JF1175: He Buys For Appreciation vs. Cash Flow with Tim Shiner
Tim specializes in high end SFR rentals, and contrary to popular belief, he prefers to buy his properties for the appreciation. He’ll even lose $200 to $300 per month if he believes the property will appreciate and be worth more in the long run. He has another different strategy for when his tenants lease comes to an end. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Tim Shiner Real Estate Background:
- Specialize in high end Rentals in the Dallas,Texas market
- Creating a revenue stream for landlords from departing renters, with a focus on superior school districts for appreciation
- Has 153 doors, with 19 being high end residential and the rest multifamily
- Based in Dallas, Texas
- Say hi to him at www.timshiner.com
- Best Ever Book: Cash Flow Quadrant
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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff.
With us today, Tim Shiner. How are you doing, Tim?
Tim Shiner: Joe, thanks for having me on. I’m excited about being interviewed by a Red Raider. Guns up!
Joe Fairless: That’s right, Guns Up! I appreciate that. For any Best Ever listener who’s like “What is a Red Raider?” Texas Tech, baby – that’s where I went to school, and that’s what Tim’s referring to. Alright, a little bit about Tim – he specializes in high-end rentals in the Dallas market, and we’re gonna talk to him about that because that is a bit different from what we come across. He has 153 doors with 19 of them being high-end residential, and the rest of them being multifamily. You can say hi to him at his website, which is his name, TimShiner.com, and that’s in the show notes link. With that being said, Tim, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Tim Shiner: Sure. Thanks for having me on your podcast. I’m 51 years old; I bought my first house when I was a couple months shy of being 20 years old, so I’ve always had real estate in my blood. I’ve made a lot of low-end mistakes, and it forced me to focus on the higher end. I get it, people gotta start out wherever and work their way up, but my best advice is a theory that I call “BAD.” You Buy once (B), A for Appreciation – we’ll talk to that – and D is for Debt reduction.
When you buy once, you’re either gonna pay fair market, below market or above market. It’s gonna happen once and that’s it. And then let’s skip over the A for one second and go to debt reduction – debt reduction is gonna take a lot. Whether it’s a 15-year mortgage, 20 or 30, it’s gonna be a long road, and sometimes you’re not gonna see that debt reduction kick in until five or seven years down the road… So what I’ve really focused on is appreciation. Naysayers can say “Hey, it could be up or down, it could be a bubble economy”, but what I focused on is tremendous school districts in a town called Southlake, Texas, where there’s no multifamily, there’s no duplexes, there no easy way in, and because of that, my high-end residential properties have appreciated tremendously (the A for Appreciation), but my houses almost act like the apartments in that town, because there is no multifamily.
That’s something that I’ve done a little bit different than most – really focus on great school districts. I’m convinced that my lovely wife makes more of the real estate decisions than most guys do, and wives want great school districts to raise their kids in.
Joe Fairless: Yeah, and being from the Dallas-Fort Worth area I’m familiar with Southlake (Carroll), and it’s one of the top high school football programs in the state, and usually with that comes a very nice area, and that is the case with Southlake. So this is one of the top five high-end areas in Dallas-Fort Worth probably in terms of just overall net worth or affluence. So let’s talk about the numbers on a typical deal. Will you give us specific numbers for a deal?
Tim Shiner: Yeah, so I bought a while ago – there’s a beautiful outdoor mall called TownCenter that was being built, and I can’t play guitar, but I’ve got vision, and I could see what that was gonna be like afterwards, and once that mall was gonna be done, I knew the properties were gonna shoot up, because it’s such a beautiful, high-end place.
I’ll give you an example of the first one I did there – it was a [unintelligible [00:04:21].18] for 169k with a pool, and now that [unintelligible [00:04:25].11] So the appreciation in the area has just been tremendous, and we have an unfair advantage, Joe, the fact that we know this area, but there’s about three affordable pockets, and everything else is 800k to many, many millions. So having these houses that are now about 400k, that fly off the market and rent instantly, has been one of the things that I’ve done really well.
I’ve had a lot of strikeouts on lower end property while I was waiting for them to appreciate, slowly getting debt reduction, and it just made me focus more on the high end. I’m fortunate that I have other businesses and other streams of income. In the beginning I was not positive, I was negative $100 or $200/month per house; now I’m positive on everything and there’s a ton of equity in it.
Some people are in the [unintelligible [00:05:09].00] and I understand that… But if you think about it, if you had a $240,000 house and you were $200/month positive, that’s $2,400/year. Now, if you had that same house and it went up 1%, that’s $2,400 also. If it went up 3%, that’s triple the $2,400, and that’s where I’ve built wealth and that’s where I’ve done things a little differently.
