JF2505: Foreclosure to Fortune with Shane Torres

After former construction worker, Shane Torres filed for bankruptcy in 2012, he immediately turned around and opened his own real estate office that same year. Today he is actively and passively investing, focusing on the retail space. Shane shares his six qualifications for choosing the best locations, the type of tenants he gets to ensure success, and the reason he’ll never borrow from large lenders. 

Shane Torres Real Estate Background:

 

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TRANSCRIPTION

 

Ash Patel: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I’m Ash Patel and I’m with our guest today, Shane Torres. Shane is joining us from Polk City, Iowa. He is the CEO and founder to Road to 20 Million Dollars. He has 12 years of passive real estate investing experience and retail. Shane, thank you for joining us today. How are you?

Shane Torres: I’m good, thanks for having me.

Ash Patel: Great. Before you get started, can you tell us a little bit more about your background and what you’re focused on now?

Shane Torres: Ooh, background… Okay, so my background is construction; I started as a framing contractor back in 2002. I built that up, and eventually got into framing and building of large hotels, and branched off into new construction, building houses… And in 2009, like many, that all went down.

Ash Patel: How did that affect you?

Shane Torres: I had to file Chapter 7, and I was in foreclosure for about two years.

Ash Patel: And tell me what the recovery from that was like.

Shane Torres: Honestly, knowing what I know now, it wasn’t that bad. A lot of learning experience. My bankruptcy was filed in 2009; I was fully discharged, and they were partially discharged. And in 2012, that is also the first year that I opened my first real estate office. So everything that I’ve accomplished in the last 10 years, I still did with that bankruptcy that was over my shoulder. I had an IRS debt from back then that was still looming over my head, and I was actually in a long-standing dispute with a local lender that also was looming over my head. Those two last things I have literally just settled last year, so everything I’ve built in the last ten years was even with that happening… So it wasn’t that bad.

Ash Patel: That’s an incredible positive outlook that you have. You said in 2012 you opened a real estate office. Is that like a typical realty agency?

Shane Torres: Yeah, so I am one of the owners of RE/MAX Concepts. They’re a franchise based out of Denver. We are the largest RE/MAX in Iowa. We have 14 offices, over 310 agents, and about 55 staff, and a handful of umbrella companies underneath of that.

Ash Patel: Shane, you have a tremendous amount of experience in building houses, hotels. Why not go back to what you know?

Shane Torres: When I first got into real estate, my first few years were just to do all that I can to get myself out of the trouble I was in financially as far as bankruptcy and stuff goes, and deal with those things, save my house from foreclosure, and get back to a point to where money was good and comfortable. I started out slowly just because we have access to flipping houses, and I never really wanted to get back into new construction… But I did, for a little bit. To make a long story short, I started buying individual lots, and then essentially backing new construction homebuilders that I would buy the lots, I’d put up a lot of the money, and then if it turned into a custom, I would turn it over to them and we would just sell it. After a while, I did get back into new construction, and quite honestly, my manager that I was having run it – he ended up getting staged for throat cancer. So for four months I had to run it night and day, and what I realized is I don’t enjoy it. I have to do what I enjoy, and that’s just not anymore — it had nothing to do with the money.

So I was able to close down that homebuilding company actually last fall, and this time around do it on my terms. So I don’t enjoy it. What I enjoy – and this is interesting, in how I got into what I am in no, because I’ve had multiple single-family properties, but then I read an article once about one of the prominent investors in our area – he’d been quoted saying that his goal was always to own property that nobody slept in, meaning primarily retail. And in my head, I’m like “That’s genius.” So I was like “Okay, I’m gonna do that.” And I didn’t know how or where to start, but I did. That’s kind of led me to where I’m at today. It’s just been a natural progression that started with flipping a few houses here and there.

Ash Patel: That’s been my philosophy since I got started in real estate, is “I don’t have the patience to deal with residential tenants.” So tell me about your start into retail investing.

