JF2603: Finding Partners & Creating a Team with Stony Stonebraker

Although Stony Stonebraker wasn’t able to invest in real estate until after retirement, he went all in and is now a GP. Today, Stony is talking about his experience finding partners and creating a solid team, his due diligence process, and his main hesitation when looking at different asset classes.

 

Stony Stonebraker Real Estate Background:

 

 

 

 

 

 

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Ash Patel: Hello, Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Stony Stonebraker. Stony is joining us from Miami, Florida. He started his career with NASA in the Apollo space program and is currently a full-time commercial real estate investor. Stony has invested in over 1000 multifamily units in Florida and Texas.

Stony, thank you for joining us, and how are you today?

Stony Stonebraker: Thank you, Ash. Good to join you here, and pleasure to be here.

Ash Patel: It’s our pleasure. Stony, before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Stony Stonebraker: Sure, sure. I first got interested in investing in real estate during a W-2 career in technology many years ago. But I was so involved in my career that I really didn’t do much investing, just a little bit of personal investing. But then after I retired, I rediscovered that interest in real estate, and actually, I read Rich Dad for the first time; I thought it was a get-rich-quick kind of a book for many years. But then I read it and I realized it was really a mind shift and a change. So I read that and got back into it.

So I studied real estate for quite a while, a couple of years actually, reading a lot of books, interviewing friends, and so forth, and got back into it then about 2016 or so. I started to look at multifamily investing at that time, and ran into a couple of folks that I decided to team up with and we started to acquire some properties, and it’s gone on from there.

Ash Patel: Was that a team of just like-minded investors looking to deploy capital?

Stony Stonebraker: It was. Partially, yes. I have a partner in my business, and he had been investing in single-family condos here in Miami, and then decided that was a little more work than he wanted to, and not quite as income-producing as he had hoped. So he started to invest in multifamily. So we got together and put together kind of a team. We invested passively, and then we also became general partners later on, too.

Ash Patel: Stony, what was your first investment?

Stony Stonebraker: My very first investment was a vacation condo personally. I got it on Siesta Key in Sarasota, Florida many years ago, back early in my career. Bought it for $56,000 and it turned out to be a really good deal. It was managed by local people there, and it was a beautiful beach; I used to go over there, take care of it, but mostly to visit it on the weekends and take advantage of the beautiful scenery there.

Ash Patel: Stony, I should have asked that question better… I meant, what was your first investment with this new team that you formed.

Stony Stonebraker: My first investment, actually, was the Ashcroft deal. My partner was a student under Joe Fairless for several years. And we invested in one of Joe’s deals in Dallas, it was called the Apex, which was sold not too long ago, and I invested as a passive investor. My partner was raising capital actually for Joe at the time. So I just kind of eased into the multifamily investing that way, as a passive investor and kind of liked it. I had a pretty good background in business over time, so I was anxious, though, to move on and get more active in the business.

Ash Patel: Stony, you spent a lot of time researching and learning the industry. What were some of your hesitations or skepticisms on investing passively?

Stony Stonebraker: I didn’t have too many skepticisms of investing passively, but I wanted to learn the commercial side of the business. At that same time, I actually did get my real estate license, because a friend of mine in the commercial space suggested that, which I no longer use anymore… But I got that, and said if I wanted to really do some investing in real estate, that I should work on my CCIM designation, which later on I did work on that and I got that, and that was very helpful. I had a good finance background, so that was helpful as well, but commercial was this kind of this strange unknown space to me. Residential to me and single-family homes was pretty straightforward. And buying condos, which I’ve done some and actually bought some lots and different things like that during my career… But the whole commercial space was kind of strange. So when I studied it more and got the CCIM, I really got a lot stronger foundation on that and realized it was kind of very compatible with my business background, and financial analysis and things like that. So then I really got more interested in the commercial space at that time.

Break: [05:30] to [07:03]

Ash Patel: I would assume you looked at multiple deals before you invested with Ashcroft. What were some of your criteria? And how did you choose Ashcroft?

