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Global Investors Podcast
GI52: From Single Families to Over $150 Million in Commercial Real Estate with Chris Larsen
June 17, 2020
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GI52: From Single Families to Over $150 Million in Commercial Real Estate with Chris Larsen

Chris Larsen is the founder and Managing Partner of Next-Level Income, through which he helps investors become financially independent through education and investment opportunities.

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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 Carrillo. Today we have Chris Larsen. Chris began syndicating deals in 2016 has raised more than $12 million has been actively involved in over $150 million worth of real estate acquisitions. He’s the founder and managing partner of next level income through which he helps investors become financially independent through education and investment opportunities. So thank you so much for being on the show today, Chris Charles, thanks for the opportunity. Excited to be here. So what was your background? You’ve been involved in a number of different things field. So what was your background prior to starting to invest in real estate? I was racing bikes, so I started investing in real estate when I was 21 years old, Charles 1999. I was in college race bicycle starting at age 14. And I read about this in my book, which if any of your listeners want to get it, they can check it out at our website, next level, income.com/book.

Chris:
I’ll send them a free copy. But to kind of highlight some of the things I was racing bicycles, and I don’t know for anybody that knows about the cycling world, they know that it doesn’t pay very well, even if you’re a professional, even if you’re a high level professional, actually. So I, I wanted to race my bike. I wanted to have different options and I was introduced to the concept of compound interest and investing by the same family friend, Clint preventa, who introduced me to cycling. So I started my Roth IRA as a freshmen in college and started learning about different investments. Ultimately, I started day trading and while I was in college as a junior, I was making sometimes $5,000 a month day trading. This was in the late nineties. And then some months I was losing that or more. And as I, as I sometimes laid awake at 3:00 AM in the morning, thinking, what am I, what am I going to do tomorrow here with my trades?

Charles:
I thought, is this really how I want to spend my life? And you know, what, if these numbers were multiplied by 10 or a hundred times, and I was, instead of 20 years old, I was 40 years old. So I looked at other investing options. I’m pretty risk averse by nature. I like to, I tell people I don’t bet. I only bet on sure things. And as I started to looking at different options, real estate really bubbled up to the top. My parents were a small real estate investors. They had a few rental properties. So I kind of knew about the concept, but my stepfather my father passed away when I was five. My stepfather was a contractor. So he’d do all the work. So that, that really wasn’t that appealing to me. But from an investing perspective, it became appealing. So I bought my first property age 21, bought another property. And from then on built a portfolio and I did is, as I mentioned in my, you know, a bunch of different things, ultimately culminating in the multifamily space in 2013. So I started investing in 2013 and multifamily for my partnership with now my former partner in 2015. And we syndicated our first deal in 2016.

Chris:
Nice. So you primarily syndicate properties. Tell us about your first couple of real estate investments that you got involved with, how they, what were they were and how you made money with them or lost money?

Charles:
Yeah, so I’ve been fortunate in my real estate career that we’ve I think we’ve made money on every deal that we’ve been in now. You know, if you, if you Mark those deals during a certain time so some of those deals haven’t been great, but you know, over the, over the lifetime of the deals they’ve all made money. Our first investments were in single family. So I bought a single family rental and what we now call like house hacking. I rent, I rent it out two of the three bedrooms and the townhouse that I bought in college that bought the place next door. It was another three bedrooms. So it was essentially like I had my own little six bedroom apartment complex and then continued from there. Then after our rental portfolio, we started buying distressed debt. So that’s probably the space, you know, if you look at our portfolio, we have individual loans that we had on that distress debt that sometimes we, we got blown out of from a, you know, a creditor order, but as a whole, we made money on that portfolio. And that was a good space to be in kind of coming out of the great recession, where we were able to buy debt sometimes 9 cents on the dollar. And then, you know, it doesn’t take a lot to get back to that.

Chris:
What type of properties were those? Those were also,

Charles:
Yeah, so those were, yeah, so those were single families. So what we were doing Charles is we were buying portfolios of seconds non-performing seconds and my partner was working those out.

Chris:
Nice. So currently with what you guys are focusing on, what are the, what is your, what are the markets you guys are targeting and what is your traditional buying criteria?

Charles:
Yes. So you know, the reason I started in the multifamily space was because of the demographic trends. So I’m, I like to follow big trends. I like to follow title shifts. I don’t, I don’t like to day trade anymore. And I don’t like to bet on short term moves. I like to bet on longterm moves. So the multifamily space we focus on that because of what I believe are strong trends that are going to continue through this decade started last decade. I’m going to continue through this tech, right? I talk about the four trends and those include millennials are renting. Baby boomers are renting. Immigrants are renting, high income earners are renting. We’d like to focus on high growth areas of the country. So for us, that’s the Southeast. I personally moved from the DC area to North Carolina in 2008 because of the growth trends.