Shane Torres: Yup, and honestly, it’s always come from  — I wanted to open a new real estate office, but there wasn’t a space. So the first one is in my town of Polk City. I’ve been leasing out the prior location for a while, and there was a brand new building going up on the main corridor, and I tried to go up and go into that building, and the owner and I just weren’t seeing eye to eye on things… And there was this empty lot that had been sitting there for about ten years, that I just randomly looked up and realized the people who bought it are one of those companies that buy things at tag sales, and it took them 6-8 years to clean up those liens. Then by the time I approached them, I was able to buy the lot. I started digging a little bit more into it as to what it would take to buy the lot and get the building through that process… And I went to the homebuilding company I was working with at the time and said “Hey, I wanna build this. I’ll pay you guys a minimal management fee and you just oversee it day-to-day.” And they did.

So essentially what happened is my development company ended up commercially-developing the building from ground-up, and my real estate company leases from my commercial company.

Ash Patel: What kind of building did you develop?

Shane Torres: This particular one was a 5,500 sqft. retail space/office space. One side is our real estate company, and the other side is an optometrist.

Ash Patel: What other retail investments do you have, and are they passive or active?

Shane Torres: Most of them are a combination, because I usually try to put an office where I’m going, and that’s what starts it. I just developed a 4-million-dollar building — well, it actually finished up beginning of 2020, when COVID shut everything down… So that one is 100% occupied now. It’s a 10,000 sqft. retail space in a prime corridor. We have 5,000 of it and the other two spaces are rented out to tenants that do nail salon and a very well-known fitness company from the area.

Ash Patel: So let’s dive into the asset class a little bit… A lot of investors think retail is done, there’s an apocalypse coming, but you’re thriving. Talk to me about that.

Shane Torres: I don’t agree that it’s done. I think you’ve gotta be careful. I’ve mentioned the few that I’m doing now are in very hot corridors. So to say that I would put one up anywhere and everywhere – that’s not accurate. But if you find a good corridor, people still want storefronts, people still wanna get out of their house, people still wanna engage with people. The one I just did is in a hot spot. The community that’s being built around it is one of those live/work play communities. So you’ve got your shops, you’ve got your schools, you’ve got your  houses, you have everything within this walking area… And it’s a 20-year project. We’re gonna be in the middle of that.

Right behind it is a brand new 480-unit apartment complex that’s gonna go by our real estate office, that needs their nails done, that needs these fitness things… So in this particular situation, from the time I started to the time that we’ve just filled it, the lease rates have gone up almost $6/sqft, in just 18 months. And a lot of my stuff happens from opportunity. I’m getting ready to develop another one that’s more specialized. It’s a 4-million-dollar daycare center.

Ash Patel: Is that one daycare center that’s 4 million dollars?

Shane Torres: Yeah, a 12,000 sqft. daycare center.

Ash Patel: So you’ve gotta be around a giant population of residential with not a lot of competition, I’m assuming?

Shane Torres: Interestingly enough, it’s not a giant-level population yet, but in this community, in the last three years, they’ve added 400 rooftops, and they have not one daycare in this town. They have a couple in-home, but there are no other daycares in this town. In that scenario, the city wants it so bad, they’re giving me so much incentive it would be dumb not to.

Break: [00:09:10].14] to [00:11:11].23]

Ash Patel: Shane, do you have an operator already?

Shane Torres: Yes.

Ash Patel: Okay. How does a deal like that work? Is it a national operator, is it a local operator?

Shane Torres: It will be locally-owned. So I will own it — the operator, honestly, is a close friend of mine; that’s their background. She currently runs a senior citizen facility. She’s probably gonna come on in August or September as we get ready to break ground, to help build that infrastructure. I will pay her a base salary, and then I’ll incentivize her a part of the profit to make sure I don’t have any headaches.

Ash Patel: So you are now in the daycare business, my friend…

Shane Torres: Yup. It started with a joke. I was just joking, I was giving them free advice on a piece of commercial land for a gas station… Because I own commercial land behind our office in Polk City too, and I was just talking to my wife about putting  a daycare there… And city council said “Now it needs a daycare.” I was like “Funny you just said that, because I was just joking with my wife…” and they’re like “No, come talk to us.” I was like, “No, I’m doing this building over here. I’m not done.” “Just come talk to us.” And fast-forward to now, they’ve literally made it so enticing as far as the incentives go from the city, I’m basically gonna do this with very little out of pocket.

Ash Patel: That’s great. Shane, you have a distinct advantage with your development background to get a piece of land and develop it. Do you ever buy existing retail centers?

