511: Using the “Holy Grail” of Real Estate to Achieve Financial Independence

SHOW NOTES FOR EPISODE 511: USING THE “HOLY GRAIL” OF REAL ESTATE TO ACHIEVE FINANCIAL INDEPENDENCE

Why do the world’s richest families acquire the “Holy Grail” of real estate investments for 20 to 30 percent of their investment portfolios?  In this episode, real estate syndicator, author, investor and Managing Partner of Next Level Income shares why real estate is such a powerful investment and how he grew a multimillion dollar “Holy Grail” real estate portfolio while working a demanding full-time job.

What You Will Learn

• How to work full-time and build a 1,500 door real estate investment portfolio
• What is the “Holy Grail” of Real Estate and why do the richest families in the world pursue this type of investment?
• Three key risk areas you must consider when investing in multifamily syndications
• Why some commercial properties are thriving post-Covid
• How you can get great returns on smaller multifamily properties

About Our Guest

Chris Larsen

Chris is the founder and Managing Partner of Next-Level Income.  He has been investing in and managing real estate for over 20 years.  While still a college student, he bought his first rental property at age 21.  From there, Chris expanded into development, private-lending, buying distressed debt as well as commercial offices, and ultimately syndicating multifamily properties.  He began syndicating deals in 2016, has raised more than $15 million and been actively involved in over $150 million of real estate acquisitions.  Chris is also very passionate about helping other investors become financially independent.

More About Chris

• Grew up in Maryland
• Raced his bike, starting at age 14
• He wanted to be a professional cyclist
• He went to Virginia Tech where he studied bio-mechanical engineering
• He knew, two week after school started, that he didn’t want to be an engineer – he just wanted to race his bike
• But he figured, he’d still get the degree, still train, become a professional cyclist, and maybe come back to school and get a master’s degree
• However, between his freshman and sophomore years, his best friend and training partner Chris died of a massive brain hemorrhage
• This was devastating for him
• He was successful racing, not doing that great in school and just wasn’t happy
• He quit racing his bike, went back to focus on school
• He loved the sense of freedom cycling gave him
• He was determined to live a free life, on his own terms, in honor of his friend Chris
• He wanted to find a job that would give him that kind of freedom
• He saw investing as a way to achieve financial freedom
• Started at age 21 as an investor
• Started day trading and did pretty well, however, it didn’t make him feel very free with all the stress that came with day trading
• He got a book called “Buy and Hold” that taught him how to invest in rental properties
• His goal was to buy enough properties to generate $10K a month in income
• He decided to focus his investment energy into real estate, while working two jobs and getting an MBA
  • He liked that you could buy it with leverage by only utilizing a small amount of money
  • He also liked that he could have more control of it and there are great tax advantages
  • He went from one unit to 1,500 units today
  • Today, he focuses primarily on commercial and multifamily properties

His Goals, Working Full-Time, Multiple Asset Classes and Growing a Portfolio

• To own enough properties to generate $10,000 a month in cash flow
• He achieved this goal by the time he was 25
• Next, he had to make enough money to pay all of these properties off on a rapid time schedule
• He worked on paying them off for 10-12 years later
• He then found a better way: pull equity out of those properties to buy commercial properties
• He was working two jobs at that time: one for State Farm (selling insurance) and the other was as a Realtor (he was also working on his MBA at the same time)
• His sole focus for the jobs was to pay-off all of his properties
• He ended up going into the medical device industry (first as a sales rep and later in management), where he worked full-time for 18 years – He just quit in March 2021
• He also managed all of his single family properties on his own
• The commercial and larger apartments he had with operating partners
• Sold all of his single family homes and went into syndication
• Also, for about 5 years, they were doing ground-up development in Asheville (his wife is an architect) and would buy one lot and build one home at-a-time and sell them around $400K (they were Green-Built)
  • Typically 12 to 18 month build-to-sale cycle
  • It was tough though because only 1 in 40 banks would lend on spec homes at the time
  • Did well but later, when the risk increased and the profit decreased, they pulled out
  • They also built their own private residence, too, where they have an AirBNB guest house (mid-term corporate rental)
• Did his first syndication in August of 2016
• They do also have some commercial office properties
  • There are a lot of good deals out there right now post-Covid
  • Suburban, secondary/tertiary markets, upper Mid-West
  • They have a 7-unit office building in Asheville somewhat affected by Covid
    • One tenant had to shut their business down
    • Two other tenants expanded at that time
      • One was a tattoo business
      • The other was a real estate building selling residential homes
    • They had to initiate social distancing/mask rules
      • People had to wait in their cars for appointments
      • No waiting in common areas
  • He has found that, whereas, large cities like San Francisco and New York have been hit hard, suburban commercial office buildings are actually growing and expanding.  They want more space instead of the cubicle type culture
  • It’s no different than the multifamily space
    • A year ago, they were in the middle of an acquisition (March 2020)
    • They did a resident-by-resident analysis to see who was a the biggest risk of losing their job
    • They found that only about 2% of the tenants had service or high risk jobs and that collections were at 98%, aligning with this data
    • They are focused on Raleigh and Charlotte areas (while collar workers mostly) – both faired quite well during the pandemic
    • Collections remained quite stable and did very well

