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Global Investors Podcast
GI38: Acquiring Over 360 Multifamily Units in the Last 12 Months with Christopher Salerno
March 11, 2020
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Acquiring Over 360 Multifamily Units in the Last 12 Months with Christopher Salerno (Youtube)

Chris believes investing in real estate is the best building block for financial freedom. He is a firm believer in affirmations exemplified by notes personally placed around every corner, which serve as a constant reminder that every day is special and that his life is purposeful!

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Transcript:

Announcer
Welcome to the Global Investors Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host, Charles Carillo, combined decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now here’s your host, Charles Carillo.

Charles
Welcome to another episode of the Global Investors Podcast. I’m your host Charles Carillo.. Today, we have Christopher Salerno. Chris is the founder of QC capital. He is a multifamily real estate syndicator, who controls 360 units in the Carolinas worth over $40 million, all within the last 12 months. Chris also hosts the Mindful Multi Family Podcast. So thank you so much for being on the show.

Chris
Thank you so much for having me. I’m super excited to be on and add value to all your listeners.

Charles
Awesome. That’s what we like to hear. So Chris, what’s your background prior to starting your current company QC capital?

Chris
Yeah, I love being asked this question. Because I grew up in, basically in a real estate family, I, my father was a broker in the state of Florida. And I always, for some reason had a passion for real estate because it’s always different. So my background was single family real estate sales, from there very quickly grew a large or grew a decent size team, which I merged my team with the number one team in the Carolinas, and really fell into their operational role. And I was able to make them 46% profitable in one year compared to their three years of just being stagnant with no growth. And then that’s when I felt like I hit my ceiling and I said, I need to start studying commercial. And that’s when I fell in love with multifamily investing.

Charles
So how did you choose real estate like for your investment vehicle, not just as being on the other side of it?

Chris
Great question. So when it comes to that, I chose it because in 08/2012 multifamily was the strongest asset class out there, and I said, that’s a necessity. I said, that’s where I need to be is where It’s a necessity, no one can take it away. And that’s why I decided to go with multifamily right now, I post on my social media a lot, but right now my opinion retails at a recession. So that’s why I’m not in retail because it’s not a necessity. But housing will always be a necessity for us.

Charles
Right, that’s for sure. Yeah, multifamily people need a place to live and retail has got their own challenges which we’ll have to which they definitely will work out there’s so much money, but it’s it’s not as easy when I speak to people that are commercial investors in the sense of not commercial multifamily, like we are but commercial as in retail and office space, etc. I mean, it’s a whole different animal when you’re dealing with it much longer to lease out properties much more expensive. When it’s not least you just you might buy a strip mall with eight places in it or templates in it. We’re buying a place with 100 200 units in it. So the volatility is just minimized dramatically.

Chris
Yeah, yeah, you’re right.

Charles
So can you explain the structure of QC capital, I know you guys are growing, you have a new acquisitions person you just brought on?

Chris
Yeah. So we have a new acquisitions person we just brought on we’re super excited to have him on. He used to work for Marcus and Miller chap. Before that he worked for Coldwell Banker. So he has a ton of real estate experience. He’s a hungry guy looking to acquire and find new deals. So we’re super excited to have him on. We do have an underwriter. We just haven’t announced his name yet. And he’s been working for us about six months. But we have not did any announcements on him. We’re keeping that under the radar because he works for a large large company in the multifamily space. So once we’re ready, we’ll bring him on.

Charles
Okay, so how do you guys because you you handle mostly capital raising? Is that correct for your?

Chris
Yeah, so that’s, that’s my main goal is capital raising Investor Relations. It was acquisitions, but I’m still very heavily on the acquisition side still.

Charles
It’s very difficult to do both of those.

Chris
It is, it is so I’m slowly releasing it because I’m big about relationships and adding value and the reason why I wanted to have an acquisition specialist so used to be a broker is because he understands the ins and outs and he will be able to build that relationship stronger with the brokers for multifamily because he used to be a multifamily broker. So..