Shane Torres: I’ve looked at them. I’m sitting in one of our other offices right now; this is one that I’ll lease out [unintelligible [00:12:35].05] company that we bought, and that I do have an option to purchase this, which I will some day… So this is specific to us. But right across the street is a retail center wholly leased, that just went up for sale for 3.2 million a few weeks ago. I did look at that to purchase, but for me the numbers just didn’t make sense, so I backed away from that one.

The building I was referring to earlier, that I wanted to go into but I couldn’t – that one just got fully occupied, [unintelligible [00:13:04].14] and quite honestly, it was for a steal. I think it was listed at 2.3 million. They’ve built it for 2.9. But by the time I had gotten wind of it, one of the other local guys had already picked it up, so… I do look at them; I’ve always developed from the beginning so far.

Ash Patel: What if you can find a property that’s cheaper to buy than build? Would that entice you enough?

Shane Torres: Oh, absolutely.

Ash Patel: Okay. How do you go about filling your centers?

Shane Torres: Again, I look at what’s needed in that area, and I’ll just go out and start approaching businesses. It’s how this eyecare worked, it’s how the — not eyecare, I’m sorry; the nail salon. Same thing with the eyecare. I knew the town needed an eyecare. I knew there was an optometrist that wanted to open their own thing, so I approached them and it worked out. In that scenario, I do tend to go out there and find them. It might be something in the way of — if they’re just getting started, I might have to put a little extra money into them, as far as buildout or something like that goes to make it worth their while… But it’s doing a little legwork upfront, knowing what people want… And chances are, for buying an existing building, you’re still gonna have to do some sort of a rehab with it, freshen it up if you will… And in that case, keeping the rents down and  make it still pretty for them, it becomes very important.

Ash Patel: I think that’s one of the things that poeple overlook. When they think of this retail apocalypse, they look at the big box stores going under, but I think they underestimate the neighborhood services – the pizza place, the insurance place, the eye doctor, massage, nails, hair… So is that your focus? Are you trying to stay in suburban locations, versus city centers?

Shane Torres: I’ve looked at city centers, but so far they’ve all been suburban.

Ash Patel: Yeah. And I think that’s where the best returns seem to be.

Shane Torres: Yeah. The other thing – and it’s a little bit of a side bar… I’ve done large multifamily too, but I’m super-picky with that, too. So my focus right now is the commercial. I’ve had various different projects. This isn’t necessarily retail per se, because there’s gonna be [unintelligible [00:15:10].11] but my wife and I just bought an old church, because her vision has always been to do a game lounge for the youth… And we’re gonna convert this church into a game lab. So that’s her project, that’s her passion. I’m just backing it. So that’s a whole other thing, because converting a church to what we wanna do is not the easiest thing in the world.

Ash Patel: Funny you mentioned that… 13-14 years ago my wife and I bought a church and converted it to our home. Giant money pit…

Shane Torres: I’ve already said, I’ll be happy if it breaks even. It’s her passion, so… And it’s giving back to our community, because there are not old buildings in our community that are able to be redone, except for this one… And it provides a service to the community that’s not there right now.

Ash Patel: Yeah, that’s a great cause. Is there an ideal footprint or layout for a retail center that you build?

Shane Torres: It’s pretty consistent, whether it’s 4,000, 8,000, 10,000, 12,000. It’s obviously based on the size of the lot, but it’s usually longer and not as deep. That just seems to be easier to fit things in as far as offices and/or space, compared to the more narrow ones, which – then you have less walk space… That’s basically what all of our blueprints have been as far as layout goes for the last 3+ years.

Ash Patel: And Shane, do you try to get an anchor tenant, or is it just all neighborhood mom and pop businesses?

Shane Torres: I usually like to have an anchor tenant before we even start. That’s helpful. Sometimes it’s us. Most recently I was working on one – and it didn’t come to fruition yet; it was a four-story, 40,000 sqft. building that had retail on the first floor and rentals up top… In that scenario I was talking to two prominent restaurant groups that would have been the anchor tenants for that. I had already had them committed, but it just didn’t work out with the city.

Ash Patel: Have you had any luck trying to get a national tenant in as an anchor?

