think that, like, having some kind of a platform, doing something where people can see and you can educate the people that are going to invest with you is vital. And so that's why all of this stuff is happening now. The E book is really the same thing. You know, I want people. I'm giving away the secret sauce for sure. And even more so because this, there's only one city that does this, and the well will run dry. They're not, you know, there's only so many lots that would qualify. But I want people to see how much I've researched this, how much I know about this strategy, and I want them to feel more comfortable that, okay, I think I could trust Sean because he's out There preaching it. You know, for those that have heard of Biggerpockets, many of you that are listening to this have probably heard of people like Brandon Turner. Well, what has he been doing for years? Teaching people the strategies he's using. And the more you do that, the more trust you're going to build.

Sean, I love that answer and I really appreciate your sharing that. And I would say, first of all, as a fellow podcast host, for me, I find it incredibly interesting and I love doing, doing interviews because I learn a ton. So to your point, I ask the questions that I want to hear about and hopefully my audience, they like, you know, the questions that I'm posing as well. But it's, and that's a part of the business that I love as well, having done this 25 years is you learn something new every single day. You meet new interesting people every day. That's what makes it exciting and a lot of fun. So I love that part. I love the, the pay it forward, you know, bigger pockets, other mentors like that were so free and giving other time. So I think for you to be sharing, coming on the show today, writing the ebook, the website, I think is really admirable. So the, you know, and I think the other piece to it also is you've established this incredible niche, right? So I'm sure there's a lot of people who are going to be listening to this saying, wow, Shawn has really figured out this market. So I could either try to just go in and directly compete with Sean or he's already figured it out, so maybe I can just reach out to him. So I'm sure there's some of that as well. But I think, and hopefully what people will take away from this discussion is, you know, sure, we'll, we'll get in, into the weeds on how you do this and how you look at this. But what I'm guessing is a lot of this has to do with your expertise and really picking a specific market and a niche and really becoming the expert. And that's a lot of what I talk about in the insider's edge, regardless of what you're doing, geography, business plan, get specific. So how did you get specific? How did you figure out this was a thing and that you could go in and build a portfolio?

So essentially I'll back up and say I was never, ever interested in investing in Southern California until recently when I just discovered this. And there's a couple reasons why. Number one, you know, if I'm going to buy a value add, multif family deal Here in San Diego, I'm going to be paying a premium for it. And then it's not like other states where you can just tell a tenant like, hey, I'm not going to renew your lease because I'm going to be renovating this unit and then renting it for more money to somebody else. They have laws in place that make that very difficult. If a tenant just says I don't want to leave, then you know, there's guys paying people cash for keys, $20,000 just for this tenant to leave so they can renovate the unit. And in addition to that, you know, you're paying for a 1950s, 1960s asset. So to, to do this value add plan, there's just more risk. Well, the, that all changed when I learned about this municipal code, which is only two years old. And what I first I'll tell you a little bit about what's going on and then I'll tell you what I love about it and, and give you some context. So back to San Diego. San Diego has one of the worst housing crisis situations in America. In 2021, they released their annual report on housing and they said by 2029 they need to have 108,000 new housing permits in that time frame in order to meet their housing goals. So last or in 2021, the first year, they only approved 5,000 new housing units. So the city has to more than triple now their annual housing permits approved in order to meet their goals. With many analysts saying they don't even think it's possible, especially with the lack of buildable land. You combine that with the fact that San Diego has the largest concentration of military assets on the planet and it's only get growing with the what they call the Pacific pivot to counter the threat of China. There's more assets coming here. And it's also the third largest biotech hub. I think the stat was 40% of all jobs requiring a PhD were in biotech or biochemistry or bioengineering. So there's a lot of high paying jobs coming here. There's a low supply of housing. So that supply and demand imbalance was already something that I was paying attention to because I live here, I love the city, I see the prices going up and this. Now, now let's get back to this municipal code where like I said, if a city's in things like, you know, it has to be within a transit priority area. There's a lot of things that we look for in these lots, but I can buy a single family lot or a Lot that's on a house that's on a multifamily zone lot. Now, I can take that and I can add, like I said earlier, a number of units in that property here in San Diego that's a half a mile from the beach. We are adding 12 units to. Now a couple of things. Number one, where that property is located at is in a beach community that has zero empty lots of zero new apartments have been built there over the last three or four years. So this is the only way that you can put new product on the line in many of this city's most coveted communities. So that already was something that was really attracting me because like, obviously you know a location like you know, a half a mile to a mile from the beach, that is good dirt to own. But in addition to that, I'm putting new product on the line that people haven't seen for a while. The second and third floor units have ocean views. They have in unit washer and dryer, they have in unit air conditioning, a lot of things that these older buildings don't have. Now, the business plan itself, part of the reasons why I love it is because traditional development, you're going to buy a lot, get a loan for it, and you're going to wait several years to get your permit. Now, during that time you're making zero money, but you are spending money. So your holding costs are a huge risk and are one of the bigger risks in developing multifamily with this business model. I just bought a two bedroom, one bath house that's that like, like I said, is close to the beach. I was able to renovate the home, secure an Airbnb permit for two years, and now we're cash flowing $10,000 a month instead of bleeding money every single month. So my holding costs are completely eliminated, which is just a huge, huge bonus while I'm sitting here waiting for the permits. And then in addition to that, I get to select the tenants that I'm putting in there. I don't have to do cash for keys. I don't have to worry about inheriting bad tenants. And when it's all said and done, we can build these for about $150,000 per unit. I can sell them from anywhere from 450 to $600,000 per unit, depending on the cap rate. So I might have digressed a little too long, but I touched on a.

