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Welcome to the West Side Investors Network, WIN, your community of investing knowledge for growth. This is the Real Estate Professionals Investing Podcast. For Real Estate Professionals by Real Estate Professionals. This show is focused on the next step in your career....... investing.
Welcome to the Westside Investors Network. WIN, your community of investing knowledge for growth. This is the real estate professionals investing podcast for real estate professionals by real estate professionals. This show is focused on the next step in your career, investing. Thank you for listening.
Intro speaker:And please, if you like our content, rate us on your podcast provider. Just a quick disclaimer. The views and opinions expressed in this podcast are for educational purposes only and should not be construed as an offer to buy or sell any shares or securities to make or consider any investments or take any other action.
Trent:Welcome back to another episode of the deal deep dive segment on the Westside Investors Network podcast. I'm your host, Trent Warner. In this segment, our featured guests will share their unique stories on a specific deal they've invested in. We will dive deep into finding the deal, financing the deal, writing an offer, and the due diligence. Do us a solid and smash that subscribe button, leave us a rating, and share this episode.
Trent:And now let's dive deep. Alright. Welcome back to the Win Podcast, Westside Investors Network Podcast. I'm your host, Trent Warner. Today, are joined by Chris Larson.
Trent:Chris is the founder and principal of Next Level Income. Chris has been investing in and managing real estate for over twenty years now, and that's after a eighteen year career in another industry. Chris is syndicating deals now, has bought his first deal at the age of 21, and has been involved in over $1,000,000,000 of real estate transactions. Chris, thank you for joining us. Tell the people about yourself.
Chris:Trent, I appreciate the opportunity to be here. I'm excited. Yeah. So I started on my real estate journey at the age of 21. And it's funny because I spent, as you mentioned, I spent eighteen years in the medical device industry.
Chris:And when I'd left, a lot of people said, Pat, you like, tell me about the transition. And what happened was I always was a real estate investor, but I didn't have the capital to go out and buy properties. So I went and found a career that would allow me to do that. So I had this kind of investor first mindset. And, you know, we can even kind of talk about how that fed into kind of some of these deals out there.
Chris:But really, my first passion, my first love, Trent, was racing bicycles. And I talk all about my story in my book, which, by the way, if you're listening to it, you can get a free copy at nextlevelincome.com. And just click on the book link and put your address in. I'll even send you a copy here if you're listening today. But I lost my best friend.
Chris:I lost my roommate in college, who was my training partner as well cycling. I raced another year, and I quit. I just actually, I got to train with Lance Armstrong. I was racing high level. My team went pro, but I decided that I wasn't gonna continue to race, and I wanted more out of life.
Chris:And as I kind of thought through this process, I I said, hey. I'm not gonna have any regrets in life. I'm gonna live life to the fullest. I'm gonna, you know, honor the life I've been given, honor the life that my friend doesn't have anymore. What I realized was you need money to take advantage of the opportunities that are out there.
Chris:So I set off on this quest to become financially independent, to drive my ability to live life on my own terms. And after investing in the stock market, and day trading and, you know, kinda having a lot of fun and living a lot of excitement, making $5,000 as a college student each month day trading, I also realized that not sleeping, waking up at 3AM or laying in bed awake, you know, thinking about these trades or doing more research, you know, trying to control my environment that was not controllable in the stock market, I realized I I can't do this, and I need to find a better way. Read 250 books, actually got an MBA in portfolio management, and settled on real estate investing as my strategy towards financial independence. And to help fuel that, as I mentioned, that fuel that capital injection into these investments, I went into the medical device industry. So I used a little bit of my education in biomechanical engineering, used some of my sales experience, had a great great career, lots of fun, met a lot of wonderful people, and ultimately kinda blended it together today, which we not only not only do we continue to invest in real estate, but we allow others to come along for the ride in the form of syndications as well.
Trent:Yeah. So, Chris, we were talking a little bit before the we started recording, and we you know, you take a house that you bought when you were in college and now are syndicating, I'm assuming, you know, commercial, multifamily, all these other types of deals. Yep. How did you go from one house in college? Obviously, you had you said there were some outside factors and some life happenings that kinda drove you to want more.
Chris:Yeah.
Trent:But I think a lot of people buy a house and want more. What did you do to actually, you know, take that step aside from, you know, making more money in sales as, you know, in the medical device industry? How did you stay committed to the blueprint that you had thought about from, you know, 21, 22 years old?
Chris:Yeah. So I guess two things. One, I'm good at putting a plan together, Trent. I'm good at I have good discipline. So, you know, if you said, hey.