Shane Torres: Yeah, I’ve actually talked to a few national tenants in the building I did last year, and honestly, some of their requirements are so stringent I just didn’t wanna deal with it. And I know [unintelligible [00:17:25].18] building down the road – they had to redo all the association docs, and you can’t do this, and you can’t do that… They just demand too much, so I just didn’t wanna deal with it. I’ve tried to work with Edward Joneses and things like that… There’s too much red tape, in my opinion.

Ash Patel: Yeah. And they often don’t pay as high as a mom and pop business would. They bank on their name, saying “Hey, we’re Chipotle or Starbucks. You’re lucky we’re coming to you, so this is what we’re gonna pay.”

Shane Torres: They’re always like “Oh, this is corporately-backed.” I don’t care if it’s corporately-backed. I just want what’s best for the building, the area, and honestly, what’s gonna go as the best return.

Ash Patel: And have you invested in office or other types of commercial assets?

Shane Torres: I’ve been involved in other industrial type things; not that I personally was the one doing it, just like money into them and stuff… Again, if they make sense, I’ll do them, so kind of behind the scenes, so I don’t have to worry about it. I have looked at — just outside of our market, in other areas, more office type space; I have an option to buy a building over in Quad Cities, which is about three hours from here. I’ll look at anything.

That’s the thing – anything that I’ve done, I didn’t necessarily set out to do per se. It’s just an opportunity presented itself and I’ve figured it out that it made sense.

Ash Patel: Shane, what advice would you give somebody that wants to follow in your footsteps? They want to buy raw land, and develop retail.

Shane Torres: Just don’t try to rush it. Like I said, I’ve never set out to do these things. It started from a conversation, an opportunity that presented itself, and I looked at it and it just made sense, and let’s do it. The building that I started in 2019 but ended in 2020 – that started with us sitting down and saying “Hey, we need a real estate office in this community, but there’s nothing there. What do we do?” “I’ll build something.” It started in a different location, on another piece of land, different building, different general contractor, different everything compared to where it actually ended up. But I never rushed it, and I always had people around me who were smarter than me; the engineers and the architects, and even the general contractor that I’m good friends with that helped. I rely a lot on them, and from there I make the decisions. So my biggest thing is don’t rush it, and look for opportunities.

Ash Patel: I love that relaxed and positive attitude. Earlier in our conversation, Shane, you mentioned  you are building in hot areas; how do you define a hot area?

Shane Torres: I look at the housing, what’s growing, I look at traffic count, I look at “Have they done any improvements to the community, like widen the roads for more traffic?”, things like that. In this particular situation I referenced this development that’s like a 20-year project. So like I said, when I first started out, the building I was looking at was about two miles to the West, where we actually ended up. Even though it cost more to build, I wanna be right here. So it’s in taht hub or that hot area; we were the first building to build in this [unintelligible [00:20:33].05] that still has all this commercial to the left of it. So the apartments are there, and our major grocery store in the area is [unintelligible [00:20:40].18] It’s right next to us. That’s a hot spot.

So major corridors, interstate is close, it’s easy to get to, lots of business… We’ve got Facebook, Google, Amazon distribution centers all popping up, all in close proximity to where we’re at.

Ash Patel: Do you take on investors, or is it just private lending that you do?

Shane Torres: It depends. I do have some where I have class B shares that I have sold, just because I’ve had other things  that I wanted to do and I didn’t wanna tie up all my own money… So some have class B shares, some are just me. I have a couple that might have a partner. I will say in the beginning, just because I was just getting going, I had a few partners, and I decided not to do that anymore, just because it starts to dilute things, as far as who’s making what.

I do always set it up that I control the dynamic. My staff bookkeeper manages all the businesses for me – my personal businesses, I should say. And I have that [unintelligible [00:21:40].24] that I control that.

Ash Patel: Does most of your financing come from traditional banks?

Shane Torres: Yes.

Ash Patel: What does a development loan typically look like?

Shane Torres: I’ve got a relationship with my bank. For me, I just have to have 20% cash into it. Honestly, they don’t care where it comes from, as long as there’s 20%, and/or equity. A lot of times – this is something to think about – there’s class B space, there’s class A space, and I feel what we build as Class A+… So sometimes the appraisal does not come in where it was build at, and in that case you have more cash you have to put into it.

Ash Patel: And is your bank a local lender or a big bank?