Lot of no, I love this. And if you don't mind, I want to get into the weeds here because, you know, San Diego is not the Only market that has a housing crisis in New York City. Our mayor says that we need 500,000 units to keep up with population growth by 2030. The real estate board says 530,000. And unfortunately we're going in the opposite direction. We had a tax abatement that made a lot of rental development possible, which has since expired. So I'm fascinated by how this program works. Now my understanding is typically the city comes in and they're looking to give some type of zoning bonus which sounds like this is usually there's a trade off. So what's the catch? Right, so are some of these units supposed to be affordable? I'm sure if they want to add a hundred thousand units, I'm sure they don't want them to all be, you know, luxury condo units, kind of quality units. I'm sure they're looking for all levels of affordability. So what are the requirements there kind of what, what are the, the metrics that, that you're thinking about?

So you're absolutely right. There is a catch in the sense that the city's going to make you do something if you do this business model. So you're the each depending on where the lot is, how big it is, et cetera. If it's a single family multifamily, you're generally given two ADUs by right. Meaning like you don't have to add any affordable units to those or anything like that. Once you get into the bonus ADUs, for every bonus ADU that you build, you have to have one deed restricted rent control unit. And they base that rent based off of the area median income. So basically whatever submarket in the city that property is located in, they'll take that area median income and then they have a calculation and a chart of how much you can rent to a tenant based off of either a 10 or a 15 year plan. So essentially they'll say, okay, the area median income here is a hundred and $5,000. Which means that this is income restricted to people making $80,000 or less. So though they will restrict who can live there based off of their income. But the thing is, is depending on where you build these, in many cases the rent they're going to restrict you to is right at market rent anyways. And then the regular rent control laws apply. Well, excuse me, those laws continue to apply moving forward where they will adjust how much you can charge in rent based off of the area median income increase each year. So in this case we have, you know, two, excuse me, two ADUs that are attached to the house and then 10 ADUs that are a separate structure behind the house. Four ADUs on the bottom are the deed restricted ones. And then there's four ADUs on the second floor that are market rate and then there's two two bedroom units on the third floor that are also market rate. So out of that whole project, four of those have to be rent restricted and deed restricted, which I understand why the city's doing it and I don't hate it because you're still able to make deals. Pencil.

And so is there zoning also? I mean you're not building 30 story towers there. I'm sure there's height caps, there's setbacks. You can't just add 10 units in any backyard, I would imagine.

