Selling Your Single-Family Portfolio Without the Tax Hit with Sharon Riddle, Ep 89

Today's guest is Sharon Riddle, over her career, Sharon has worked in companies, non-profit organizations, and government agencies providing business solutions in the areas of software upgrades and business process analyses. 

Sharon began investing in single-family real estate in 2005 with her husband and business partner, Dan. They started the transition to Multifamily in 2015 through education and passive investments in multifamily syndications, before pursuing a more active role.

Sharon emphasizes the importance of education, mentoring, and strategic planning in real estate investing. The discussion covers market trends, investment techniques, and changing goals, providing valuable insights for effective investing. Stay tuned!

Episode Topics

[01:14]  Meet our guest, Sharon Riddle
[01:36] Sharon's Transition from Single Family to Multifamily Investing
[05:20]  Navigating the 2008 Financial Crisis with Private Lenders
[12:12] The Shift to Multifamily and the Power of Stagger Sales
[13:34] Tax Strategies and the Benefits of Multifamily Investing
[19:59] The Future of Multifamily Investing and Market Insights
[23:26] What is one red flag every investor should look out for?
[24:05] What is a myth about the real estate business?
[26:43] Connecting to Sharon

Notable Quotes

• “Mentors, childhood background, and MBAs guided our real estate journey. With training on private lenders, we added properties to our portfolio." -Sharon Riddle
• "Scaling single-family homes became a challenge. Dallas Fort Worth's market clashed with our formula, prompting our shift to multifamily." -Sharon Riddle
• "Private lending gave us a unique advantage during the crisis. We capitalized when others struggled with bank loans."  -Sharon Riddle 
• "Diversifying with passive investing builds a cushion beyond relying solely on a job or a 401k." -Tim Little 
• "Diversify income, utilize cross-skills to create businesses." -Sharon Riddle
• "Keep training and networking; you never know when you'll need to pull something out of your hat." -Sharon Riddle
• "Multiple streams of income are crucial; relying on one source is risky." -Tim Little 
• "Start by passively investing to understand the responsibility before becoming a syndicator." -Sharon Riddle

👉 Connect with  Sharon Riddle

• LinkedIn: Sharon Riddle
• Website: https://excalibretexas.com/
• Email: riddledsn@verizon.net
• Telephone: (817) 368-1938

👉 Connect with Tim

• Linkedin: Tim Little
• Instagram: @tim_at_zana
• Email: tim@zanainvestments.com
• Visit www.ZANAinvestments.com for more info on Tim and how you can passively invest in multifamily real estate
• Get your Passive Investor's Cheat Sheet FREE

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Transcript

[00:00:00] Sharon Riddle: I really was right about the fact that I could work with contractors and handymen really easily because I could. It was just, it was just thanks to my dad and the, unfreely, childhood that I had as a girl. and, then we ended up moving forward and transitioning on to multifamily. We could not scale our single family business. to the point that we wanted to reach our goal. Even though we did have private lenders because there had been a credit constraint like 2008, 2009. And we went to a bootcamp with Allen Calgill for that. So having the banking and having credit, that wasn't a problem 

[00:01:14] Tim Little: Hello, everyone, and welcome to the journey to multifamily millions. I'm your host, founder and CEO of ZANA Investments, Tim Little. And on today's show, we have with us Sharon Riddle. Over a career, Shannon has worked in companies, nonprofits, and government agencies providing business solutions in the areas of software upgrades and business process analysis. Sharon began investing in single family real estate in 2005 with her husband and business partner, Dan, and they started the transition to multifamily in 2015 through initial education and passive investments in multifamily syndications. Sharon, welcome to the show.

[00:01:51] Sharon Riddle: Thanks, Tim. I'm really glad to be here with you.

[00:01:53] Tim Little: Yeah. And it's great to have you. So you have a lot of experience on both the single family and multifamily side, but let's flesh that journey out a bit. Please tell us how you got started in real estate and how you got to where you are today. Yeah.