Charles:
So I moved to here and moved my family, or started my family, moved my career here for those reasons. And today we focus on the Carolinas. We focus on Florida, Georgia, Texas, and all of our properties have been as far as the multifamily space in those areas. We own workforce housing, a value add deals, starting in the seventies, all the way up to our current acquisition, which is a 2014 or 2013, 2014, built a 232 unit complex. So that would be a class a deal. So what we’re looking at today, Charles is a light value add B plus sometimes a depending on, on the market properties that are typically 200 units or more in, again, those high growth areas, typically in the Southeast.

Chris:
So for your mentioned a four trends you’ve been involved in other different commercial properties in asset classes, what, what does, is it, is it really because somebody has to rent? Is that why you’re really focused on multifamily? Or are you guys interested in any other asset classes currently for syndicating?

Charles:
90% of what we do is multifamily. So we do have some partnerships in the commercial office space, the self storage space, as well as the oil and gas space, which is actually particularly exciting right now with the price of oil plunging. There was below zero. If you look at the spot price the other day, it’s pretty crazy. But yeah, folk, so again, I like multifamily is the cornerstone of my portfolio. I’m very transparent with investors. I say, Hey, this is what I do with my money. And 80% of our portfolio is in multifamily. And that is because even if you look at, you know, we’re in the middle of the COVID-19 crisis right now, people have to live somewhere and they typically are going to pay their rent as one of their first bills, if not their first bill, maybe behind groceries.

Charles:
So it’s a very stable asset class and, you know, drilling down again. Why, you know, we kind of target different areas at different points in the cycle. We tend to look at the previous market cycles and look at what, what was strong, what was more stable during those points. And I think multifamily, you know, I call it the Holy grail, my book, I call it the Holy grail because personally I believe the risk adjusted reward that you get the risk adjusted return in multifamily is the most appealing out of any asset class, in my opinion.

Chris:
Yeah, for sure. I was talking to people about when we had multifamily in Oh six to 2009 and people are like, well, did you have problems? I’m like, no, we just weren’t doing, we just, weren’t doing huge rent increases. You were increasing rent inflation. You know what I mean, if you know what that was at that point, but it was I mean, it was just you, I never had issues with longterm delinquencies or anything like that. So, and it was, it wasn’t a class, it was C class C plus stuff. So that workforce housing, as you said, that you’re looking at sometimes or previously in the seventies, but you’ve raised over $10 million for your real estate investments. Can you explain a little bit about starting so a new person starting to raise private capital what, what they should do or how they would go about that?

Charles:
Yeah, so yeah, we’re up, I guess probably about 15 right around now. And yeah, very, very thankful for our group of investors in the trust. So I think, you know, if I was to go back and either give myself advice or talk to somebody, like you said, that’s looking to raise capital for deals. I think you need to one look, look to yourself first, you know, would you be comfortable putting money in those deals? I invest in every deal that we send to Kate. So, you know, I can tell investors, listen, I’m putting my own money here and putting my family’s money here. So I think you need to there’s really three things you need to look into. One, you need to look into the operator that you’re working with. Do they have a track record? Do you trust them? Do they understand the space that you’re going to invest in with them too?

Charles:
We talked a little bit about this, Charles, the market, you know, are you comfortable with the market? And then three, are you comfortable with the actual asset, the actual deal size, and you should be able to be very, very comfortable. When going into that also, if you’re going to raise money, I think you need to be able to show an expertise in some of that space. You know, I’ve been, I’ve been investing for over 20 years and multiple different things. I don’t invest in multifamily, just be in the Southeast, just because that’s what I do in the Southeast. This was very purpose built. So I think, you know, if you’re going out and you’re saying, Hey, Charles, this is, you know, this is an opportunity we have. Would you like to invest alongside of us here? You should be very comfortable with the rationale and the operation side, as well as the analysis side of that deal.

Charles:
The flip side is if you’re an operating partner in that deal, I think that’s, that’s very strong too. You know, if you have experience on the operation side, maybe you’ve managed properties before, maybe you have a construction background. Like one of my partners on the operation side has an underwriting on the insurance side background and he owned a construction company. So, you know, when I take Brandon into a property and walk through it, you know, he’s very comfortable working with the contractors. He’s very comfortable looking and knowing the cost, he’s very comfortable sourcing, you know, different products and different pieces for the value add component. So, you know, pick, pick what you’re good at, pick what you understand focus on what you can add value for your potential investors in that space. And then again, I’d say, you know, my advice is put, put your money where your mouth is, and you know, if you’re talking to somebody that is bringing you a deal, I would ask those same questions to them as well.