Exactly. So they base it off of the base zoning in the floor area ratio. So essentially you can go to the. A website like Scout Red is one that you would use here in San Diego. You could type in an address and pull up the information. You click on the zoning and it's going to give you a floor area ratio. Now for those that don't understand what that is, that's basically a number that's used to calculate how big of a house you can have on a property or how big of a structure. So you take that number. So let's say it's 1.0 is the floor area ratio and you have a 7,000 square foot lot. That means you can have 7,000 square feet of livable space. That applies to you if you want to bulldoze the house and build a mansion. Or that applies to me if I'm going to add ADUs, it's no different. So you take that floor area ratio, like I said, 7,000. 7,000 square foot lots of. Subtract the livable square footage that already exists for the home and you have your net amount of livable square footage that you can add via adus. So yeah, you. And then the height restrictions that are attached to that base zoning apply. So on my project to buy the beach, it's got a 30 foot height limit. That means I can go three floors. And the setbacks are all the same. You know, there's some a little ways you can wiggle. So for example, you know, if we target places, or excuse me, we target properties that have alley access for a couple reasons, cheaper to build so they can get equipment back there. But it also reduces your setbacks. So there's things like that to make sure you're focusing on to kind of maximize. But generally speaking, you want to get the smallest house you can on the biggest lot you can to maximize how many units you could put on.

That's awesome. And Sean, I'm sure a lot of our listeners from all over the country are thinking about, you know, why isn't this available in my, my city? Because this certainly seems to be working. So your economic. Sean, you said that you're looking to build and be into these for 150,000 a unit and then you believe that you can sell this at 400,000 a unit. I mean, to me that sounds like no brainer territory. So is that in fact kind of the numbers when you're, you're looking at what your basis? So if you're going to go buy, you know, what is it, 10, 12 units, you're going to be all into this for, you know, a little under $2 million. That's acquisition, that's construction cost. Is that, is that what we're working off? And then are you, you know, if.

You include the acquisition of the existing house, that number would go up a bit to closer to 3 million. So it depends on where you're, you're buying and how much that initial acquisition was. But all the additional units are going to average between 150 to $200,000 per unit cost.

Conservative average down.

Yeah, and, and you know, yeah, like that's what, what I love about saying this, doing this in San Diego is that it's a low cap rate market. Always has been, always will be, huge demand for people to park their money in these San Diego assets. But if I was to go buy a 1950s asset that doesn't have air conditioning, it's run down, it's already got tenants living in it. Depending on what submarket you're buying in, the cap rate is a 3 to 3.2% across the city on a per unit basis, they're trading for anywhere from 400 to $450,000 on the low end, to 600 to $650,000 on the high end. So just depending on, you know, market conditions, when you're going to sell. Yeah, you're, you're going to make a good pop when you sell. Now the only drawback to this business plan that I would point out is that it's not really a cash flow play unless you're going to hold for a long time just because of the high cost here, the low cap rates, etc. So, you know, this isn't something where you're going to be, you know, getting 10% cash on cash returns during the hold Period. Because you got to sit around and wait for them to build the building. So I would say that's the biggest downside, whenever you're doing some kind of development play is it takes a couple of years, generally about three years before you start making money. But you can make great, great money, especially when you sell that property.

And how do you capitalize this? Do you. When you buy these properties and you said if you can Airbnb them, then you get cash flow out of the gate. But is it kind of a two step on the financing where you have an acquisition loan and then you're getting a construction loan and what kind of capital are you bringing to the table? Are you raising that? Maybe tell us a little bit about how you capitalize these deals.