Charles
Yeah, he can cement those relationships and spend your time and especially he knows exactly what they want to hear since he was right. How do you handle deal flow and underwriting your team? Everything goes so you have it now it goes to the acquisitions person, then down to your underwriter and you guys review it that way. Do you have a special?

Chris
Great question. So we have a specific criteria that we follow when it comes to just preliminary research of our acquisitions or any deal flow that comes across our desk. And once it hits that preliminary criteria, our acquisition specialists will then input it into our deal flow list, because we don’t live in once or my acquisition specialist lives in Charlotte, my underwriter is in the Texas area. Because we all don’t live under one roof or have one roof just yet, we use a Google Drive sheet which is very beneficial because we all can see who edited and what they edit. So our acquisition specialist puts it in the Google Drive sheet. We have a Documents tab where it has the OM Rent Rule, T12, Taxes, anything that comes with that property goes into the Documents tab. And then our underwriter goes ahead and underwrites that property from those documents and inputs, the data in there. Once the data is in there, just on an extremely conservative standpoint, if it meets our criteria, then we’ll go ahead and have a zoom call just like this, to discuss each property and when the offers are due and to ensure that we’ve contact the property manager and sure we contacted our lender and our insurance guy to make sure our numbers are correct or performance correct and we can move forward.

Charles
So when you guys are evaluating deal, let’s let’s go into that, like what is your criteria? What do you guys are looking for when looking at a deal and what are the stuff that you’re going to stay away from

Chris
Yeah, great question. So, we focus over 100 units, primarily B assets, we are looking into A and A minus assets in the large cities and MSA. So we’re looking heavily focused on Raleigh, Charlotte, Greenville, South Carolina, Charleston, Atlanta, Georgia, Orlando in Dallas. Those are our major markets that we’re focusing on and the MSA so that’s what we’re that’s our basic criteria right there when it comes to it. It has to be in a in a great location. We always look for Starbucks or target a chick fil a around that location depending on what state or city it’s in. Because those are some large companies that have done a ton of research when going when putting a franchise out there so.

Charles
Yeah, they’ve done more research than will ever do and

Chris
Correct

Charles
So..

Chris
I’m a hop on their back a little bit.

Charles
Wholefoods is another one that we look for as well. I’m not sure if you mentioned that but same damn Oh,

Chris
Yeah.

Charles
Reeboks, Whole Foods.

Chris
Yeah, we look at Whole Foods Starbucks and Chick-fil-A, we were looking at Earth fair. But unfortunately when like I said, with retail Earth fairs closing its doors, which is like a Whole Foods here in the Carolina so but yeah, those are a major retailers we look for also Publix and Harris Teeter, especially here in the Carolinas because those are the little higher end grocery stores. So that will tell us the demographic and the area.

Charles
Yeah, public stuffing for being in Florida for where you’re looking in Orlando or really anywhere and anywhere in Florida. So when you’re you guys have your team together, your team is kind of spread out a little bit where you have some of your underwriters in Texas, how important is having the team with what how you guys are syndicating now, I mean, would it even be possible with with what you guys are doing? If you didn’t have your team in place?

Chris
It would be very, very, very hard and you can hear me stutter on that. It’d be very hard because right now we’re analyzing over 12 deals. And I used to do that all by myself.Underwrite, analyze the deals, tour the properties, talk to the brokers. And it was a lot on top of marketing all over social media and Investor Relations. So it’s definitely been some weight lifted off my shoulder. But I am a perfectionist. So I want to make sure that the relationships are being being creative and being structured properly and strongly with the brokers. So I’m working very close with him to ensure that happens and making sure with our underwriter that we are underwriting conservatively, and to ensure that we’re hitting our performer.

