Risk Adjusted Returns, with Paul Shannon

Welcome to the Managing CRE Risk podcast with Jeremy Goodrich. Our guest today is Paul Shannon, a multifamily investor from Indianapolis. In our conversation, we talk about how to mitigate real estate risk, how to succeed in the current market, and what metrics to focus on in your underwritings. What you'll gain from this conversation is a high-level understanding of how someone in the CRE world thinks about risk, so you definitely want to tune in.

Learn more about Paul and his story at shineinsurance.com/managing-commercial-real-estate-risk!

“Having different options gives you a margin of safety, where maybe if you just go into one avenue for success, and that avenue doesn't work out, you're in a pinch.”

 

03:59

At the beginning of the conversation, Paul talks about the biggest risk he’s taken in his life. When he was 37 years old, he left a well-paying sales leader position to pursue his career as a real estate investor full-time. He mitigated the risk by educating himself, saving up, and building a solid safety net for himself and his family. He started investing in the Midwest, specifically in Indianapolis, as it’s a historically cash-flowing market.

 

Paul’s advice on how to mitigate real estate risk and build a successful portfolio is to always have options in your investing journey. Plan out multiple exit strategies with every investment to never be backed up in a corner.

“When inflation is above 4%, and unemployment is below 4%, in every case, we've gone into recession. “

 

15:30

Paul shares his insights about the current real estate market and how to manage its risks.

• We’re most probably heading towards a recession, so be prepared for the potential downside.
• In the current environment, cap rates are expanding a bit more than they have in the past. Therefore, be more conservative in your underwriting.
• Due to inflation, fewer people can afford to buy homes, which means that they're going to be renting. That's a solid indicator for multifamily. Multifamily has typically done very well in times of inflation.
• During a recession, vacancy affects A+-class (luxury tenants) and C-class (working class tenants) properties the most. B-class properties are a bit safer avenue.

 

Paul is a passive investor as well. His favorite metric in underwriting is the yield on cost, which is the pro forma net operating income. It provides a way to compare the potential return on a value-add investment versus less risky alternatives. To calculate it, simply divide the net operating income by the project's total cost.

About our Guest, Paul Shannon

Paul Shannon spent his career as a sales leader and consultant for a large ophthalmology company, implementing surgical devices into operating rooms and health systems across the midwest. Since leaving his corporate career in 2019, Paul has acquired over 150 single-family and multifamily units by recycling his equity, using the BRRRR method, and/or joint venturing.

Paul has experience in acquisitions, raising capital, property management, and project management, and is a licensed Realtor in Indiana.

Along with being active in his business, Paul is a passive, limited partner in over 1,400 multifamily units, numerous industrial offerings, and ATMs.

Mentioned in the show:

1. www.redhawkinvesting.com
2. His LinkedIn
3. Shineinsurance.com
4. www.shineinsurance.com/managing-commercial-real-estate-risk
5. Jeremy’s LinkedIn

Need an instant insurance ballpark for your next Multifamily deal?! Answer 9 simple questions and we’ll give you a sense of what insurance should be. Visit us here for everything you need to know: https://www.shineinsurance.com/ballpark/ 

 

Special thanks to Paul Shannon for taking the time to share so many great insights with us

 

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