[00:02:08] Sharon Riddle: How I got started is my business partner attended a managing your money seminar and he came home and said, wow, Sharon, this is something great. You can do my, you have to understand. My dad was a construction subcontractor. So I was a construction brand. yeah. Having contractors in my childhood home was a very frequent thing that went on. And we picked up some single family homes and I self managed because I ended up having to fire the person who was the property manager and I felt I could do it better and I inherited the job. and I really was right about the fact that I could work with contractors and handymen really easily because I could. It was just, it was just thanks to my dad and the, unfreely, childhood that I had as a girl. and, then we ended up moving forward and transitioning on to multifamily. We could not scale our single family business. to the point that we wanted to, to our goal. Even though we did have private lenders because there had been a credit constraint like 2008, 2009. And we went to a bootcamp with Allen Calgill for that. So having the banking and having credit, that wasn't a problem because we had the private lenders, but it was just getting enough of the single family properties. And that kind of collided with appreciation in Dallas Fort Worth because the homeowners were picking up properties even though they needed more repairs. they're just picking them up and even the investors were not working to a formula. That was what I was viewing and we always stuck to a formula because if you can't buy them right, it's never going to be right. And so that's how we ended up moving to a multifamily. I had a single family mentor who introduced me to my multifamily mentor and I went to his event because I had the promo code. I went for free. And then we joined his community in 2015 so we could get some more scale and that's, that's what we did. And that took us to multifamily.

[00:04:15] Tim Little: And that's great. I just want to hit on some of the things that you talked about, coming up. So first of all,you went straight to the single family and were familiar enough with real estate investing that you knew how to do that. Or was that something that you learned, at the managing your money seminar or through reading books, even from the get go.

[00:04:35] Sharon Riddle: One thing that I've always had is I've always had a mentor. So way back in 2005, we had an organization that was doing some real estate training. It was Russ Whitney's organization and I still am a, I'm actually a sponsor in a real estate club in Fort Worth, Texas, and it was a person who was doing the training for wholesaling. So he and I've had this relationship this entire time, but we've always gone through, with, with coaches and mentors. So we weren't just reading books to try to figure it out as we went. So coupled with my childhood background and both Dan and I have MBA, we can combine the numbers and then have trainers through Russ Whitney's organization at that time.

[00:05:18] Tim Little: Yeah. And that all makes a lot of sense. Let me talk to you about the timing though, because you said you got started in, at least with the single family in 2005, did you already have A couple of properties by the time the 2008 nine financial crisis came around. And if so, what impact does that have on your portfolio?

[00:05:39] Sharon Riddle: what happened is that we were still, we were able to still acquire properties, during that time period because we went to that. Allen Calgill's private lender boot camp and learned how to work with private lenders. So we had a system, we had, we had the training to do that. And, we really added several other properties.

to our portfolio through that one was an REO. We had a couple of HUDs. At one point in time, Dan was acquiring my partner was acquiring properties through HUDs because he could just estimate the offer. And, and we, they were treating, the, the lenders were treating us as cash buyers. Yeah, they were treating us as cash buyers. So we were in a sweet spot regarding that. We just couldn't buy enough of them fast enough. That was the situation by the time we got, really down the line in, even, 2010. We just couldn't buy enough of them.

[00:06:36] Tim Little: Yeah, that's awesome. Because, for you, this really presented an opportunity. It wasn't the disaster that it was for so many people. In fact, you were able to capitalize on that opportunity because you were in that unique position where you had that private lending, whereas everybody else was in a situation where they couldn't get a loan from the bank if their life depended on it because the bank's kind of clammed up, right? they didn't want to lend out after everything that had happened. So that's really interesting. going,

[00:07:03] Sharon Riddle: I will say, yeah, Tim, I will say too, Alvin Calligill has also been on my radar screen. And. and I know as real estate investors, we have to keep thinking, keep training and keep people on our radar screen and in our mind, because you never know when you're going to have to pull something out of your hat as an investor.

