On the show today we talk about… From Residential to Commercial with Sean Katona!
Show Links:
– Simplified Properties website
– Sean Katona’s LinkedIn
– Instagram
– CoStar
– LoopNet
Show notes for From Residential to Commercial with Sean Katona
The Vantastic Life is…
– is in Whitehorse Canada
Set a goal that is so big that you can’t achieve it until you grow into the person that can!
Sean is in Huntington Beach CA
Julie is headed up to Banff Canada on a backroads adventure this week.
Sean Katona is our friend from Seattle, but is now living down in Cali. Sean is a commercial investor, coach, and all around good guy!
“Set a goal that is so big that you can’t achieve it until you grow into the person that can!”
Julie might have to talk to a landlord on that call.
Sean Katona
Born and raised in the Seattle area. Mom and Dad split up when I was younger. Watching my mom handle money was very informative, where my dad had a regular job.
I remember picking up the book Rich Dad Poor Dad, and knowing that I didn’t ever want to have need for money.
Julie
We had people on the podcast that have started getting into real estate in junior high and high school. Are you one of those people?
Sean Katona
I bought a Carlton Sheets program when I was in high school.
Then I got fired from Microsoft the second day of working for them because they were getting rid of the team that I joined because they didn’t make money.
Then I got rehired to work with the Xbox team down in CA, and I had a really cool job where I got to play video games.
Julie
You always look good online, so your UW marketing degree must have stuck with you.
Sean Katona
I think if you look at other businesses you can see what they are doing, and that’s one of the biggest things that I’ve seen and learned. You have to market yourself in all businesses.
It’s a number game. If you talk to enough people you’ll find deals.
Julie
What’s next?
Sean Katona
I was making some money, and getting commission checks, and had some money. So, I bought a property back in SeaTac. Where I invited friends and family to help me fix up the property.
Then when it all panned out… the deal didn’t cash flow, and actually did better as a flip.
Then I bought another property where I used my whole nest egg.
I went out and found coaches and mentors to learn this business at a higher level. I found that if I didn’t two of these deals a year I could make a annual salary.
In 2012 I found FortuneBuilders, then I left corporate America, and I did 6 deals, and then 12 deals, and then we did over 20 deals.
Julie
We’ve have a new podcast series called My First 3 Deals. So, did you have any trouble or what happened?
Sean Katona
Those first 3 years were great! I was having people help me look at the numbers, and things were going good.
Then I moved back to Cali and we had a couple deals that went really bad. I lost 6 figures back to back on those two deals.
Julie
At that point you were super experienced, but were too systematized. You have to keep people full time busy, but then they start talking too long. You have to find someone that’s watching the shop at all times.
Sean Katona
I learned that I have to check personally everything that I green lit.
Julie
There’s like 3-5 things that you just don’t delegate. That you have to be responsible for.
People on Facebook say that they have these machines that are running themselves. But I think that’s all fluff.
The most important top few things. Like the insurance, or stuff that can take you down.
Sean Katona
I was at the threshold where I needed to get more involved, or hire real people that can do this full time. So I needed to do enough deals to pay them.
Then I needed to decide if I was going to do this from a thousand miles away, or is that really my goal. Which was passive income, and safety, and able to live my life.
Julie
A successful real estate investor is someone who accomplishes their own goals. It’s all individual.
Good for you!
How do you split up your time between investor, dad, husband.
Sean Katona
In theory I spend a third of the time finding the next deal, leasing out the buildings, and then finding more capital for the next buildings.
I look mostly in Arizona, and I do 2-3 deals a year. They throw off 6 figures of cash flow and lots of tax advantages.
I also have some legacy deals in the NW that I kept in portfolio that cash flow.
If I can do one more deal that can be a large commercial property, it will take the same amount of work as a residential deal.
Julie
That’s awesome! You’ve simplified your life.
How did you get to the point of the first deal?
Sean Katona
It took me a long time to learn it, so it took a while. The first deal was a few million dollars.
This deal cash flowed from day one, but it was unstable. So, we had to revitalize the tenants, and change the floor plan.
Julie
How did you live while closing that first deal?
Sean
We could cover our nut just with our single family rentals, but first deal could cover itself. We had an accredited investor so we didn’t have to some out of our pockets.
Britney still works, and has an awesome job in corporate America. It’s a job that she loves.
Julie
Yes, we tell everyone, don’t quite your job. Keep your day job so you are more bankable.
If you quite your job you don’t qualify for any loans.
Sean
We were ripping because we could live off cash flow, and everything else went into long term savings.
Don’t turn off your income streams!
Julie
Are you invested in value add and sell, or an upside on underperforming centers?
Sean
Opportunistic or value add. I’m looking for things that I can fix. Same with residential.
We look for things that can double in value if we bring it up market condition.