I’ve got another concept after we’ve done discussing this, and I think [unintelligible [00:05:32].21]
Joe Fairless: Yeah, we’ll talk about that one in a second. Let’s still talk about this – $169,000 house, three-bedroom two-bath in Southlake… When did you buy that?
Tim Shiner: That was about ’06.
Joe Fairless: Really, ’06? Alright, I was figuring maybe like ’09, but ’06… Still on the way up you bought it.
Tim Shiner: Yeah, absolutely. I’ve got numerous examples of stuff anywhere between 170k and 240k… But we don’t have a time machine, we can’t go back in time on that deal, but if listeners are thinking about an area, just try to go towards the better school district. [unintelligible [00:06:11].03] kick up a little bit more on a house in a better area… Those great school districts just seem to hold value and appreciate a lot better than other things.
Joe Fairless: As far as the buy once goes, does that mean that you never sell?
Tim Shiner: Yeah, my horizon now is forever. When people say “Hey, it might have been a little bit of a run-up…”, well, I’m holding on forever on my deals now. And how I have an equity moment – it’s just refinancing. I haven’t refinanced anything up until this year. I just pulled off 300k tax-free on a small little refi, and I really don’t have a purpose for the money so I didn’t wanna take too much equity off, but for the first time ever I did fly South a little bit… And quite honestly, I haven’t done much with it, just some nice vacations, and it’s really just kind of sitting there, but that’s how I had an equity moment.
I hate selling anything, I’m not a flipper. I feel like if I can make 20k today, I can probably make 100k a decade from now, so I’m a buy and hold guy through and through.
Joe Fairless: Are you still buying in Southlake?
Tim Shiner: To give you an example, I looked at one yesterday that was a three-two-two, and it was 315k, and it’s part of [unintelligible [00:07:18].22] but it goes to that same great school district that you talked about, and it just doesn’t feel right, but that’s what I’m at now price-wise to get more houses – between 300k and 400k for the same type of houses. I [unintelligible [00:07:32].16] step down currently. So it makes it hard for the numbers to work, because rent on that 315k is gonna be around $2,000 or $2,200, so it barely makes sense, it’s a little negative on that.
Joe Fairless: So what are you gonna do?
Tim Shiner: I’m looking at the North part of [unintelligible [00:07:48].29] and they’ve got a good school district there. I can drop down in that area at like $220, $230, and I think I’ll have a nice little run-up on that.
Joe Fairless: When you say ‘tremendous school districts’, do you go somewhere to look at the ratings?
Tim Shiner: Yeah, Southlake Carroll you alluded is top five in the Dallas-Fort Worth area; it’s actually top five in the state of Texas. There’s 1,221 independent school districts in the state of Texas, and Southlake is ranked number five. So one is the school district, but the second thing is the restrictions. In Southlake you can’t build on anything less than a half an acre of land, so now you’re restricted by the dirt. There’s no multifamily, there’s no duplexes, so the city’s really cranked down the barrier of entry, and like anything, if there’s scarcity, there’s gonna be more value and greater chance for appreciation.
So I just locked in on Southlake, and now the numbers are to the point where I’ve gotta find something similar to Southlake, and I believe that’s [unintelligible [00:08:46].26]
Joe Fairless: Oh, I love hearing you say Keller, Texas, because we closed on an apartment community in Keller, Texas like three months ago, so…
Tim Shiner: Good for you, Keller’s great!
Joe Fairless: Yeah, that puts a big smile on my face. I think I missed the website that you go to… Where do you go online to look at the ratings?
Tim Shiner: I googled it, and quite honestly, I don’t know exactly what the website is. It’s something that I looked at years and years ago. But living here, you knew that it was a great district. I really don’t know where you would go today… So I’m sorry, that isn’t the best advice ever.
Joe Fairless: Okay, that’s fine. You live in the area, so you just know. It’s different for an outsider who doesn’t live there, going to a resource… But quite frankly, an outsider who doesn’t live there should be talking to someone like you and should be doing third-party research, but the best resources are people who are living there and know the area, versus what some website says.
Tim Shiner: Sure. And the other thing that I feel good about is the proximity to the Dallas-Fort Worth Airport. You’re ten minutes away. There’s three major middle-of-the-country airports – Denver, Chicago and Dallas, and two of those three tend to have a little bit of snow, so I still think the Dallas area is gonna hold its value because you’re in the middle part of the country. If you’re a guy in outside sales you’re ten minutes from the airport, you’ve got a great school district for your kids… I don’t see it ever going backwards.