Charles
One thing I want to circle back to is that you were saying that you guys were looking obviously B plus, which is a main lot of syndicators look for that. You’re also going into the A minus A class. First of all, can you if you could define them as you guys see them for where you are mainly in Charlotte? I were in the Carolinas and can you explain why you’re moving into that class? And

Chris
Yeah, great question. So A classes in anywhere year, within 10 years or within 12 to 13 years, everyone has a different when it comes to it, but A class for us is anywhere from 10 to 12 years newer and newer construction B class is after that we really don’t like to go anything after 1990. So we’d like to stay in the 1990s and 2000s when it comes to it. The reason why we’re going for A class and I’m seeing this a lot, and I’m seeing a lot of operators that are not experienced in this space that are doing this, which worries me for them is that they’re going head and purchasing properties at 200 a door and they’re having renovation budgets per doors at like 10,000. So that leaves you at like 210 a door, but you can go down the street and that’s a 90s type of product, but you can go down the street and buy a 2010,2015 type of product for 215 to 220 adore. So that right there just doesn’t make sense to me. Because at the end of the day, when you hold that period, when you hold it for the next five years, that newer type of product is going to be worth more and you’ll be able to sell it to a larger institution to pay more than that 90s type of product.

Charles
Yeah, the A class I mean, you’ll have people that say B and B plus or institutional but i think you know when you’re getting into real A that’s where A minus, A plus, you know, B plus as well but in that area like the A’s that’s where you’re really having institutional money come in like life insurance what we’re saying is like life insurance companies coming in that are paying cash for you know, that are just setting money aside that need to make you know, 4% or whatever.

Chris
Yeah

Charles
And it’s like their exit strategy for that. So it’s it’s amazing I said that between you know, it’s so expensive because there’s so many people now trying to the value add in the B’s and obviously the Carolinas and Charlotte being so such a big market that people are paying that much over what it might be, you know what I mean? It might even be.

Chris
I agree. Yeah. And, and if you look like we’re analyzing a couple deals, right now that are made a lot of them are over 2000 actually but there’s some that are 2005, 2012 that we’re analyzing and they still need value add you know from our from 2020. We feel that anything that was 2005, 2010 is outdated. So there still needs some value add to those particular properties. But they are newer type of properties but you know, maybe not a heavy lift from a seven to 10,000 per unit but you can do a two to 5000 per unit and still walk away with a increase of 100 to 200 per unit for rent increases.

Charles
What, if your say people are purchasing something for 200, 210, 215 out the door after the renovation? What is something like that normally renting for

Chris
Great question. Yeah, that that normally runs for I saw that when when speaking about that. We’re seeing that a lot in Raleigh is around that 200 a door. We haven’t seen that for be assets here in Charlotte just yet. But in Raleigh, that’s what we’re seeing and they’re renting anywhere from a 2 bedrooms around 1300 to 1500, 3 bedrooms around 1400 to 1700. And one bedroom are around 1100 to 1300 in that ballpark.

Charles
Wow. Okay. Yeah. So it’s all right. Wow, that’s it’s a little lower than you know what I mean, it’s is that before that’s after your value add?

Chris
Yeah, that’s Yeah, that’s all depends I that would be in my opinion, after the value add. That’s what it would be in that ballpark.

Charles
So you guys are very competitive up there and your market.

Chris
We are extremely competitive. We, the how competitive is that no matter what, you have to put hard money down. And it has to be if you don’t put a minimum of 200,000 to 300,000 hard, then you’re it’s going to be very difficult for you.

Charles
Can you explain that?

Chris
Yeah, great. Yeah, that’s great. Because a lot of people don’t understand what hard money is. So hard money is your earnest money that you’re putting down. And what hard money means is it is non refundable. Now you can have it non refundable day one or you can have it non refundable after your due diligence period. If you really want the deal, you’re gonna have to do it day one. And that’s what we do we we do hard money day one. One thing I dislike about putting hard money down is that if it were anything that comes up during your due diligence, you really limit yourself to negotiation for a retreat, because the seller already has your hard money. So it’s going to be extremely hard to negotiate for a retreat. So before you put hard money down, make sure you walk that property if you have to walk it multiple times with the broker or have your contractor out there, do so. Because if you’re just going to throw down hard money, you’re gonna take a big risk if something large comes up and the sellers not willing to do it. You’re gonna take a big risk and they can hurt you.