Great question. So we capitalize the deals in two phases. So when it comes to the acquisition, you know, on the project I've been talking about, we got, we secured 80% seller financing with interest only payments for five years. So that made the deal a lot juicier because we were going to have to get a DSCR loan with only like 50% loan to value when we were shopping it with lenders. So, you know, that's what we did for this acquisition. As far as how we raise the money, we do raise money from investors. We syndicate these deals and we do it in two phases. So phase one, we raise money from our investors and we give these early investors a pretty high floor on their projected returns for coming in early. And that's going to cover soft costs, you know, permitting fees, civil engineering design, renovating these extreme structure, all of these things are covered with that. And obviously the down payment, that's what the first raise covers. And then the second raise the investors, since they're coming in later in the business plan and it's a shorter time span for them, they have a lower floor than the phase one investors. But the reason why we do two phases is because whenever you're doing something like this and it's going to take me two years before I can start building, I don't want to raise all the money, assuming that I know what the generally what the debt's going to be, what the markets will be like, etc. Because I could either raise too much money or not enough money. And if I raise too much money and I go to get that construction loan and they give me a higher loan to cost than I was expecting, that's going to drown out the returns a little bit for investors because they're all splitting the same. It's More people with more capital splitting the same return. So the idea behind that is have a second round to ensure that we're raising just the right amount of money to maximize our returns.

And how are you cultivating your investors? I mean, how did you do your first deal? I mean, again, you said you're putting out content. People knew you as Sean the air traffic controller. Now hopefully they know you as Sean the real estate investor. But on your first deal, they might say, you know, Sean, you know, you're a great guy and we trust you, but you've never done this before. So how do we know this is going to actually work out? And also, there's probably whenever you're dealing with the Citi program, there's a lot of people who might be a little skeptical and say, all right, well, I see there's a provision for this, but can we actually do it? Is there going to be a lot of red tape? Is this going to take forever?

Great questions. As far as cultivating our investors, I love that you asked that question because that if you're listening to this and you want to grow an investor database that is, you know, the secret sauce to that is always hard to pinpoint because you ask different people different things and they'll give you different answers. The way that I was able to do it and the most important thing without a shadow of a doubt is I got a mentor. So my first ever project, I split with some people that all we, it was a joint venture. It was a 32 unit in Indiana. That was a group of us that basically all were wanting to invest in real estate and we partnered together. Now my first capital raise was for a 150 unit deal in Greensboro, North Carolina. So how in the world was I going to convince people to invest with me? Well, we ended up getting a mentor that has 8,000 apartment units spread across most of the Southeast, has been doing this for 20 years, vertically integrated with his own property management and et cetera. So he agreed to cogp this deal with us. So not only did we have a lot of experience on our side, but he also invested a million dollars of his own capital into that deal. So, you know, if you're trying to raise capital, I think the biggest thing that's going to help you is bringing experience on the team because, you know, people want to see that somebody's, you know, obviously it's possible to raise capital without doing that. But I would attribute most of my success to, to that very fact. My mentor did two back to back syndications with me, which Helped me learn the process. I mean, I could go on for hours about everything I learned from him. But that credibility and that track record that he brought on was huge. And I still apply that to today. There's a great book called who Not How. Like, you know, it goes into discussing, you know, you have something in business you want to expand or something. Instead of thinking, how am I going to do this? You could think, you can also think along the lines of, who can help me get this done? So when we did our started coming into San Diego to focus on this bonus ADU strategy, we've got multifamily experience now. We've exited deals, we've operated for years. But I've never done that level of construction. So the way I filled that gap was I met a guy, a local guy at local real estate meetup. He's a project manager for commercial real estate construction and he's done over $100 million in commercial real estate construction. And the coolest part is he literally built the building I'm living in right now, which is an A class building in literally San Diego. So he was, in addition to that, he was doing these projects on his own. He has three projects running simultaneously with bonus ADU stuff. So I said, hey man, we want to do business with you. You come in code GP with us, you bring the experience to make sure that the contractors and the construction phase of this goes without a hitch. We'll bring the rest of the multifamily experience and the capital, and we formed a partnership that way. So I think that whenever you're getting into a new business model and you're going to be raising money, find people that will help you fill the gaps that you don't have, whether it's track record, whether it's experience or know how with construction, it that is really the one thing that will make it so much easier, even if you have to give up some of the money.

