Investing in real estate at a young age can be daunting. Maybe you’re worried that people won’t take you seriously or put their trust in you. Ryan Stenberg was able to overcome that and managed to close $19 Million worth of commercial real estate deals in the past year. In this episode, he tells us how he was able to scale quickly and establish a track record that enabled them to compound their deal flow.
Ryan worked at Google after he graduated college. He got interested in real estate as a vehicle to invest his own money. He started by buying triplexes and quadplexes in Cincinnati. But the difficulty of scaling that model pushed him to change his direction.
In January 2021, he left his job to focus on real estate. For him, working at his W2 job didn’t offer him much in terms of learning. But real estate gave him the ability to leverage money, time, and the opportunity to grow.
It took a year before Ryan could get the clarity he needed to push forward. He had to do the work to first, identify the constraints stopping him, and second, to remove those constraints.
He used to believe that he could only buy in one city or use only his own money. But he realized that a lot of those constraints were all in his head.
Ryan cares a lot about financial independence. It’s what he wants to focus on in a year or two. He heard about an investor, Will Brown, who at 19 years old was able to wholesale close to $1 Million in his first year.
That’s when things finally clicked. Ryan understood then that deal flow is everything. So he focused his efforts on sourcing property. With his partner who previously worked with Amazon and Paypal, they used their tech background to create the software that allowed them to do marketing outreach at scale.
They did everything including text messaging and direct mail. From scraping to skip-tracing to text messaging and up to follow-ups, they had to code the software for those at the beginning. But later on, they decided to spend on the software that’s already available.
What’s important is for them to create a strong funnel that will enable them to find good properties that they’ll buy.
Right now, he and his partners which also includes his younger brother get their deal flow from their sourcing and from their brokers. Text messaging has so far been working very well for them because most people just send direct mail without sending a text.
Investing in a single-family home involves dealing with a ton of tough competition. It also included dealing with a lot of emotions. Ryan and his partners decided to streamline their process by not competing with others.
This influenced their move to multifamily and commercial because they wanted to be the only ones in the pool. Plus, they found commercial owners were straightforward when it came to transacting with them.
After hearing about Reno, Nevada from a lot of investors, Ryan and his partners thought it would be a good area to invest in. People were buying into Reno as a tax shelter. It was the closest major city where you won’t have to pay taxes.
Since there were already a number of investors out there, they thought it would be advantageous to find their deal flow there as there are ready buyers.
Age was a hindrance from them at the start because they had no track record and no network or connections. But later on, their youth transformed into a strength because they think differently so the story they built was different.
Ryan and his partners moved into a 1-bedroom apartment. They decided to give up a lot of things such as alcohol and changed their diet. They worked on their jobs and real estate. Every single thing they gave up was to show people how badly they wanted to succeed in real estate.
A lot of the investors they first worked with were their colleagues. That’s when they realized that even with no track record in real estate, they still had their own track record from how they have lived their lives and the jobs they had worked. Their life resume became their track record.
The reality is that even with research, you don’t know what you don’t know. Ryan and his partners had to be extremely cautious and be over the top when it came to their due diligence.
Since they were starting out, everything was on the line. They had to prove themselves, or they’d lose their investors.
One of the hardest things they had to face was opening up walls during rehab. This made Ryan decide that next time, they’ll just offer an extra $5,000 to be able to open up the wall in escrow.
He just doesn’t want to leave any stone unturned.
The previous year involved them buying an 8-unit property for $1.1 Million. It took only 89 days from purchase until they sold it to someone for $1.55 Million. They were still doing rehab for the property when it sold because the buyer needed to close by the end of the year.
Then they bought a 5-unit and a 6-unit. Each was purchased for $700,000 with $100,000 in renovations put in. Both are also still on the market. The 5-unit is listed at $1.35 Million, and the 6-unit is listed at $1.7 Million.
Later, they branched out to the commercial property space by buying an office, a motel, and a light industrial building. They plan to only keep the motel for the long term because it could be a source of passive cash flow. The others will be 1-3 year projects that will be flipped.
Ryan and his partners weren’t scared of other asset classes, and they didn’t want to leave a lot on the table. So they readily bought three different types of commercial buildings.
With the pandemic and the growth of e-commerce, they don’t plan to invest a lot in retail and office spaces to de-risk themselves. They’re more bullish with industrial buildings and motels as demand is expected to continue or even grow.
Dealing with a commercial property involved a different approach. They’d place tenants first and let the tenants themselves tell them the rehab they want. Commercial property tends to have longer leases running from 3, 5, 10 years.
Even though the commercial property is a different asset class, Ryan believes that if people trust you, that trust will carry over. For Ryan, if you understand and you talk and speak about it with clarity, they will trust you.
County websites and assessor sites are both possible sources for getting a property list. Ryan and his partners use Call Magic for their skip tracing.
They also use Reonomy to get property data. When it comes to text messaging, Lead Sherpa and RooR are the two platforms they’ve used. What’s interesting is that they don’t filter and actually message whole cities.
Their approach to gaining the trust of a broker was a bit different. They presented off-market deals they found to a broker and got him to help them navigate their way through escrow. When you start showing broker deals, you immediately jump to the top of their list as they don’t usually get a lot of off-market deals.
Having a broker help them even on deals they sourced themselves keeps them accountable and on schedule. Plus, the broker gets an easy commission.
Brokers who bring the deals to them receive a different commission, and sometimes if the seller doesn’t want to cover the commission, Ryan and his partners are willing to cover it on their side just to make sure the broker gets paid.
Ryan and his partners don’t charge a fee and would only do a profit split with their investors. It could be a 75-25 with 75% going to the investor if they aren’t super active in the deal. If they’re active in the deal, then the split becomes 50-50.
Most syndications have a 5-year holding period, but Ryan and his partners plan to exit within 6 months to a year. They don’t want to wait as cash flow or preferred returns aren’t favorable in Reno because cap rates are low.
When it came to financing, they’d use hard money then refinance unless they’re selling the building right away.
Some banks in Reno are underleveraged when it comes to commercial assets. So they were able to get a favorable loan of 25% down payment, 3.75% interest on a non-recourse, 25-year loan on a property about to have a 75% vacancy. The reason was that they got the property very low. Then it was appraised as $200,000 more than they were purchasing it for.
Ryan and his partners are starting to look at other markets. They’ve already submitted $21 Million in LOI in Raleigh, North Carolina, and are also eyeing Texas.
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