Stony Stonebraker: Well, at that time, I didn’t know too much about multifamily, except from what I had read briefly. And then I got online and looked at several deals that were being promoted, although at the time most of them were 506(b) syndications, which require people to go and talk to the investors, and of course, the general partners. And what I did was I went to a CCIM lunch, and at that lunch was a guy that I sat next to – he turned out to be my current partner, who was also interested in multifamily. And as I mentioned, I invested with him in the deals, and he really helped me come along to learn more about it. I developed a relationship with him before I actually invested there. And I didn’t actually look at any other deals, except a couple of them that he had brought to me, and it seemed like the way that the deal was presented and so forth was compatible. I didn’t do any of the due diligence, like an investor should, at that time. And that we do now on our partners… But I’ve certainly learned from that, and it went very well. But it was just a very brief analysis that I did.

Ash Patel: What due diligence do you do today?

Stony Stonebraker: We have a due diligence process that we follow. What we do typically is we’ll partner with an operating partner typically, who will usually find the deal, and if they like it, they’ll bring it to us. Their operating partners that we’ve developed relationships with over the last few years, who we’ve developed trust – but we do pretty extensive due diligence on them, from a criminal and credit background checks, we’ll do referrals with people who have invested with them or with people they’ve dealt with, like their attorneys or CPAs, contractors, property management company… We’ll talk and call everybody we can, that we can think of, that will help us do an analysis of the partners. We’ll also look at the past private placement memorandum to see how the deals were structured, and other things like that. We have a whole checklist of things that we go through like that, but those are just some of the things that we’ll go through.

Ash Patel: Would you recommend other investors get their CCIM?

Stony Stonebraker: If you want to be an active real estate investor, I think it’s very helpful. What happens is it has four required courses that go into some basic financial analysis to start off with, but then they also look at different commercial ventures from a different perspective – from the end user perspective, from an owner’s perspective, from a leasing tenants’ perspective, and so forth… And it is very helpful. Plus, you get access to databases of demographic and psychographic information that is not available necessarily to everybody, and it’s very helpful and analyzing deals. It gives you some techniques to help forecast market demand in the local area. Or if you’re looking at retail or others, it also looks at supply and demand gaps. We call it the gap analysis, where you see where would it be best placed for retail kinds of businesses. So it’s very thorough. This is a program that’s also accepted in 135 different master’s programs and colleges throughout the country as part of their curriculum.

Ash Patel: How does that allow you to gain access to data? Is that being part of the broker?

Stony Stonebraker: No, it’s actually just being the CCIM designee itself or a member, and it’s through the CCIM—once you join, and you don’t have to be a broker to join it or even have the designation to join CCIM. You can join a local chapter in a city, and then you’ll have access to their database as a member. And I’ve found that is very good. And the people in CCIM are very professional. You’ll find that at the top of the commercial real estate professionals are CCIM’s.

Ash Patel: Great advice. Stony, how did you enter into becoming a GP on deals?

Stony Stonebraker: Well, my partner Lee and I had invested together, he was a co-GP on several deals, and we just decided we wanted to be more active in it, because we had found out that being an LP gives you a limited perspective, and limited returns, although very good, and limited experience in actually operating a deal, because it’s always the rubber meets the road when you actually have to operate a deal. You find out, when you’re in the middle of one, there’s a lot more to this than I thought, it’s not just reading a book and applying that. But we wanted to do that, and so we found another partner that he had discovered along the way, who made a third partner with us that made a good team. So we started analyzing deals, underwriting them, and visiting, touring properties, and so forth. We actually made a few offers, but not too many, before we finally found one that we really liked more than the others… And we decided, if we can get a good team together of other people who can help us actually raise the capital for us, then we should be in good shape. So we did that. In fact, that’s a deal that we just sold and closed on sale last week, and it turned out to be a very nice deal for our investors.

Ash Patel: What were the returns for the GPs and the LPs?