Biggest Mistake

• Not evaluating a multifamily syndication based on three key criteria (below)
• Real Estate is a team sport – that goes for partners as well as any of your operating partners
• You can have some partners where views and visions aren’t aligned
• You can have some properties that don’t perform well due to poor property management
• He had a partner in the Houston market of an apartment building where he was a passive investor
  • It started off doing really well
  • Then the property management started lagging
  • They had to be replaced (they went through two different PM firms
  • In the midst of that, there was a downturn in the market due to oil prices (about 5 years ago, when oil prices took a big dip)
  • Then a hurricane came through Houston and took part of the took off the building
• There are three main areas you have to assess when doing multifamily syndication:
  1. The Market – Are you comfortable with the market and the risks in that market?
  2. The Team – Is the team right to achieve your goals?
  3. Deal-Level Performance – The property above was hurt because of over-leveraging.  Do the numbers make sense?
• The lesson learned:  Stay in your lane!
  • His most successful deals have been the smaller deals he has personally managed, in markets that he knows well

Biggest Success

• A 7-unit deal in Asheville, NC
• He has been studying the market for 13 years
• He has followed trends in around this town and knew the good areas to invest
• Bought it from the bank
• Bought in an “up and coming” area of Asheville that’s now one of the booming areas
• Had to invest funds in the property on the front-end
• Got it rented up with good tenants
• Got the tenants happy!
• Got up to market level
• They saw significant appreciation

Advice for Old Dawgs Looking at Real Estate Investing to Help Them in Their Retirement Years

• Everyone should look at real estate as a component of their investment portfolio
• In his book, he shows how ultra rich families ($100 million net worth plus) put 20-30% of their portfolio into income-producing real estate (not single family homes)
• This is what he calls “The Holy Grail” of real estate – it is the increase of return and the decrease of risk
• You need to look at a number of options regarding your investment involvement:
  • Are you going to be an active or passive investor?
    • In you are passive and have a large sum that you want to earn a good return, real estate could be just the thing
      • It’s safer than most
      • An inflation hedge
    • Active investor
      • If you want to roll-up your sleeves and get involved purchasing your own properties
      • Become a student of the market in which you wish to invest
      • Maybe start with a fix ‘n flip project
      • Buy a property for $200-300K
      • Put $50K into it
      • You could increase your investment 100%, with the right property
    • AirBNB
      • Kyle Stanley was on his podcast and shared how to create cash flow of $20K per month on AirBNB
      • You can do with very little starting cash

Current Business

• What started as a drive for financial independence for him, has turned into a mindset and a philosophy
• He believes that if you have financial independence, you can be your best self
• He’s helping people to:
  • Educate themselves so they can see financial independence is possible
  • Seize the opportunities
• His mission is to help as many people as he possibly can to achieve financial independence

Rap-It-Up

• Favorite real estate book: The Secret Life of Real Estate and Banking by Phillip J. Anderson
• Favorite business book: Never Split the Difference by Chris Voss
• Most valuable web site for success (other than your own): Yahoo Finance
• Favorite app: Calendar App
• Favorite quote: “Act as if” (Decide who you want to be and become that person)
• If you lost everything – all your assets – and had to start all over, knowing what you already know, and you only had $1,000, what would you do to launch your real estate investing business?  I would take people out to lunch, go to networking groups, and I would find people who were looking for partners in the real estate world.

How to Reach Chris

• Website:  NextLevelIncome.com
• Interested in coaching: coaching@nextlevelincome.com
• His personal email: chris@nextlevelincome.com

How to Get Chris’ Book – Next Level Income

• Purchase a paperback version of his book here
• Link to get a free eBook copy: https://www.nextlevelincome.com/book

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Additional Episode Sponsor: Meno Studio – menostudio777@gmail.com