We will test the market, like a deal that we are working right now. If it sells, great. If not, we’ll keep it for cash flow.
Julie
Why retail centers? I hear that those are getting pummeled by people like Amazon.
Sean
It’s a little contrarian. What’s an apartment deal doing in Seattle right now… 4%… I can get a 7 our 8 cap in Arizona.
Julie
So your tenant base is the mom and pops. And things that Amazon doesn’t effect.
Sean
I have stayed away from the big boxes because they are getting cleansed due to Amazon. I can put a lot of different types of businesses in my smaller boxes.
Julie
Do you have a strike zone that you’re looking at?
Sean
I’m look for 3-6 million that’s in between the competition. I like those numbers, and the deals that we can make at least 7 figures for the 1-2 years of work.
We always use property leasing agents.
Julie
The best thing that we ever did to protect ourselves was making sure you’re not having your leases expiring at the same time. So you don’t have multiple vacancies at the same time. And then tying that into your loan.
Are you doing 1-3 or longer?
Sean
That’s another reason that I love retail. Once you get that 5-7 year deal inked, it’s pretty low maintenance after that.
Julie
Having a stacking plan in relation to your leases and loan refi was what saved me.
I’m so excited for you man!
You killed it in single family, and now are taking control of life and maximizing your returns.
You can think big from the beginning, but you have to educate yourself.
When you were getting started did you have to show proof of funds?
Sean
I definitely love brokers. Deal brokers debt brokers. My deal flow is through brokers, direct mail, and a decent online presence. I also use CoStar and Loopnet.
Julie
Seattle Investors Club has a weekly mastermind every Tuesday in Burien from 12-2pm.
Are the properties you’re buying mom and pop managed?
Sean
We do get mom and pop and broker managed properties. I’m really looking for problems.
Julie
What do you think the riskiest part is for you?
Sean
I want to lock in loans as long as I can so I have predictability. Then I can just manage the rent roll.
I don’t like buying in places with a ton of vacancy. I try to find the most broken building in a great pocket.
Julie
I think all the management stuff can be figured out, but the loan rates can be the most chaotic thing.
Sean
They will give you a loan for as long as you have the income. If you have a Starbucks for five years, they’ll give you a similar loan timeline.
Julie
The thing here is how do you fit in to this game… if you can figure that out you can get all of the other pieces done for you.
What do yo think is the most helpful things that you’ve learned to get you to where you are today?
Sean
Umm, that’s a good question! I’ve learned so many things the hard way. I think aligning myself with someone that’s done this before. A coach or mentor. Every problem can be overcome with enough time or money.
That’s saved me a good amount of brain damage.
That way you can go after bigger deals. I’ve had people looking over my shoulder to help me out.
Julie
Do you have any resources that you’d recommend.
Sean
There are a couple that I can’t think of right now.
Julie
Cool! Joe can follow up with you.
What are your 12 month and 5 year goals?
Sean
We will sell or refinance a deal, and then another Montana deal that we’re working on. I’m thinking buy 3 deals a year.
Julie
Is that why you choose retail?
Sean
Not exclusively. I also have part ownership in an apartment deal in Dallas as well.
There are just a lot of deals that I can’t make pencil. And if everyone is spooked about retail right now, that’s where I want to play.
And I can help out my friends and family by investing their money, and they can keep doing what they are doing.
Julie
You zigged where everyone else zagged.
Sean
I’m hoarding cash right now, and getting ready to go on a buying spree when things shift.
Julie
It’s weird with commercial. You can see a fully occupied building and now know what’s happening.
There’s some opportunity when rents go down and commercial buyers need to refinance.
Sean
That’s when generational wealth is going to be created.
Julie
Who’s going to know that first? I’m just talking out loud right now.
Is it the commercial lenders who are holding those loans… I think that’s who you are going to want to buddy up with.
Sean
Also property managers who know that their owners are running out of cash. They need to fix things up but can’t afford it.
Julie
You could call up property managers and say that you have a tenant that want in to the building, but needs a large tenant improvement.
I don’t know if it makes any sense.
Sean
I like it! One of my favorite ways to find deals is… listen to the show to find out!
Julie
That’s a good one!
How can people find out more about you?
Sean
LinkedIn I love, Instagram, Google, SimplifiedProperties.com
Julie
Hit us up every Tuesday in Burien (at Angelo’s), and we just launched another one up north! Make sure you’re on our email list!
You can reach me at julie@seattleivestorsclub.com. It’s a powerful format!!
You don’t have to join the club to come, just show up!
Sean
You guys are awesome!
Julie
The coolest part is… Sean we’ve known you for 4-5 years, and you’ve even moved out of town, what I love is that we’ve all had this evolution of where we’ve gone.
Are you waiting for #2?
Sean
#2 is already here, and 4 months old.
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