Shane Torres: No, it’s local, and I’ll explain why. I will only work with local because of what I went through  – and you asked this in the very beginning, what did that look like, rebounding from that? The local banks knew what happened; the local banks knew what I had achieved in the last 3-4 years, so the local banks that are family-owned – they look at the big picture. They look at the person, they look at what’s been accomplished since, and they lend off of that. They don’t lend off of just history; they don’t lend off of just credit scores. So I will not deal with a bank if they’ve got a board.

Break: [00:23:01].05] to [00:25:08].28]

Ash Patel: That’s one of the best pieces of advice I give people – establish a relationship with a local lender, not a big bank.

Shane Torres: Well, I’ll share this real quick… When I first started wanting to get into doing rentals, I wanted to buy a duplex. And again, I’ve got this IRS judgment against me, I’ve got this long-standing dispute with this bank, and I’ve just had this bankruptcy three years prior to this. I went to the bank – literally, it’s right across the street from the office now, and there’s this interesting part to that here in a minute… But I went to them and they were like “Well, with that, we can’t even talk to you.”

So then I went to this other guy, sat down in his office, and he said “Why did you come to me?” And I said “Because you’re the decision-maker. You’re the only decision-maker” and he said “You’re right.” And obviously, we provided the supportive documents, but he eventually approved it.

Well, the one guy left, and went to  a different bank two months. Ago I am loyal to that guy. I can text that guy right now and say “Hey, I wanna do this project” and he will approve it. And I do that, because I still back some builders financially, even though I’m not personally doing it… He’ll approve it.

Now, the first bank, that turned me down – when I was building that first building, for six months they were like “Hey, we want a shot at that loan” and I’m like “You’re not gonna get it.” And I finally sat down and explained why. And they were like “Our owners told us to do whatever it takes.” This was almost six years ago. So six years ago I had three banks competing for that loan. These guys did a 4% interest amortized over 25 and locked in for 10. No closing costs whatsoever. Unheard of in that time. The other two banks were like “We can’t even in good conscience compete. You’ve gotta take that.” And I did. I finally gave it to them. It’s the only thing they have right now… Because I did try to do stuff with them a little bit just because of that, and I don’t like the way they run their formulas when it comes to owners’ equity.

Ash Patel: Yeah, I didn’t realize how important it was to have that relationship until I started speaking with other commercial real estate investors… And they were shocked that all I have to do is email my lender and say “Hey, here’s the deal that I’m buying next.” 30 days later it’s funded, ready to go, very few questions asked, and it’s only because of that existing relationship.

Shane Torres: Yeah. I provide financials annually, usually in January, and other than that, I don’t have to do anything.

Ash Patel: Yeah.

Shane Torres: [unintelligible [00:27:26].12]

Ash Patel: Shane, I was gonna ask you what your best ever real estate investing advice is… I think we may have covered that, but tell me if it’s something besides the lender.

Shane Torres: That’s a great piece, but for me it’s being patient. I see too many people try to rush in and force things. Be patient.

Ash Patel: Yeah. I could use some of that advice as well. Shane, are you ready for the Lightning Round?

Shane Torres: Yeah, sure.

Ash Patel: Let’s do it. Shane, what’s the best ever book you’ve recently read?

Shane Torres: This is gonna sound really weird, but I’ve just finished it today, and it’s actually The Five Love Languages Book on how to communicate with your significant other.

Ash Patel: Yup, I read that as well; it’s pretty eye-opening.

Shane Torres: I finished it this morning, yeah.

Ash Patel: Great book. Shane, what’s the best ever way you like to give back?

Shane Torres: I donate a lot of money to the community, and I don’t like people to know it’s me. Our company actually has its own non-profit organization, and they do great things also, about $80,000/year that they give out… So those would be the two things for me.

Ash Patel: That’s great. And Shane, how can the Best Ever listeners reach out to you?

Shane Torres: Two different ways. You can go to the Road to 20 Million website, which has got phone number, email, contact, or you just can shoot me an email at shanetorres@remax.net.

Ash Patel: Shane, thank you so much for  joining us today.  You shared your intimate story… You hit financial rock bottom in 2009, and you’ve bounced back significantly. You’re a rock star in the retail world, so thank you for sharing all of your life lessons with us.

Shane Torres: Thanks for having me on.

Ash Patel: Best Ever listeners, have a best ever day. Thank you.

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