Streamlining Real Estate Development Process to Maximize Returns with Shannon Robnett

Hey, it's Mark Podolski, the land geek with your favorite niche real estate website, thelang.com and on this week's Art of Passive Income podcast, I've got a big deal. Shannon Robnet. If you're not familiar with Shannon, he has 27 years of experience leading. He's been a leading real estate developer and syndicator in Boise, Idaho. But it goes deeper than that. In fact, with five generations of real estate professionals, it is truly in Shannon's blood. He specializes in the acquisition of development land and entitling it, which I can't wait to hear more about. Once ready for construction, he involves his syndication partners in the actual real estate. So he's got three subsidiaries. He's got Vertical Equity, Phoenix Commercial Construction, and EMS Property Management. This allows Shannon to streamline the development process, maximizing returns for their investors. Shannon, welcome.

Hey, thank you very much. Appreciate you having me on.

Yeah, yeah. So let's just rewind the tape 27 years now. How did you get into to real estate development and syndications?

Well, you know, Mark, I tried to go to college, right? I didn't want to be in the family business. My parents, you know, they talked about real estate all the time at the dinner table. It's all I ever heard about. If you weren't gone Saturday morning at the crack of dawn, you were became the sod layer or the scrapper or whatever was needed on the job site. So we always tried to disappear. But in that, I learned the business through osmosis or, you know, the beatings that came if you didn't do it. Right, right. But. But I wanted to go to college. I wanted to do something different. I didn't want to be involved in real estate. And I'm sitting there working at a coffee shop, trying to make my insurance payment, and my brother's building single family homes. And back then, we actually built them. You could build about three a year with a crew of you and two. And at the end of the year, he'd made about 45 grand and I'd made about 4,500. Well, back in 93, that was a lot of money, right? 45,000 was a lot of money. And so I quickly ditched college even though my, my professors didn't even know I was showing up in the first place. And, and I pursued the family business. And I told my dad, I said, you know, I want to build houses. And he said, great, let's go grab the backhoe. I said, what do we need the backhoe for? He says, well, you Got to know how to dig the hole. Because if the other guy does it wrong, you need to know what right looks like, and you need to know what it takes to fix it. So we did that. And, you know, we. I had a crew of two framers that worked with me. We framed the house while everybody was doing the mechanical and electrical. I went and built all the cabinets, painted the house inside and out, hung all the doors, and you really, truly, at that point, built a house. And I did my three and realized that I didn't like homeowners and went into the commercial business. But my very first deal, my very first real point of making any money was I was working on a job site, and the crane operator was sitting there crying the blues about not having land for his cranes. And he'd love to be in this industrial area. We were building in with an old house or something he could use as his office. And I happened to get to know the elderly lady next door, and she was looking to sell and get out of the industrial area because she hated guys with their big cranes and all that kind of stuff. And so I actually put her property under contract with my mark. To be honest, it wasn't my last $500, because when you only have $1 500, it's not your last, it's your only. And I put it under contract. And I was able to actually do a deal there where I sold him the ground improved and did an escrow for the improvements and all of that. And I was able to make more money there than my brother did that first year. And I realized that there was a lot of money to be made in my understanding of what land could become. And so I began. As I built my. My construction company, I began to be known as the guy that did the design builds. You would come to me and you'd say, hey, I need a 50,000 square foot office building. Where do I buy land? Where do I get this? And so I became very involved from the very beginning with how land got acquired, how it got rezoned, how it got entitled, where you built what you built what you were looking for. And really kind of became a little bit of an expert in that area, just through all of the problems I was solving for other people. And then in 2001, I began to solve those problems for myself in building out an industrial park and then some industrial buildings and began my investment portfolio that really began to produce the cash flow.

I love it. I love it. Let's dive a little deeper into land entitlement. First of all, what does that even mean? Because we're land guys, but we do it very differently.

Well, land entitlement, basically, it's a medieval word for pain. Right. No, land entitlement is, I mean, you go to the edge of town or you go find a piece that's somewhere and the city has a plan for it. And the city says, hey, we would like it to be one of five things. Or you know, this is our comp plan. And you can find that on most city websites. So you can understand, hey, I'm looking at, you know, 1, 2, 3, jump street. And the city calls out for that to be a mixed use development. That means I can do this or that or some of these. And then you begin that entitlement process to bring it into the city, get city services there. They're going to ask for some improvements, some curb, gutter sidewalks, some things like that that then you've added it to. You brought it from an unincorporated area usually to an incorporated area. And. Or you've gotten the project that you want approved on that property. And so you've got, unlike a millennial, you've actually added value to get you the entitlements. Right. But you have something where you've either changed the zoning, you've gotten it approved for something, you know, where you're buying a 12 acre parcel and you're going into the city and you're, you're getting it approved for 250 units of apartments and nine single family lots was a project that we did. And so you're going through that process of, of getting that agreement made with the city that then dramatically improves the value because it was just a piece of farm ground with no clear direction but multiple options. And now you've got it entitled to become an apartment complex. Just apply plans and funding.