Charles
Right yeah, so the hard money just for listeners. The hard money you also see is like he’s an earnest money, which is like you’ll see in blogs as MD earnest money deposit. And then you’ll also see the other thing you’re mentioning as well, in regards to.

Chris
When it comes to limiting the eliminate

Charles
Oh, yeah, so retrading is just doing the renegotiation. It’s an industry term for that.

Chris
Yeah. So if something comes up during your due diligence, and you’re like, Okay, well, you know, I didn’t know about this. So I’m gonna go back to the seller and try to knock 100,000 off or try to get them to cover for this certain expense. It’s it’s much more difficult to go back to them because they have your non refundable deposit of a couple hundred thousand so they’re like, Okay, well, you know, go ahead and walk I got your money. But as speaking with brokers and coming from a brokerage background, if you have 500 to a million down, which I have seen before, I’ve lost out on deals when they put 1.2 down hard day one. You’re gonna lawyer up. If something goes south, you’re gonna lawyer up and those brokers and sellers know that so the sweet spot is between 200,000 to 500,000.

Charles
Okay, so that’s like 1%, 2% of your purchase price probably.

Chris
Yes.

Charles
Okay. All right. Cool. So which is pretty normal, but it’s just not normal that it goes. It goes hard. So, so fast.

Chris
Yeah, I know.

Charles
So, where do you see where you are right now where we are in the market cycle, especially in regards to the Carolinas? What do you think you’re see for the next 12-24 months?

Chris
Great question. Great question. And I love it when I get asked that. One reason why I got into multifamily. And for the listeners, if you remember, right, when we started this podcast, I said it’s a necessity. So housing is a necessity. We need it. I just post an article on my social media saying more people are renting I woke up this morning and I had an investor texts me the article, saying you’re gonna love this and more people are renting it. No wants to own a home now, people that’s not the American dream, the American dream is to become really financially free and not live in debt. So more people are renting now so they can check out different cities and jobs are transferring them. So where I see the market for multifamily in the next 12 to 24 months is still very, very strong because it’s a necessity. Yes, we may have a dip, but look at 08/2012 that was a single family recession. And between that recession, multifamily went from 96% occupancy to 92% occupancy. So it only had a 4% vacancy before and then right when it happened, it had a 6% vacancy. And even during that time, A class was strong B class was strong. Everyone needs a place to live so it’s not going away. Retail in my opinions going away. I’m seeing it more and more. Macy’s is closing stores. I’m seeing a ton of people close down shop just because and Amazon took a big hit with all of them. Everyone’s shopping online. You have to deliver if you’re a company now but online shopping is where it’s at. No one wants to go in stores the only the only store or mall that will only be open in the future will be luxury stores because people still want to go and try on a Louis Vuitton purse or they want to feel Louis Vuitton or Tiffany diamonds they want to see that and feel that so the luxury malls and stores will be will survive in my opinion but all the other ones were in a retail recession but multifamily very strong because it’s a necessity.

Charles
Yeah for sure. I’ve also seen that Best Buy’s having smaller stores now where you can pick up your properties and stuff or pick up your your items and your products much smaller.

Chris
So stick up my properties that easy.Just go and pick them up.

Charles
So you can like it just a different way of people they not the whole big box anymore. So I don’t know imagine what products they have in there. I imagine they are very high in products

Chris
I agree

Charles
Just pick up your, you know, you can pick up whatever you’re buying from there.

Chris
I went in, I went in Best Buy to look for a certain thing for our, for our videographer and for the videos that I do and I saw the price I went on Amazon right in right in person and saw it at $10 cheaper and it will be delivered tomorrow and I just bought it right off Amazon. So yeah, I mean, that’s they you have to adapt with change. I don’t watch TV much but when i do i watch it for commercials and the reason why is because I want to see how they market to people. And I noticed that a pizza company that never delivered started delivering now because you just have to you have to do that you have to market you have to move with the market or your business is going to go out just like Macy’s shutting down shop.