Joe Fairless: Well, now we’ve talked about your BAD strategy or theory – buy once, buy for appreciation, which goes against what I always wanna do, which is buy for cashflow, and it goes against most people, but ideally I wanna buy for cashflow and then force appreciation through some value-add components, and then if we get natural appreciation then we’ll high-five each other. But you take a different approach, and that’s the beauty of real estate.
Tim Shiner: We’re similar – I have tremendous positive cashflow now, I just didn’t right away. But I could have bought in a less good area, and the stuff wouldn’t have appreciated. But the other thing is you’re a lot younger than me. I’m holding for forever, and I am positive, but I have other businesses that offset breakeven, little negative, little positive in the beginning. But think about it – you know how to buy for positive cashflow, as a ton of the podcast listeners know how to do, and I do also, but I chose to try to ride the appreciation ride and have different challenges.
When we don’t get a check on time, people are calling us up or e-mailing us going “Hey, you didn’t deposit our check.” I’ve had some really positive stuff in lower-end areas where I’m chasing money. So I guess it’s what challenges or what opportunities do you want with the real estate that you’re gonna own.
Joe Fairless: Absolutely, that’s a great way to put it. There’s gonna be a challenge regardless of what you buy and how you buy it, it’s just what challenges do you wanna have. What is your threshold when you look at a property that is losing money, but you see a good long-term play, in terms of what are you willing to lose in the short run to potentially gain in the long-run?
Tim Shiner: $200-$300 is where my threshold has been.
Joe Fairless: A month.
Tim Shiner: A month, yeah. So I’m only gonna lose a couple thousand bucks a year on something that I feel like is growing more than a couple thousand bucks, or I see some long-term value on it. I just think that quality, quality stuff — it’s really hard to get a great piece of property in a great area and not have to pay fair market. You control 175 million dollars worth of real estate, so you have a different point of view, and if you listen to someone, you probably should listen to you versus me… I’m just giving a different way for the listeners to think about something.
Some people might not care about $50 or $100 positive, but they really get excited about the fact that that property could grow 20%, 30%, 40%. Southlake last year grew 20% alone, so if you had five million dollars worth of real estate there, you made a million dollars.
I’m not really worried if I was plus or minus a couple hundred bucks a decade ago, because the bigger picture has really worked out. The naysayers can say “Hey, maybe it won’t appreciate.” Yeah, it might not, and stocks might not go up, but I think long-term quality always endures.
Joe Fairless: How do you finance these?
Tim Shiner: Back in the day I bought a lot of them during the subprime heyday with traditional mortgages. Then recently I rolled up 15 properties and took a 20-year note, and that’s when I grabbed some equity [unintelligible [00:13:11].09] I rolled up 15 properties, I owe 1.8, and they’re worth over five million. And what I ended up doing is tossing another 300k on cash-out and now I owe 2.1 on stuff that’s five million. That goes against everything that — normally, I’m Mr. Leverage Up, let me get to 80% or 75%, whatever the bank will get me, but I’ve also got a line of credit off of that, so now when I buy something I just toss into the original loan and then refresh the line of credit. I use a local bank here.
The challenge for me right now is the market’s so hot, to find something I really want, that somewhat works, is a little bit nuts. Everything’s going 10+ offer, full money or more… It’s just a pretty hot market for us right now.
Joe Fairless: What bank do you use? What local bank?
Tim Shiner: Providence Bank in Southlake Texas.
Joe Fairless: Okay, it makes sense that they’re based in Southlake.
Tim Shiner: Well, what’s great is they have two branches, so they appreciate and understand the area they’re in. And they’re a smaller bank that likes to play ball, and they see the value of the community they’re in.
Joe Fairless: Alright, let’s talk about the other strategy that you alluded to. Tell us about what you were talking about.
Tim Shiner: Okay, my wife is a real estate agent, and she became one out of frustration, because when you’re leasing out properties, an agent typically makes 25% on each side. So let’s say that we’re taking a $2,000 rental (or listing, if you wanna call it that), the agent is making $500, and the person bringing the client is making $500. Well, when the real estate literally can make 10-12 times more money selling a house, they don’t get too enthused about getting a client in there real quick for a measly $2,500.
So we relied, at the time when we had traditional mortgages, and every time that house [unintelligible [00:14:49].13] it’s a $2,000 click, so we’re like “We’ve gotta do something different”, so she became a real estate agent. This also feeds into my theory of higher end properties. I think we’d all agree that every renter eventually leaves, so why not make a 3% pop on the way out? So what we do is we’ve got this term we call “Buy from me, tear up your lease for free.”