So from a numbers perspective, I can see once you add all that value, there's a tremendous upside, potential profit upside when you sell it to say, a developer. Right, right. But walk us through what the typical entitlement might take on. A smaller entitlement or a larger entitlement, money wise, and then what the risk would be if it doesn't get approved.

Sure. So we just rezoned. There was part of a, we bought a property or we went under contract on a property. And Mark, I think remind me to come back to this point because how you buy it is almost more important than the entitlements on it. Okay.

Okay.

But we found a piece that was a two and a half acre piece. We felt like it was very well positioned for apartments. But it had been previously entitled as a shopping center. While the shopping center did not do very well, it was 12 years old. It had really become kind of a quasi office park, as you see a lot of ill fated shopping centers becoming. Because there isn't really a center anchor that draws, it's kind of a secondary market. They don't have a target there. They don't have, you know, a Walgreens or something there. And so it's just really not an anchored center. And so we went to the city, we said, hey, we think this use would be better if we did this and this. And they said, well, that's great. You got to go to planning and zoning, and then you got to go to city council and you got to have, you know, site plan, you gotta have a landscape plan, you gotta have some elevations, you gotta have some colored renderings, you gotta do that kind of stuff. And you need to fill out all this paperwork. So if you were to go hire someone to do that for you, you're probably looking at, I think about 45 or $50,000 in cost for the planner and all those documents. Tom, were able to do that mostly in house, which is the use of an architect to drop some schematics and things like that. But it does take a lot of time. That process, if it goes well, takes about eight or nine months.

Okay.

But you know, the first thing, let's walk through this one very specifically. So the first thing that I did is I went in and I made an offer to the landowner and I said, I will pay you full price for this land. And the guy was like, well, I love that, say more. And I said, I will pay you full price for this land when I get it entitled for the apartments. And I will close within 30 days of that approval from the city. So I want to buy it with conditions.

Right.

The landowner goes, okay, I'll let you do that. Let's talk about earnest money. And I said, yeah, so here's the thing. I'm going to put up a promissory note as my earnest money. And I think I put up a $300,000 promissory note that, the, that within three days of those approvals getting approved by the city, I would release that cash not only to escrow, but to the seller. And it would be non refundable the minute I got those. So three days later you get $300,000 cash and we close within 30 days.

Okay.

And the seller said what? Every seller would say, well, why would you give Me a promissory note. And I said, well, if I don't get the approvals, my contingencies are that I get the approvals. So I don't. I'm not buying the property. So my question to you is, why would I tie up $300,000 in escrow for a period of nine months? So the seller says, touche. We sign the deal. We are out the time, money, and effort, about $8,000 to get that entitlement done. Once we get it Entitled, we have 30 days to close, we put the earnest money in escrow, and we move right on down the line. So it's the way that you tie that up is very, very important, because if you had to go buy the land and then run the risk of entitlement, and I've seen a lot of people do that. They think that they can get 120 apartments on the property, and they wind up getting 90. That's a significant change in their pro forma. And maybe they overpaid. The other thing that I see that a lot of people do, Mark, is they go in and they say, well, I think if I'm going to take the risk, you want a million dollars? I can only give you 750 because I'm taking the risk. Well, obviously, no seller wants to hear that. Right?

Right.

So we cooperate on the risk to get them the highest price nine months from now. So I now know that at the time that I'm buying this, I'm getting a property that's entitled exactly the way I want it. So my pro forma says, I need 100 units on this property. I get 100 units. I know my pro forma works. And now I'm in a position to buy it. Instead of buying and betting, I'm able to buy and close and go directly to construction right after that.

So now do you need to have the 300,000 cash, or can you use leverage or what? What would have to happen on in that type of situation?