Charles
Yeah, it’s amazing places that never would deliver now do deliver or have the access to it with all this, you know, Uber delivered. So it’s such a super, a super niche that’s growing and like you’re saying before multifamily, I also think that people just don’t want to be tied down. You know, we heard from years back, you know, our parents or grandparents had one job or two jobs and now we’re going to have seven or eight or whatever it might be. And people younger there’s probably more so they don’t want to be tied down if they’re working in the city for two years. You know what I mean

Chris
You’re right

Charles
And have to sell that house do that. And they also want the all the amenities that come with it. Like you said, how close can I walk to a Starbucks? Can I walk to a Publix or to a, you know, supermarket? Can I you know, so it’s all right. Yeah, those are very important things to look for when you’re looking at property. So you I know you do a lot of you do a lot on social media, you talk to you do a lot of conferences. I know. I’m seeing you and a couple weeks for a conference out in Colorado.

Chris
Yes.

Charles
What do you see when you’re speaking to new investors? What do you suggest them to do? If they ask you how they should get started? Maybe it’s not syndicating because that’s a pretty big leap for someone to take money from someone that’s never done it before.

Chris
Oh, yeah. And don’t do don’t do yeah, I mean, you know, get your experience first. You know, That’s the biggest thing is educating yourself. I educated myself It took me around like, before I even got into multifamily syndication at seven, eight months of education of I didn’t even know what syndication was, I was like what is syndication? But it took me around seven to eight months to really get the grasp of it and coming from a real estate background. What I’m a big believer and anything you do, I’m a big believer in following how the military trains our soldiers, and the first week of, you know, going into the military, what they do is, it’s called hell week and they tear down your brain mentally and build it back up into a soldier. So I’m a big believer in that and that’s why when I left single family, I was making that transition. I tore my brain down from the single family industry lingo and all that, and I built it back up into the multifamily industry to help educate me in multifamily. And before I even got into it, I was listening podcasts like yours. I was watching YouTube videos. I was reading books to understand everything. Because it is a big business. It’s a scary business for a lot of people. And then I decided to find a mentor and a coach to limit my mistakes and to guide me through the correct path. So that’s extremely important.

Charles
Ya know, for sure what do you see with investors? Even let’s say they’ve already started and maybe you have deals like I’ve sent, I know I get deals all day long they get sent to me, I look over just see what people are trying to raise money for people are looking to buy. What mistakes you see people making in this, let’s say for instance, now and then also in this market cycle?

Chris
Yeah, that’s a great question. I’m seeing it more and more mistakes people are making is not understanding the SEC regulations, and that they are no joke to play around with. So I see that more and more is not understanding that so I would highly recommend, if you don’t understand it, get with an attorney at a conference, speak to him over the phone, start reading books on it, start listening to podcasts, start educating yourself on it, because that’s the most important aspect of it in my opinion is you want to make sure you’re doing everything properly, and you’re not stepping those boundaries. So I see that as a big mistake. Sometimes. I mean, I get a friend requests on LinkedIn. And every time someone friend requests me, I reach out to them. And I have to, they have to have mutual friends in common. If we don’t have a lot of mutual friends in common. I won’t accept you. But I’ll reach out to them, try to connect with them over email and then the phone if it will be very beneficial for the both of us. But I get some messages that we have tons of friends in common. So I’m assuming you know, they’re well grasp in the industry, and they are trying to sell me a deal over LinkedIn. And I’m in I’m like, Well, what type of deal I mean, you’re just trying to sell a deal. Are you even do you even have a SEC attorney you know, what proper steps are you taking You know, and sometimes I try to help educate them and say, Look, you need to go ahead and consult an attorney because I don’t want you to get in trouble, you know? So I see that a lot and it’s happening more and more as the syndication name is being thrown around and that it’s getting more familiar with everybody.