[00:07:23] Tim Little: And that was just one of those things that the timing ended up right, because I was aware that Allen Calgill offered training for people who needed private lenders. And I think you're so right with that ability to be flexible, to pivot when the situation changes, which has certainly happened within the past year or two. And we can talk about that later, when it comes to the multifamily market, that can save you in some really bad situations. and really help you succeed in the long term. The other thing that you talked about was the single family. And I think something that anyone who has owned single family investment properties can attest to is I can always manage it better than someone else can, right? no, no one will be as concerned, about the profits coming off of that property. Then you will certainly not be someone who's getting paid, eight to 10%, To property manage it. And it sounds like you ran into that situation to the point where you're like, okay, I'm done with property managers. I'll manage this myself. Having done that myself as well. I guess I would ask, how are you able to balance the time involved? Because I imagine you were working a full time job at that point and still trying to self manage these properties. Or is that not the case?

[00:08:40] Sharon Riddle: Actually in the beginning I was, and then I ended up, I actually ended up being part of a layoff. And so I ended up just acquiring more properties and Dan and I split our parenting duties. And I was the person who dropped my daughter off and did some other things in her Montessori school and he spent more time with his W2, job in aerospace. So we were at that time we could flip that and the business was profitable enough to do that. But I did get caught in a layoff squeeze. And I know your listeners have. They've dealt with that or they may deal with it in the future. And, it is painful because that is part of your identity. And I had been a successful senior business analyst for a transit organization in Dallas. And, that was part of my identity was wrapped up in what I was doing there, but I was concurrently doing both. So I just ended up putting more of my effort into our single family, home portfolio, our business. that we created.

[00:09:47] Tim Little: Yeah, and I think that's great that you and your husband were able to divide the responsibilities, and like we talked about, a minute ago that pivoting, yeah, you may not the situation you were in or, being laid off, but you were able to make it work. And, that's something that a lot of people don't think about. People just assume that their W two jobs, their regular job is. is safe and secure. But a lot of those jobs can go away in an instant. And when I talk about passively investing, that's one of the reasons I advocate for it is because, okay, yeah, you have this 401k and that's great and all that. But one, you need to diversify and to that job that you have may not always be there. So you have to always be thinking about how to grow. Whatever nest egg you have, so that you have that cushion in the worst case happens.

[00:10:34] Sharon Riddle: Yeah. and I learned that, I learned that lesson firsthand. And, from then on I was, Dan and I were both committed to having another stream of income.

[00:10:44] Tim Little: Yeah, and that's the broader point I think is having multiple streams of income. I mean we could sit here and you know spout this Statistics that you know, the average millionaire has seven streams of income I don't know that the number of streams is as important as having more than one Right. If you have one, you're inherently at risk because especially if it's for an employer, they can take that one away from you at any time. And that's not a very comfortable place to be in. 

[00:11:12] Sharon Riddle: one thing I learned too, is that you can utilize your cross skills and you can, you can create another business because that was the first of, we will have created our fourth one pretty soon. I had that ability in me, from my training and my background.

[00:11:30] Tim Little: And,I, you can redirect, you could redirect that into multifamily investing and single family investing too. I chose to eventually direct that into multifamily investing. All right. And I know I personally, from the self managing perspective, hit a point where I was like the amount of time that I'm putting into this doesn't equate to the amount of money that I'm getting out because I was getting into the multifamily syndication side of things. At the same time, and I think it sounds like, just like you did, I started to shift that focus of both time, money, et cetera, from the single family side to the multifamily side. Talk to me about that shift for you and what that kind of looked like.

[00:12:12] Sharon Riddle: that shift was, occurring in 2015. So what we were doing because we had such strong appreciation for our single family properties, we were just selling them off. We were doing a stagger sale and we ended up redirecting those funds into a multifamily company. So we moved that into an LLC. LLC. and funded some more purchases. what we also did, and it was just the, it was timing. Dan also received a substantial inheritance. And we utilize those funds as well as the funds that we had, received through the stagger sale. And we were continuing to stagger sell single family properties all the way up to 2019 because we had some long term tenants and we just eventually had to sell the properties. They just could not get to the point where they were homeowners.

[00:13:10] Tim Little: Yeah.

[00:13:10] Sharon Riddle: We gave them some time to do that, but they just couldn't make it work.

[00:13:16] Tim Little: yeah. And acknowledging that neither you or I are tax professionals. What did that look like from a tax perspective when you had that big capital event, which was selling those properties? Were you able to offset that with some of the multifamily investments that you were getting into?