So when our renters want to leave or move on, we’re gonna try to sell them a house and let them out of their lease at anytime that they want, so that they don’t have to worry about trying to time the perfect house with the ending of their lease. This year my wife sold three houses with a total value of about 2.5 million dollars combined on the three houses. 3% of that, that’s $75,000, minus the 20% she pays for broker. But that’s our whole philosophy for continuing to buy higher end rentals, because we create a revenue stream off of basically our savings, or our long-term goal of having these houses. That’s a different strategy, and it’s another way of making a revenue stream off of your portfolio.
Joe Fairless: Yes, I wanna make sure I caught that… “Buy from me and tear up your lease for free”, is that what you said?
Tim Shiner: Yes, sir.
Joe Fairless: Right, so they are renters with you; when they want to buy, they can exit out whenever they want as long as your wife represents them and gets the 3% commission.
Tim Shiner: Exactly. What that does is… Let’s say the renter’s best friend or sister or family member is a realtor – that’s great, but their family member or best friend cannot get them out of their lease. You kind of block them out that way, but then the other great thing about it is they can relax. They’re not like “Oh my god, my lease is coming up in June; I’ve gotta buy something by 1st July, and hopefully don’t live in a pod, have all my stuff in a pod and live in an extended stay…”
Joe Fairless: It’s genius.
Tim Shiner: So it’s a way of making a revenue stream off that. Now, if you think about it, if I had lower end rentals, chances are some of those folks might never qualify, might never buy a home, but on the higher end rentals, it creates this whole other revenue stream. And quite honestly, I’ve talked to a lot of folks where the husband’s [unintelligible [00:16:46].03] in real estate investing; this makes for a real happy family, when the wife can get a pop (or the husband) while you’ve got your long-term goals set into place.
Joe Fairless: That’s genius. Is there an out clause for them, should your wife for whatever reason – not that she would – drag her feet, and it’s been 12 months and they’ve been wanting to buy but she’s just not responding to e-mails, or whatever? And again, she wouldn’t do that, but I’m just trying to think–
Tim Shiner: You don’t know my wife; she’s a Texas Tech grad and–
Joe Fairless: I know, I know, she would never do that… But it’s the lawyer in me–
Tim Shiner: Yeah, Joe, great question, and it’s a fair question. It’s not a fair-less question, it’s a fair question. [laugh] So what it is – it’s a traditional 12-month lease. We’re still doing a 12-month lease. So let’s say that they don’t find a house, or my wife is horrible at responding – after 12 months they’re out of their lease, just like they would be with any other lease. But what makes our lease special, different and better for them is the fact that they CAN get out of it… And trust me, when they’re looking to buy a 600k or a 1.2 million dollar house – which both of those occurred this year – my wife’s all over it. She likes nice purses and fancy shoes, so you don’t have to worry about phone calls.
Joe Fairless: Okay, I get it. If they are in month 11 of their lease and they have one month left, then technically she has one month to solidify the relationship and work with them to either find a place or be entrenched enough where they won’t go with another agent.
Tim Shiner: That, or just [unintelligible [00:18:15].07] So it’s very much like a traditional lease; there’s nothing different, except for “We can get you out if you wanna go buy a house.” And quite honestly, at the higher end, these people have 700+ Beacon scores; they might have just moved to the area, wanted to get a feel for the town for a year, and then decide to buy. We get a ton of that. So it’s just a different caliber of renter.
One of the big challenges is trying to explain to them what a renter does and what a landlord does, because most people haven’t rented since college. You have people that sold a house in New Jersey and came down – they’re not used to renting; they’re used to being a homeowner, so it’s a great transition for them and it’s a really good thing for us.
Joe Fairless: That’s beautiful. What a fascinating strategy… It makes a lot of sense. It’s something that I think every landlord who is self-managing, who also has a real estate license, should put in their lease. It should be there for everyone. It’s not handcuffing them… It kind of is, but more importantly it’s giving them the flexibility to break the lease, and they’re gonna bring an agent on anyway, so let’s see if they can find something within the lease period.
Tim Shiner: Joe, we’ve had situations where people have a friend or a strong relationship with a realtor that fulfilled their lease, and they go buy a house with their friend – no problem. That occurred to us for the first 15 years of doing this, until we kind of wised up about 3-4 years ago and thought “Hey, there’s an equity moment potentially on our long-term plan of buying and holding and appreciation…” This year alone, like I said, it’s been about $75,000 worth of commissions.