Charles
Yeah, that’s for sure. And just for just to clarify for listeners, as footnotes is a show with raising money through syndications, there’s two different ones. There’s two different exemptions. As we say there’s one for certain investors that are high, high net worth or high income called accredited investors. And there’s one that is just like we’re talking Chris and I are friends. We have a prior relationship if we want to raise money through that we could, but I can’t go if we have a deal like that and put it onto Facebook. Correct. I can’t put on LinkedIn. I can’t just contact a random guy online and ask him to invest and people are doing it today and with so much buzz around syndication, it’s even worse. That’s so that’s the thing that I feel is probably one of the biggest ones that I don’t hear when I interview people they usually are saying about the different markets. Like on stuff like that, but this is something and just let you know if one of your partners you’re gonna deal with like seven or eight people and one person does it, they look at everybody. It’s not you have to know exactly who you’re partnering with and make sure that they understand what’s going on. And also they have a very good attorney that’s reiterating this to you and saying

Chris
And, and getting into the space, save some money aside, because these attorneys not cheap. I mean, I had a attorney charge me $1,000 for 12 questions. So there they are not cheap. So be sure you have a nice little safety cushion set aside for if anything happens like this. And I know as you grow your company, you may not have a lot of funds and that happens but you have to make smart decisions then. And you have to educate yourself with those with that journey that you you go down. So no issues arise. And then when you grow a large company, like we discussed before this you can have people on staff, so if any issue comes up

Charles
Yeah, the other thing too is that we my see attorney that I work with mainly he’ll actually come on to the deals too. So once you have a track record if you want to put out money and future deals and then you know you can also bring them on as a general partner and you can also give them some equity in the deal and that saves you on putting upfront money out of your pocket so there’s so many different ways of cutting it but you’re not going to be able to probably on your first time contacting sec attorney be like I’ve never done this before I don’t do anything on your ship. Yeah, they’ll probably just be like I’ll just take the $15,000 but but Okay, great. Yeah, so I want to,how can people learn more about yourself and QC capital?

Chris
Yeah, thanks. Thank you so much. You can reach out to me at Chris_Salerno_ on Instagram. I’m heavily on social media. If you’d like to join our closed Facebook group to network among like minded individuals, it’s Mindful Multifamily Network and we also just created an academy, the Mindful Multifamily Academy to help new syndicators get into the business. Or investors understand more about syndication and that’s only $199/month so nice also giving away my underwriting template in there.

Charles
Awesome. Yeah, that’s that’s probably worth it just to just template I know. That’s awesome. Yeah anybody that’s getting involved with syndication they have to learn with any type of real estate investing you have to learn exactly what you’re doing and do it yourself before you take money from other people, please.

Chris
I agree. I agree.

Charles
Okay, well thank you for so much for being on the show today. And I look forward to touching base with you next couple weeks when we meet up in Colorado.

Chris
I can’t wait for it. Thank you so much and safe travels out there.

Charles
Thank you. You too.

Chris
Yes. Thanks.

Charles
Hi guys, this is Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in investing in real estate and you don’t know where to begin, set up a free 15 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com.

Announcer
Thank you for listening to the Global Investors Podcast. If you’d like to show, be sure to subscribe on iTunes or Google play to get new weekly episodes. For more resources and to receive our newsletter, please visit global investor podcast.com and don’t forget to join us next week for another episode.

Announcer
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of harborside partners incorporated exclusively.

Links and Contact Information Mentioned In The Episode:

About Christopher Salerno

Chris believes investing in real estate is the best building block for financial freedom. He is a firm believer in affirmations exemplified by notes personally placed around every corner, which serve as a constant reminder that every day is special and that his life is purposeful!
Soon after relocating to Charlotte, Chris developed an extreme passion for real estate. By the time he was 24, company principal Chris Salerno successfully transacted more than 40mm in real estate volume and helped lead the #1 real estate team in the Carolinas to produce more than 140mm in annual sales. Named to Charlotte’s 30 under 30, Elite 50, Elite 50 entrepreneurs, 30 under 30 entrepreneurs, and nominated for Forbes 30 under 30, Chris has quickly gained recognition, and notoriety for his hard work, and dedication.
Chris is also the founder and host of the “Mindful Multi-family Podcast. Through Chris’ vision, QC Capital has quickly become a well-respected, high-return investment firm.

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