Sean, I love that answer. And I got to check out that book, who not how, because it's so true. And it's really how I kick off the book Insider's Edge to Real estate Investing. This is a business about the people and working with the right people. And so, and I think the number one thing that holds people back from investing, the fear, lack of capital. And if you can find a great partner where you can leverage their track record, learn from them and do a couple deals just like you did, then you are building the foundation for the future. But the, the, I forget if it's the 64,000, 60, whatever denomination of question it is, it's the big one is how do you find that mentor, right? And then how did you build that trust? Because you're making the leap there. And sure they've got a track record, but you, you're kind of the neophyte bringing this to the table. How did you know that that was going to all play out?

So the way I, I'll, I'll answer this question in two parts. One, how I got my mentor and two, how I would recommend people find one. Number one is we had already bought that 32 unit deal. We were doing well, we started our podcast, put started, you know, doing a lot, our own real estate meetup and things. So then we, you know, I had heard my mentor on another podcast and said, hey, you know, we loved what you said on that podcast. Would you come be a guest on ours? And we had a great conversation after the podcast. We kept just chatting and he was really liking what we were doing. I think that he, you know, he hasn't told me this, but I just have a feeling he really liked the drive and ambition we had and how hungry we were. And we told him how we were looking for mentors, but all of these programs where there's a lot of students in it and we weren't getting one on one with the mentor wasn't attractive to us personally. And he said, well, you know what, because it's him and his brother, he said, I'm gonna go talk to my brother and see if maybe we'd be interested in being your guys mentor. And long story short, they liked what we're doing and they said, yeah, you know what, we'll be your guys mentor. And they don't have other mentees. They've had some people before in the past, but they don't have like an official program. It was just one on one. And I loved that. And so that's, I would say we were very fortunate. But part of the reason we got them is because we had that podcast. You have to be doing something so that you can either attract people or find them. So if you're listening to this and you're thinking, okay, I don't have a podcast, Sean, like, how am I going to find somebody like that? In my opinion, you can find people like this at local real estate meetups. There's tons of them that are doing all kinds of different real estate niches. Find somebody that's absolutely crushing it and continue to be around them when they're at these meetups, events, whatever. It is when you get a better, have a better rapport with them. If it were me, I would say, hey, so and so. I love what you're doing and I really, really want to get into this business replicating your success. If there's anything I can do within your business to help you, I will do it absolutely free. I'll give you my time and I'll bust ass to get it done if you just show me how to do it. And I think a lot of people out there would say, yeah, I don't mind. They start showing you. If you start kicking butt and you're out there, you know, adding value to them, it's very likely they'll show you more things within their business. And it's not unlikely that they'll help you get your first deals done, especially if they like you and they like the work you're doing. So, you know, there's also programs out there where you can just fork out a bunch of money for somebody to be your mentor. But if you don't have that kind of money, which I'm sure a lot of listeners don't, I'm telling you, like an exchange of value is the best way to do it, which I don't want you to do, is don't say, can I take you out to coffee and pick your brain. They get that too many times, so don't do that.

Sean, I'm smiling because you're answering my questions in advance. One thing, when I give career advice and talk about finding that right mentor, I always talk about being a two way street, right? Where you don't want to just be the person who shows up and sponges off that person. Right. And I absolutely love the way you frame this and the approach of how can I add value? What can I do for you? I will work for free. I'm willing to put in time. Right. You're basically, I mean, could not. You're approaching this from the opposite end of the spectrum as opposed to, hey, can you take time out of your day? Can we grab a cup of coffee? And I want you to answer 20 of my questions. Right? And so you know your approach. I really hope that if you're listening to this, you are taking notes and if you take one thing from this podcast, you know, I would say that that is incredible advice on how to get rolling because that, that is, you know, finding that right mentor, that right partner is so essential. But the approach is really how, how you get there, Sean. So why don't you, with only a couple minutes left, I Would love for you to provide advice. You know, if there's anything else besides finding that, that mentor, that work ethic for someone's listening right now, they're aspiring investor, they want to get in. Maybe they're, they're working that full right now. They're afraid to make the leap. It's scary. What would you say to that person?