You’ve got a lot of listeners out there that have wives that are trying to raise children, or having to go to their job and put kids in daycare – wouldn’t it be nice to work your portfolio for another stream of revenue?
When I look at your podcast, I love that you basically said “Hey, what do you do differently than anybody else?” and “Get to it pretty quick.” Mine is “BAD”, buy the good stuff, and then the second thing is “Buy from me, tear up your lease for free.”
Joe Fairless: Alright, we’ve already talked about these two concepts, so feel free to pick one aspect of either the concepts, or if you’ve got something else, that’s cool too… What is your best real estate investing advice ever?
Tim Shiner: Buy quality. You’re never gonna regret it.
Joe Fairless: You’ve got 153 doors… Let’s move the high-end residential properties aside; you’ve got 19 of those, I believe. What’s the other stuff that you have?
Tim Shiner: Four apartment complexes in rural Kentucky. Not where you’re at, but more Central City, Greenville area. Because I owned another business up there I bought up there, but [unintelligible [00:20:45].02] in ’09 and ’10 everything just went to a screeching halt, so I no longer was able to buy residential properties. In fact, I looked at a guy that had a bunch of residential properties kind of with a little hairy eye, like “How did that happen?” So that’s when I started buying multifamily, and I also wanted to grow faster… Just like you, I’m a huge fan of good debt. If you’ve got good debt, that’s cash-flowing and other people are paying it down, I want as much as I can.
So I bought, through the years, four small apartment complexes – a 24-unit, a 27-unit, a 48-unit, and the 24 with a trailer park on it. And quite honestly, it cash-flows good, it was good, it’s just my challenge was – and I’m sure your listeners are much better than I am at it – it’s hard to manage something 750 miles away, and it was at a price point where you just had some challenges that were just tough.
I’m in the process of selling those units now. I’m happy that I’m gonna have an equity moment on it, and I’d rather just have that money closer to home, on the higher end. So that’s where I’m at with multifamily; not to say anything bad about it, it’s just I didn’t do a good job at it. I’m much better at the higher [unintelligible [00:21:48].07] I think sometimes in real estate investing you’ve gotta realize who you are and who you aren’t. That’s a great deal for someone else; I’m looking forward to transitioning out of it just because it’s been challenging for me, being that far away.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Tim Shiner: Sure, bud.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve read?
Tim Shiner: It’s gotta be Kiyosaki, The Cashflow Quadrant.
Joe Fairless: Best ever deal you’ve done?
Tim Shiner: The first house I bought in Southlake; it was the beginning of many, many more.
Joe Fairless: What is a mistake you’ve made on a transaction?
Tim Shiner: When I was really young I didn’t get an inspection, and I bought a property that had a major leak, a sewage problem… So I will always get inspections; it’s money well-spent.
Joe Fairless: Best ever way you like to give back?
Tim Shiner: All the time, man… Community Storehouse, that’s the foodbank in Keller, and the Safe Haven Womens’ Shelter in Fort Worth. I’m extremely charitable.
Joe Fairless: What’s the best ever way the listeners can get a hold of you or learn more about what you’ve got going on?
Tim Shiner: I’m lucky that a lot of people helped me along the way. I’ll be more than happy to communicate or e-mail or text or talk to anyone. TimShiner.com – there’s a couple free things that I’ve got there… A poster of 25 habits of a future millionaire – it’s just to help people focus on what I feel it takes to get to that level. I also wrote a book, “50 Things They Don’t Teach You In School.” 100% of the money goes to the foodbank, and it’s just trying to help young people, like buy used cars, send thank you notes, be charitable… [unintelligible [00:24:18].18] Pretty quick, easy read.
Joe Fairless: I’m looking forward to reading that myself. Tim, thank you for being on the show. Thanks for talking about concepts that I haven’t come across before in this way, and that says something, considering I’ve interviewed over 1,000 real estate investors, and I always love coming across different approaches that are working. There’s pros and cons to any type of approach that we take in real estate, and we talked through that. Your “BAD” strategy, the buy once, buy for appreciation in tremendous school districts, and bonus points if there’s restrictions on the type of multifamily builds that can be done there. Then debt reduction (D)… So buy once, appreciation and debt reduction (BAD), as well as the other strategy, “Buy from me and tear up your lease for free.” It’s got a nice ring to it and it makes a lot of sense… So that’s for being on the show.
Tim Shiner: Thanks for all you do. I really appreciate your efforts and all you do for us.
Joe Fairless: My pleasure, and tell your wife “Guns up!” I hope you have a best ever day, and we’ll talk to you soon.
Tim Shiner: Thank you. Have a great day!