[00:13:34] Sharon Riddle: That is exactly what we were doing the whole time.

[00:13:37] Tim Little: Okay, great.

[00:13:38] Sharon Riddle: That's why we were trying to do that. That's why we were trying to do a stagger sale so we wouldn't have an event. And we were always trying to invest in at least multifamily properties, and even in any given tax year. And I will say we are now at the point where we have invested in 18 multifamily properties.

[00:14:02] Tim Little: Yeah, that's awesome. And I think that's important

[00:14:04] Sharon Riddle: It almost happened on one cycle.

[00:14:07] Tim Little: Yeah. and that's really important for people to hear because, a lot of, folks are coming into, learning about multifamily after they've already, like you and me had a couple of single family, maybe they have two or three single family properties and they're like, Oh, I don't want the huge tax hit. If I just sell this stuff, there are methods out there like what you did, where you stagger that sale and then you're offsetting that capital event because you're investing in syndications and still getting that depreciation. which, they get through a K one and so it, like I said, it helps offset and they may not know that, unless they dove a little deeper. So there are options out there for people who are looking to get out of that, landlording and maybe even self managing their single family properties and start that transition into the more passive side of things in multifamily syndications.

[00:15:39] Sharon Riddle: Yeah, Tim, I didn't even know how great the tax advantage was with multifamily when I was still in the middle of my single family self managing that portfolio because you had that. You've experienced this too. You had that carryover cap every year. I think it was like 25 K and you had to do the carryover loss until you sold the property. you don't have the same kind of,you don't have the same tax benefits in multifamily. You have some superior tax benefits actually in multifamily, that can really help you balance out. the portfolio because, my, my partner still has his W 2 in aerospace. So we're, our CPAs instead of a person that we're having to fight over regarding the tax preparation in 2019, we met our current CPA and I'd been through three and they understood real estate. And now it's really a meeting of how are we going to get to our tax goal? How are we going to get to that point? And we have a bookkeeper too. I didn't have any of that in the beginning, but we've evolved to that point because we have to be strategic, not only about the acquisitions, but also about the taxation.

[00:16:50] Tim Little: Yeah, no, that's a great point. You have to start tracking a lot more things as you start to advance through this business. talk to me about your first, multifamily endeavor as a general partner, right? you talked about some of your passive investments. What did that first deal look like where you were a general partner and perhaps even bringing investors into the deal? 

[00:17:13] Sharon Riddle: At this point in time, we have been best and final. We have not crossed that bridge in our journey. That is the rest of the story that's still evolving, being the best and final of a couple. So come close, but we're still looking to, to be,on the general partner side of things, too, and, I think we can bring a lot of experience, from, the professions that we've had as well as, our single family days and being a passive investor since 2015, we really look at things a whole lot differently. And to be quite honest, I believe Dan and I will be very protective of our passive investors because we really have walked that walk for a while.

[00:17:56] Tim Little: Yeah. And I think that's a really important point and something that I tell to a lot of people who are like, aspiring, syndicators, But they've maybe never passively invested in a deal. I say, that's great. And I understand, you want to do this, but my first recommendation is always to passively invest first, you learn the ropes and do what I call, learning while earning, you're able to, you're able to ask the questions. You know that you want to ask so it's almost I won't say free education because you're investing right? But you get You're privy to, a lot of the documents involved, maybe even the underwriting, you get to see the PPMs, you get to see all those things that, that you need to truly understand before you can go to investors and ask them for their money, because, I think it also gives you a real appreciation for the, the responsibility, right? That first time you make a passive investment, whether it's 25, 000 or 150, 000, it's still a big deal. And I remember how nervous I was, even though. It was a relatively small amount of money of 25, 000. To me, that was huge. And, sometimes people forget that because it's a matter of scale, right? But to every investor, that money is a big deal. And I think you really understand that more when you've been on the passive investing side first. And so you take that responsibility very seriously once you're in the other shoes. As the general partner and you're asking someone else to trust you enough, to invest their money with you. 