So typically, in an entitlement process like this, you get planning and zoning that says, hey, we like it or we don't, you know, whatever. And so we had unanimous approval at city council, or, sorry, at planning and zoning. So we knew that there wouldn't be much going on as far as pushback from city council. You know, the neighborhood was desperately in need of. Of apartments. They needed housing. And so we understood that we were in a good place. Right. And so once we received planning and zoning approval, we were about 40 days from there to the city council meeting. So at that point we went out to our investors and we began to raise funds knowing that at this time when we would need to convert that to $300,000 cash in escrow, we had that from investors waiting in the wings to go on that. When we do an investment, I do put 5% of my own cash in for every dollar raised. So when we came up with that 300,000, 15 of that was mine. And then when we went to the final construction number and raised four and a half million dollars on the project, again, 5% of that was my capital. Okay, so we kind of, and this is the nice thing about doing entitlement work, especially when your contracts are set up correctly. It's not a mad dash. We're not in a hurry. We're not trying to, you know, oh, look, we found this apartment complex and we've got to close in 30 days and we've got a million dollar non refundable earnest money and all these kinds of things. We're able to do things in organized chaos and we're able to do them knowing that, hey, city council is going to approve this and then we're going to be ready to go and we're able to move forward in, in a manner that, that works well for everyone. So.

And you're only doing this in Boise, Idaho, is that correct?

No, sir. No.

No. Okay, so you're, you're going throughout the country or do you have a special market?

We've got deals from Washington to Florida.

Okay, so, so Washington to Florida. Okay.

Yeah.

Why did I think it was only in Boise?

Well, that's because where I live, I've, I've lived here for, for, since 1980. I love this area. But you know, like with all markets, we've seen some massive appreciation. Rents quite haven't caught up. And so we've looked at other areas and we focus on market specifics before we even go look at deals. So we love the Tennessee market, we love the North Carolina market, the Florida market. We've got deals in Texas because we like the market dynamics. Because, Mark, I think like you, I'd rather do a good deal in a great market than a great deal in a good market. And have the market turn on me.

Exactly, exactly. And so let's define what a great market looks like for you.

You know, a great market is one that's growing in all sectors. Right. So the first thing we look at is, is, are people getting paid more now than they were a couple of years ago? Right. Is wage increasing? Are people moving into the area Is there, is there scarcity of housing, of industrial, of apartments, of commercial space? So that we know that there is a driving factor that is bringing people there. But what's the industry that's bringing people there? Right. One of the markets I, I struggled to understand for a long time was the Phoenix market. Because the Phoenix market was exploding because people were retiring there.

Right.

But they don't work, they don't, they bring money, but they don't necessarily bring a business or, or anything. Now they've got quite a few businesses that Phoenix has been able to attract, including a huge chip manufacturer there that's built a couple billion dollar facility. But I really look for growth in industry. Let's take North Carolina for example. Duke University puts out over $2 billion in grants every year for R and D. So a lot of Silicon Valley type companies have moved out there. A lot of medical research is being done there because there's $2 billion flowing into single year for research and development. Well, that to me is exciting because that's money that's coming in for new ideas. North Carolina State has got, they are the number three college in the nation for startup businesses that are not medically related in, in the nation. So these guys start more startup businesses and startup businesses attract employees and they need space. So these kind of factors really play into that. Wages growing. The average age of the economy in North Carolina I think is like 35 or 37. So it's, it's a vibrant economy, it's growing, people are having families, they're expanding. That's to me is a really strong market. Then you look at the politics of the market and I'm not talking about Democrat and Republican, I'm talking about is it pro business? Right, right. Does it have a low tax rate? Is it attracting people that as the Californians in the New York continue to ratchet up taxes, are these guys becoming a safe haven for people that are wanting to move their businesses, relocate their businesses and or expand their businesses in tax friendly environments? So I really look at the politics of it and when you see something like North Carolina that has all of those things in a very concentrated area, that to me is a fantastic market to expand into. Because if we face a recession or when, or we're already in one, whichever camp you're in. Right Mark? Right. But if that happens, you're going to see more people come from the states that are already, you know, very, very blue in their politics and very anti business. They're going to ratchet that up. You're going to See more people leave, they're going to go to places like this. So in a bad economy, these economies will get better.

I love it. I love it. Well, Shannon, you know someone like me who's ambitiously lazy, that loves your model. I just want to do it passively. Is there a way, Is there a way to do that?