Chris:
Yeah, for sure. It’s a, it’s very important to pick when you’re building your team to find out exactly what your specialty is, and then have people round out the rest of your team with stuff that maybe you don’t like, or you’re not good at, which kind of go hand in hand. But yeah, when I speak to the passive investors, one of the first things I hear about stuff that they don’t like about investments they have, or operators they work with is the lack of communication. What do you see for your investors? I imagine some of them have with other operators as well. What do you see is stuff that they didn’t care so much for or issues they had with with previous investments.

Charles:
That’s a great point. And I think it’s very very appropriate to ask that question. Now, during, during times of great uncertainty, Charles. So I was I was on an interview yesterday and we were talking about like, what we’re doing now, that’s a little different and my answer was we’re over communicating. So, you know what we say at next level income is we put investors first through education. That’s our first thing. And communication is a big part of education, especially if you’re talking about current deals. So we, we have a monthly update that goes out, whether we’re doing monthly distributions or quarterly distributions, we have a monthly update that goes out. What we’ve done during this period is we’ve actually increased that to a weekly update for investors. Hopefully investors appreciate that. I think once a week is an appropriate level of communication.

Charles:
We’re not bombarding, you know, our investors with a ton of irrelevant data. We try to be very, to the point and do that. And we probably should have brought this up when we were talking about what advice do you have? I think, you know, the important thing that you can do is communicate to investors, tell them where we are in the market, tell them what’s going on. Especially if they have their money with you. You want to let them know whether it’s good news or bad what’s going on because the worst news I say, it’s akin to being in a dark cave without a flashlight. You know, the fear of the unknown is what creates anxiety.

Chris:
Yeah, for sure. It’s keeping in touch with people that have invested through you. And then also in this time as well, it’s keeping in touch with people that you owe money to, in the sense of like, we’ve been in an open lines of communication, which I imagine you have as well with lenders and just letting them know, Hey, you know, our collections are this, everything’s fine at this point, everything’s going well. And just let them know that, you know, you just don’t want to be, Hey, you haven’t paid it. You don’t want that call saying, Hey, are you paying the mortgage or what’s going on or anything like that. So it’s, it’s open lines of communication, I think on both sides.

Charles:
No, that’s, that’s another great point. And you know what I did you know, for, we have a property here in Asheville downtown, we have seven units in that property. It’s a commercial property for four of those units. The businesses in them were shut down by the health department. The week before that happened, I went to them and I said, Hey, how are things going with your business? Are you affected yet? You know, things at that point, we’re going, we’re going reasonably well. But everybody kind of knew what was happening and things were starting to slow down. People were canceling appointments, like in a hair salon, for instance. And I said, look, keep me in the loop, let’s work together through this. You know, I didn’t make any promises. But when, when, when the health department shut them down, I had already contacted my bank. And just like, you know, I was able to work out a solution with my tenants in the bank that helped everybody. And you know, I’m in the middle. So this is, this is a challenging time for landlords and property owners on operators, but we worked out something that’s for everybody. So I think there’s a good example of that in practice.

Speaker 4:
Yeah. So for what, what kind of examples of common mistakes you see from real estate investors, whether they’re new or whether they’re seasoned of some sort, what do you, what do you think? Yeah, so

Charles:
No kind of not following the advice that I was talking about before, not like properly evaluating those risks, I think, you know, new investors, they kind of look and say, Hey, what, you know, what does this deal look like? But I always tell investors, you know, they call me, they say, Hey, walk me through this deal. I said, well, let’s take a step back and talk about why we’re in this market, why we’re in this space and why right now it’s, it’s it’s what I feel to be a good time to be in that before we look at the deal. So I always kinda train investors to walk through that process themselves when it comes to the operation side, I think, you know, this is a great time. If we think about who is going to be getting in trouble during this period, there’s, there’s three rules that I think are good to follow.

Charles:
If you’re an owner and operator, you know, one, when you buy a property, buy cashflow properties, if you have a cash flow property today, I had cashflow properties. As you did, you know, going through Oh eight Oh nine, I didn’t make a tremendous amount of money during that time on the properties that I owned prior to the crash, but I didn’t lose any money. And they all cashflow positive through that. And you know, that’s kinda brings the second point, which is, you know, have longterm debt. So, you know, if you have longterm financing, that’s stable. So if you had, if you had to sell a refinance a property today, that may be a problem for you. Especially if you have a hotel or a retail space, it may be a challenge for you. If you have debt, that’s going to hold through a period that you foresee your value add process, or your operations going through.