[00:19:27] Sharon Riddle: And,at one point in time, we thought we were going to be on the general partner's side a little sooner. But I think sometimes, there's a reason things happen the way they do. And I think that probably Dan and I not only needed to know how that, how that worked, how that felt, maybe we needed to really be able to, to feel it. And so I think maybe we needed to be able to really have,have a really big heart for our investors. So there's always a lesson to learn.

[00:19:59] Tim Little: Yeah. And talk to me about what you're seeing in the market right now, because you talked about being, investing in final and right now is a very important time. Different situation. when, with regards to commercial multifamily, then it was say a year or two ago, where you couldn't miss right with a deal. especially if you bought right before COVID, in a hot market, rents were going up like crazy, as was the valuation. so now things are a little different. Things have cooled down. We're in a situation where rates are much higher. sellers want more than many buyers are willing to pay. And so it's just a strange and different environment than it was a year or two ago. But what are you seeing as you're underwriting deals?

[00:20:45] Sharon Riddle: what I'm seeing is, what you talked about, buyers still, buyers and sellers have still not come to a place. where they are meeting.

[00:20:55] Tim Little: There are some deals that I've had to pass on for, that I've, we toured the property cause we have GPs who are touring and I'm one of them.and,there's still that gap.

[00:21:07] Sharon Riddle: There is still that gap regarding the buyers and the sellers. And I think that is. That gap is going to decrease. I think that gap is going to decrease. So I think we're optimistic that we're going to get to a point where buyers and sellers are close to being on the same page regarding that asking price. the sale price,

[00:21:30] Tim Little: Yeah, I agree that the gap is gonna have to close before any business gets done. And right now, we're like,10 to 20 percent off from what buyers are wanting. And like you talked about from the very beginning of this conversation, you had your formulas. that you follow, that, that stands true even today, right? We can't deviate from the numbers just because we like a property. That's not how this works. This is all an investment. So if I can't make enough profit to kick that off to my investors as well, then it just doesn't work and there's nothing I can do about it. And so I have to say, this is how much I can offer, not how much I want To offer, right?

[00:22:13] Sharon Riddle: right? you've still got to, you gotta remain strong, be resilient on that. And you know that, it's disappointing when you have to walk away best and final a couple of times, you just gotta be stoic about it. that's. That's the only thing I can suggest. Yeah,

[00:22:29] Tim Little: Yeah. It's certainly frustrating, but I suppose it's better than the alternative of buying a bad deal where you're not only putting yourself in a bad position, but potentially your investors as well.

[00:22:41] Sharon Riddle: well, especially since we've had so many rate hikes, as you discussed in 2015, 2016, when I came in as a, as an LP.you would, you'd really have to be doing some super, super dumb things for a property not to make a profit. And your distributions were going to be humming along for those passive investors. And in those earlier times, I had properties that went three times or above on return from that era. Post COVID.

[00:23:15] Tim Little: Yeah, exactly. Some deals that were supposed to be five year holds were going full cycle and less than three years. And now normal is five to seven years old. For a lot of, what we're looking at anyways. So it's just a different time. And One, we need to let the market settle itself out, but also, investor expectations have to change based on that too, right? Because if they were investing with the expectation of what they had from their last deal that went full cycle in three years and they got like a, 2. 5 equity multiple. maybe that's just not even possible in this environment. And so part of that, I think, is education on our part to help them understand why that may not be possible based on the circumstances. the 25 rate hikes or whatever it is from the Fed, where we're at. and all those different things that play into it that they just may not be aware of.

[00:24:13] Sharon Riddle: And, in Texas, where a lot of my properties are, you've got insurance and you've got property, increase it. the appreciation still, you've just got the increase of the, on the property. How much, how much do you have to buy them for? And then the capital raise, that can be, that can appear daunting. Right.

[00:24:35] Tim Little: Yeah, and I think the easiest way to reflect is to say, are you paying more at the grocery store like that's inflation? that carries over into the supplies and everything else that's associated with, you know Adding value to these properties right when you're getting a quote from the contractor all those supplies that go into that whether it's the You know the newFlooring or the wood or whatever, if those are going up incrementally in price, then that's going to affect how much you have to put into it, in terms of capex, and then the cost of labor that's also been going up over the past year or two. So that's another cost associated. So I think if people understand that it probably makes sense to them, but.everybody wants to get the gains that they had when we were in the boom times, but that's not always possible.