What I'm going to say to that person is twofold. The first thing that come to mind is, number one, I promise you, if you're, if you're worried about making mistakes, you're going to make them. You just suck it up. Like it. I don't know anybody that's got into this business and didn't get started and not make any mistakes. You have to get over that fear. So I would say just understand that that's a part of the process. The number two thing that I would recommend is getting in front of as many people as freaking possible regarding real estate. Go to as many real estate meetups as you can because you'll learn they're having a beer with people, hanging out what they're doing, etc. Become friends and just surround yourself with real estate in every way you possibly can. And then it is start as early as you can in providing value to other people. When it comes to raising money, if you're thinking to yourself, I don't have money, we already talked about how you can potentially get some help, how you can maybe find a mentor, etc. But getting people to invest with you is a numbers game. So take podcasting, for example. Let's say you've done your first deal. There's plenty of podcasts out there that want to hear from people that just did their first deal and are crushing it. Let's just assume that every. You went and tried to be on 100 different podcasts, and on each podcast, a thousand people heard you speak. All right, that would be a low number, by the way. That means 100,000 people just heard you speak for free. So in my opinion, there's a ton of ways to get your name out there for free, and there's a ton of free information out there. So become a study bug, lock yourself away, study like crazy, and do everything you can to surround yourself with real estate.

Incredible advice. So, Sean, tell us where, where do you go next? What, what, what's the vision? What's the five year plan? If you're a goals kind of guy, how do you set those goals? Tell us a little bit about what the future holds.

I am a goals guy. And, you know, I have a business coach. I have a lot of coaches, by the way. I have coaches for, like, all sorts of different things in my business, including a mentor. And I have a business coach that I have my next call, I think, at the end of the week or next week, and we go over, you know, monthly goals, quarterly goals, annual 5 year, 10 year. Looking ahead to 10 years. I want to have a billion dollars in assets under management. That's just a number we threw on the wall to have a target. But my number one goal, and almost get emotional thinking about it because I grew up very poor, is I want to take care of my family. I want my parents, I want to pay off their house so they could retire. And I want to, you know, help out my brother and my. My sister more. My family just grew up poor in Kentucky their whole life. And it's just a goal of mine to make sure that they never have to worry about money again.

Wow, that is amazing. Sean, this is so incredible. This has been an incredible conversation and so appreciate your sharing. So why don't you tell our audience how to find you? What are the resources? I know you've got the ebook, the website, but how do they engage with you? How can you be helpful to the audience here beyond what you've already so freely given?

Thank you so much, James, man, you're an awesome host, by the way. You've given me so many opportunities. I appreciate it. The number one way I'd like you guys to stay in touch with me if you're listening to this is to follow me on Instagram. I'm putting a lot of effort into every single day showing you guys what I'm doing and how I do it. And you can find me. I'm sure maybe you guys will have my name in the. In the actual episode, in the show notes, but it's my first name, underscore last name. So at Sean Underscore Demartell. And you can also go to investorshawn.com and you can find my Instagram there. You can find my blogs that I write every week and things like that. So really easy to remember. Just remember that Sean spelled S H A W N and you'll find me.

That's awesome. Sean. Thank you so much for joining us today. This has been an incredible conversation and I have no doubt that you're going to have tremendous success and I'm rooting for you. We're going to, you know, maybe we'll put this in the calendar 10 years from now. Billion dollars under management I love that. I love it.

I'm on my way. It's a long way to go, but I'm climbing one day at a time.

That's awesome, Sean. Thank you again. Thank you everyone who has joined. As always, you can go to james nelson.com that's where you can find the show notes. You can find out how to connect with Sean. There's also a lot of incredible content on there. If you haven't checked out the book, you could of course order that. Check out Sean's ebook as well on investors Sean.com so until next week, this is James Nelson. Really appreciate your joining. All the best.

Thank you for listening to the Insider's Edge to Real Estate Investing. We appreciate your subscribing and sharing with your friends. If you haven't already, please connect with James at James Nelson NYC on LinkedIn, Instagram and Twitter. Please also visit James Nelson.com where you can find the show notes and other episodes along with an exclusive video series and other helpful resources so you can gain the Insider's edge to real estate investing. Until next week.