Charles:
Then you can ride out these periods and not be a forced seller. You know, we always like to say we don’t like to be a forced seller. We like to be opportunistic on the buying as well as the selling side. And that brings me to the third point, which is have adequate reserves. So all our properties have, you know, seven figures of reserves for the most part, you know, six to 12 months is good. You know, it’s like I write about, I have a little short part in my book and, you know, I don’t, I don’t go a ton into personal finance, but I think it’s great to have, you know, an emergency fund if you’re an individual and, you know, three, six, 12 months, I personally like to have, you know, a year’s worth of expenses set aside as an individual. I think it’s great to have six to 12 months set aside.

Charles:
So, you know, those, those were, I see the mistakes, you know, people, you know, kind of blindly following the near term trends, not realizing that real estate goes through cycles not having the appropriate debt, not having appropriate reserves into a space or, you know, betting heavy on, you know, a speculative construction deal or something like that. That that might not go bad. Those are might, might not go well. Those are some of the things that I’ve I’ve I saw people really get blown out on 10 years ago. And I imagine are gonna people that are doing that are going to face some pain today.

Chris:
Yeah. I think the reserves is a huge thing. That’s not obviously it’s going to be tightening up more, especially with all the agency debt, Fannie and Freddie. But I mean, right now, I think in the next six months, you’re going to see people over this whole year. Who’s not, doesn’t have the reserves or it’s going to come out and because before you didn’t need that much and now it might be double, it might be triple, right. I mean, they’re saying even 18 months of mortgage and interest, so it’s I mean, that’s quite the amount of additional money you have to raise, but it’s also the amount of security for your investors. You’re not going to be calling them back and saying, Hey, we, you know, capital call, we need more money. You know, it’s not operating how we thought. So,

Charles:
Yeah. And I’ve had, I’ve had a cap, I’ve had capital calls and deals I’ve been invested in and that’s, you know, when you have a property or a deal, that’s not going particularly well. And again, that’s a, that’s an example of the deal that we made money on, but there were periods that didn’t go well. So, you know, when, when you have a deal, that’s not going great. And then the operator calls you and says, Hey Chris, can you send us a check so that we can keep this deal going? You know, in some ways you think, man, I’m throwing good money after bad. It’s, it’d be a lot more comfortable to have those returns scaled back a little bit. And you know, I’d rather, I’d rather look at a deal and say, Hey, what if these returns were a third lower? You know, but I’m not going to get a capital call. I’d be more comfortable with that deal than a deal that really stretches and says, Hey, we’re gonna, you know, show you exceptional returns, but you know, everything has to go perfect.

Chris:
Yeah. For some of the passive investments that I’m involved with some of the operators have come back and they’ve said, well, you know, we’re just going to hold off on sending out the prep stuff, which I’m totally fine with. I’d rather hold off. Whether the storm have more money than less, make sure everything gets paid, everything’s done, everything’s rented. And then start at that point, once we’re coming up on the upswing of this to, you know, to start sending out preps, if there’s additional return that was from before. That’s great. If not, then it’s just what it is. You’ll pick it up when you sell the property or refinance. Exactly. So all’s great. How can our listeners get in touch with you and learn more about you and your company?

Charles:
Yeah, so easiest way is to go to our website, Charles next level income.com. I’m doing a free book giveaway right now during, during the COVID crisis. So all you gotta do is go to our website next Solomon’s com.com. Click on the book link. You can get a free ebook right away, or if you put your address in, I’ll send you a copy. You can click around there, follow me on LinkedIn, social media. I try to put educational material up every day on our website. And again, you can also check out our podcasts. I really appreciate what you’re doing for your listeners here. We love educating individuals on financial matters

Speaker 4:
And helping them on their way to financial education. And what you’re doing is a big piece of that, Charles. So I really appreciate having you on. Yeah. Thanks Chris. And looking forward to connecting with you in the near future. Have a great day. Likewise. Thank you so much. Hi guys. It’s Charles from the global investors podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin set up a free 30 minute strategy call with [email protected] Thank you. Thank you for listening to the global investor podcast. If you like the 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, 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.

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About Chris Larsen

Chris Larsen is the founder and Managing Partner of Next-Level Income, through which he helps investors become financially independent through education and investment opportunities. Chris has been investing in and managing real estate for over 20 years. While completing his degree in Biomechanical Engineering and M.B.A. in Finance at Virginia Tech, he bought his first single-family rental at age 21. During his subsequent career in the medical device industry, Chris expanded into development, private-lending, buying distressed debt as well as commercial office, and ultimately syndicating multifamily properties. He began syndicating deals in 2016, has raised more than $12M, and been actively involved in over $150M of real estate acquisitions. In addition to real estate, Chris has invested in equities, oil & gas, and small business lending, as well as being active in Venture South, one of the nation’s Top 10 Angel Investing groups. Chris lives with his wife and two boys in Asheville, NC where he loves spending time with them in the outdoors and enjoying the food and culture that the region has to offer.

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