Well, when you describe passively, you know, there's, there's opportunities. So we look at, there's three types of investors in, in real estate investing. One is one that wants appreciation, one is one that wants tax benefits, and one is one that wants cash flow. In my opinion, the development model is the best for appreciation, but offers little in the way of tax benefit and cash flow. Right. Because you're going in, you're buying the ground, you're building the product, you're taking the original sticks and stones, you're filling it with tenants, and then you've created that value. And then typically, somebody will offer us an insane amount of money and we leave, right? We, right. We leave the keys at the front door, collect our check and show ourselves out. But that's a model that we use. And so if people are looking at that and they want to be involved in that, but they don't want to meet with the city, they don't want to do stuff like that. That's where they can partner with an experienced syndicator or someone that understands that process. Because, you know, that's, that's an industry where when I do a deal, Mark, I bring my investors in when I know 99.9% of the numbers, right. I know I'm going to get the apartments approved. I know city council likes me. I know what my costs are going to be. My plans are almost done. All of these things have been out of pocketed. So we're really right there. I don't like to get people involved in, hey, I need the 20 grand to get this through the city because that's too speculative, Right. I want to make sure that I involve them right there. But when I do that, I put the land in at the cost that, that we paid for it. So there's automatically appreciation at that point where we can go, wow, look at that. We bought the land for a million dollars. We bought it entitled. It's worth $2 million. So we've already made some money. Now we're going to build the product, we're going to bring the tenants in it, and we're going to make some more.

Okay, fantastic, Fantastic. And I mean, I'm just looking on the site Here, your average return on Investor capital is 25%.

That's over 27 years. Right. So we've had good markets, we've had bad markets, we've had inflationary markets, we've had the dot com bubble burst, we've had Covid, we've had 2008. All of those things combine into that number.

Yeah, but that's a lot of experience, Shannon.

Well, as, as a lot of people like to tell me, you don't look like you've been doing real estate for 27 years. It looks more like.

Not at all. If you guys are watching this or listening to this online, Shannon looks like he's in his 20s. He's got, he's got the Benjamin Button thing going on.

I will, I will send you the money, I promise. Mark, I appreciate that compliment.

Not, not a problem. Not a problem. You, you know exactly how to PayPal me. Anyways, we are now at that point, Shannon, in your mentorship has been invaluable. But now we're going to ask you for your tip of the week. A website, a resource, a book, something else actionable for the art of passive income listeners to go improve their businesses, improve their lives. What do you got?

Well, you know, for what I do, I think one of the most impactful books that I've read is not the purple one that Robert Kiyosaki wrote, it's the one written by Chris Voss. Never split the difference. And one of the things that I've learned about that is how to approach someone, find out what their need is and meet that need and then wind up with what I need out of the deal too. I think the way that we set up our purchase model is evident of that because we have all of the control of the property with none of the risk of having to buy it if it isn't exactly what we want.

Yeah, absolutely. Fantastic. Well, my tip of the week and before I talk about my tip of the week, I just give a little shout out to my sponsor, which is flight school. Learn how the next 16 weeks can literally transform your life. Go up that mountain of land, investing quickly, safely and efficiently with our team that has done it thousands of times. You are going to not just solve your money problems, but also solve your time problems with that passive income. And I know what you're thinking, what about the investment? It ain't going to cost you nothing guaranteed going to make it back 180 days or less. Just show us your work. Learn more. Go to thelandgeek.com forward/training thelandgeek.com forward slash. Forward slash. Training. My tip of the week is learn more about shannon@shannonrobnet.com shannonrobnut.com for those of you that can't spell Shannon or Rob nut like me, I'll have a link to the site where you can learn more about all the things going on with the three companies that Shannon is. Is running. And plus, he's got the Rob Nets real estate rundown where I would have to beg him to have me on the podcast.

I think you're already scheduled, Martin.

Am I on there?

All right, I think, I think so.

All right, great. We'll talk about land investing. You're like, oh, this is such a simple model compared to what I do. But, but it's, it's great. It's great. So go there, learn more. And if you're like me and you just want to invest passively, he has an opportunity for you to do that as well. Let Shannon do all the work and, and his team and, and you just make a good return.

That's what teams are for. Right?

There you go. There you go. Shannon, are we good?

Mark, I really appreciate it and I want to thank you for all the valuable work you do with this podcast to help educate people because like you and I know an educated investor is going to have a better investing experience and is going to wind up with better returns. So thank you for doing that.

No, my, my pleasure. Thank you for the. Thank you. I appreciate it. I want to thank the listeners speaking of gratitude and remind you to be selfish because the only way I'm going to get the quality of guests like a Shannon Robnet is you can do three little favors. Follow rate Review the podcast. Send a screenshot of your review support attheland geek.com I'm going to send you as a thank you assigned a copy of Dirt Rich. So please do it. But even if you don't want Dirt Rich, just do it anyways, because then Shannon will look at the reviews like, oh, yeah, I'm going to go on that podcast, so please do it. All right, thanks again, Shannon, and let freedom ring. Thanks everybody.

Thanks for listening to the Art of Passive Income podcast. Are you ready to learn how you can start building a passive income without renters, rehabs, renovations or rodents? Schedule a free consultation@thelandgeek.com forward slash training. Let freedom ring.