[00:25:30] Sharon Riddle: It's, it's hard to let go of them in some ways, if you've experienced it, you do have a little bit of a greedy feeling. It's Oh wow. I wish those times were back, but they aren't. I think some better times are on the horizon. Maybe they don't look like 2015, 2016 for you and me, but they certainly may be better than they are now. Let's be hopeful.

[00:25:57] Tim Little: Yep. markets are cyclical. They may not look exactly the same, but they'll definitely swing in the other direction. Eventually. We just got to, buckle down and not just wait for it, but find deals that still make sense. despite a lot of them not making sense, Finding those needles in a haystack that still work for us and our investors.

[00:26:16] Sharon Riddle: I still, our team still hasn't put our pencils down. So we just have to find the ones that are going to work with the sellers that have a meeting of the minds,just we would have as buyers. So just got to see, see if it's going to work all the way around.

[00:26:31] Tim Little: Yep. All right. awesome. We do need to get into the turbo round.

 I'm gonna ask you three questions that I ask every guest that I have on the show and I just ask you for a Quick honest answer. Are you ready Sharon? All right, first one. What is one red flag that every investor should look out for?

[00:26:50] Sharon Riddle: if a sponsor has had a capital call or if, there's some embezzlement or prison time. I'm talking about serious stuff here, I know, hey, there's been some people, I have not experienced that. I've known some people who have experienced that,

[00:27:08] Tim Little: Yeah. And capital calls, unfortunately, are becoming, More and more common, hopefully not the embezzlement or jail time.

[00:27:16] Sharon Riddle: Hopefully none of that stuff but, and, capital calls are not the same as that, but,I don't like them, you probably don't like them either.

[00:27:24] Tim Little: yeah, exactly. And that just comes down to transparency, I think, right? if you ask the question and they say, yes, then, okay, tell me more, but they should at least be transparent about their previous deals. That's hugely important. All right. What is a myth about this business that you would like to set straight?

[00:27:43] Sharon Riddle: That, you don't need any education to be able to do it.

[00:27:47] Tim Little: Agreed. you shouldn't just start doing it from the get go.

[00:27:51] Sharon Riddle: No, they'll just jump in. It's Oh, I'll learn it as I go. you better have some foundation, be in a community where you have some foundation and just avoid, you'll avoid a lot of heartache and a lot of mistakes and loss of income.

[00:28:07] Tim Little: right, and whether that's coaching program, mentoring program, mastermind program, having that fallback of someone that, that you can call when you're in a tough situation, and, get help.take advantage of their experience, leverage their experience or the experience of that group. I think it is hugely valuable, for those individuals and for their investors,to get through problems. All right. Final question. What does success look like to you?

[00:28:35] Sharon Riddle: success to, for me now, because success looked like something different in different stages of my life, when we were business building and now success means, for me. a successful raise and a collection of investors that we bring on who are well educated and savvy and can be satisfied with the business plan. What success means for me today.

[00:29:09] Tim Little: Yeah, and that's an important point that I don't think I've heard a lot on the show is that, success can be fluid, right? Like the definition of it can change depending on where you are in your life, in your business, etc. So I appreciate you pointing that out. Sharon, hey, this has been awesome. Please tell our listeners how they can get a hold of you. And if there's anything else that you'd like to share with them.

[00:29:31] Sharon Riddle: So I do have a three page, different pages on Facebook. I'm on LinkedIn. I'm on Instagram and I do have a website. And I want to direct some people to the website today, which is www. excalibre E X C A L I B R E, texas. com, because I do blog. I blog on my website, and by completing a few items on the contact page, you'll get eight steps to passive investing. So you get a gift in the little autoresponder.

[00:30:00] Tim Little: Awesome. I appreciate that. We'll certainly have all that information in the show notes again, Sharon, thank you for coming on and I look forward to continuing to see you do big things on your journey to multifamily millions.

[00:30:14] Sharon Riddle: You too, Tim. Thanks so much.

[00:30:16] Tim Little: Thank you.