Stony Stonebraker: For the LPs, it’s a little over 20% average return, a 19.5% IRR, and that was after about 2.5 years on that. So we felt very good about that. We still have some minor bills and so forth, payments to do ourselves on the GP side, so I’m not sure what our returns will be… But we felt very good about that for our—that was about two points above the pro forma that we did it for that. And we’ve just took advantage of the market the way it is now. We thought last year, when COVID started, we were concerned about the impact, of course, like most everybody was, and it turned out to be much less of an impact. But it did prove the recession-resistance of multifamily, which is why we got into multifamily in the first place, and not into offices or even industrial, or other types of sectors; while industrial is going strong itself too, it has some impacts from the general economy as well. So you never know about these, but it’s doing well. But we really like that.

Break: [13:21] to [16:01]

Ash Patel: Stony, the person you brought in to raise capital, was that a professional money raiser?

Stony Stonebraker: No, it was other people who have been in the business. They were co-GPs with us. They had some experience. They brought in some experience in managing deals and doing some asset management and doing some due diligence. So we had them doing some other things as well, and we had quarterly meetings with them to talk about the operation and to discuss the renovations that we did.

Ash Patel: How did you find those people?

Stony Stonebraker: Actually, my partner knew them. He had more experience than I did at the time. I just read about it, as we talked about, but he had actually been investing in some deals, or starting to invest, and had been, again, in Joe’s coaching program. So he had some contacts through that coaching program as well. So he knew some other folks that did some raising for some of Joe’s deals, I think, and others… So they were able to contact some of these people and they wanted to join us, thought we had a good team together, so we raised the capital that way.

Ash Patel: Stony, what is one thing you wish you did differently in real estate investing?

Stony Stonebraker: Started earlier. Part of our program is we want our investors to be better investors; we want them to be financially literate, we want them and their families to be financially literate, their children. So we really think that people should be starting early, so you can take advantage of the compounding over many years. So I did some investing. I was so wrapped up in my career and busy with that that I did very little investing of my own, and didn’t really consider building up an asset base potentially of passive income growing over years. And while I do have a nice nest egg now, it is just because of my age and investing in 401(k)’s and so forth over the years. And I’m gradually transitioning that over into more income-producing assets as we talk right now. So I would urge everybody to just start early.

Ash Patel: Stony, are you ready for the Best Ever lightning round?

Stony Stonebraker: Let’s go for it.

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

Stony Stonebraker: There’s a couple of them that I like, that we recommend to our passive investors, who are—mostly who go into our deals. But one that just came out this year earlier, I thought they did a really nice job, was Passive Investing Made Simple by Anthony Vicino and Dan Krueger. They did a real nice job. I want to give a shout-out to them. They did a nice job on that book.

Ash Patel: Stony, what’s the best ever way you like to give back?

Stony Stonebraker: Well, Lennon and I started a program the first week that COVID shut everything down; and it just shut us down, and we’re trying to get this restarted shortly. We bought several of the Cashflow For Kids board games. And we were just about to start a Saturday board game with kids in Big Brothers and Big Sisters, and they shut us down two days before our first class was starting. So we’re getting ready to start that up again, and looking forward to that, because that’s again part of what we really think is young people, especially people who don’t have the advantage of some educational aspects that we like, that other people are, to take advantage of that; they can learn a lot from that and maybe it’ll open up some eyes.

Ash Patel: What a creative way to give back. Those cash flow games by Robert Kiyosaki are awesome.

Stony Stonebraker: They are.

Ash Patel: My kids play them, it’s a great teacher. Stony, how can the Best Ever listeners reach out to you?

Stony Stonebraker: Well, our website is passivorei.com. Passivo is Spanish for passive, except it has two S’s in it, and my partner is Venezuelan, and he then brought his family and his money up from Venezuela a number of years ago, and so that’s kind of like what we think of as passive, is our investments. So passivorei.com. They can email me at stony@passivorei.com. And Stony is without an ‘E’, it’s just S-T-O-N-Y.

Ash Patel: Stony, thank you for taking time out of your day and sharing your story with us; coming up, finding real estate later in life, but then killing it and going all-in, becoming a GP. Thank you for sharing with us.

Stony Stonebraker: Glad to be here, Ash.

Ash Patel: Best Ever listeners, thank you for joining us, and have a best ever day.

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