Chris:Like, what's your superpower? My wife says it's my ability to stay calm in the face of, like, you know, craziness. What she won't tell you is my inability to stay calm in in day to day life because I'm always, going, going, going. So that's kinda my yeah. But to be, you know, to be fair, I'm I'm not a perfect human being.
Chris:But, yeah, she's like, you guys she's like, you're so intense all the time. But it's funny. She's like, you're you're so calm under pressure. So it definitely suits me in certain circumstances. But I would say, like, my superpower is discipline.
Chris:Like, I'm really good at putting a plan together. But I didn't have the right plan. And that's why I love to come on, you know, shows like this and share people kind of like my journey. Because you can you if you're listening today, you can shortcut what I did. So I put this plan together, I said, hey, I'm gonna buy enough properties at $10,000 a month coming in, after expenses every month.
Chris:And I bought enough properties to do that, and all I had to do was finish paying off these properties, and and I was done. And I got about ten years into that journey, and what I realized was I was taking the slow path. And, you know, it's like when you're in the wrong lane of traffic, you know, and you look over next door and, like, everybody's, you know, everybody's flying by and you're like, what did I do? I got in the wrong lane here. And that's kinda how I felt.
Chris:I'm like, what is happening? But I didn't know. I was like, what other lane is there? And somebody told me about commercial syndications, multifamily syndications, which is when I started investing in over ten years ago. But what I used to fuel that were my residential properties.
Chris:So the first property I bought Trent, it was a three bedroom townhouse in Blacksburg, Virginia where I went to college, and it cost $90,000. And I only put $3,000 down for that property. Had my mom cosign on a loan, and I love this story because it's kinda like a get rich slow story. And I had that property. I had two roommates.
Chris:We call it a house hack today. Right? Where you you have a couple of roommates live with you, and I live for free. And what was even better was the tax benefits I got from this property. I was actually making money every month by owning this townhouse.
Chris:It was awesome. I used that townhouse to borrow a little bit of money and buy the place next door, and then I went I went on from there. But, again, ten years fast forward ten, fifteen years later, I realized, hey. This equity that I built in this property, this, you know, nearly a $100,000 of equity I had built was only making me, like, $56,000 a year. Whereas before, I put $3,000 down, and I was making, like, $3,000 a year.
Chris:So that was a good deal. You know, when you're making a few $100 a month on a $3,000 investment, that's a good deal. But when you're making, say, $500 a month on a 100,000 of equity, that's not a good deal. So, you know, as I looked at other options out there, you know, I didn't start investing in syndications, but I actually sold that property after fifteen years. I did a $10.31 exchange, a Starker exchange.
Chris:Again, I talk about this in my book as well, and I talk about how you can use it for generational wealth. We sold that property. We did a ten thirty one into a seven unit commercial office space. I bought that office from the bank in 2015. So this bank owned it, and it was listed for $700,000.
Chris:We went back and forth, and I was like, I don't know. You know, we don't need to buy it, but worked with my commercial broker. I went back and forth. We paid $5.25. Okay?
Chris:So $525,000. It needed some work, but we took that equity from that initial property, put it in. I put in about another $25,000 to put in new paint, make some repairs. It just looked like a mess. So I'll stop there for a second because there's a couple lessons.
Chris:One, you can still use these they don't have to be fancy tactics. A house hack, a fix and flip, a great way to get started in real estate. If you're listening today, and you're like, well, I'm trying to do my first deal. There's a lot of ways to get your first deal done. Okay?
Chris:Absolutely. You can do a short term rental. You can do a fix and flip. You can do a house hack like I did. People are like, well, doesn't it suck having roommates?
Chris:Well, it's you know, maybe, maybe not. You make a lot of great connections with roommates. We have two Airbnbs on our property today in Asheville, Trent, and it pays all of our expenses. People say, well, doesn't it suck having people, like, on your property? It doesn't suck having people pay my mortgage.
Chris:I can tell you that. So, you know, there's another real simple way if you're getting started. And then we did a ten thirty one exchange because we allowed that equity to build up over several years. Well, guess what? In less than two years, we were able to fully lease that property.
Chris:We brought leases up, which were twice. They were half of market rate, and the office was half vacant. So getting it fully rented and bringing leases up to market, which, by the way, I did while it was in due diligence. Okay? We were able to increase the value of that property to over $800,000 in less than two years.
Chris:We did a refinance. Now I only brought about a $100,000 of equity to buy that property. We just refinanced and pulled $200,000 out of that property in less than two years. So more than doubled our money. But here's the cool thing.
Chris:We didn't pay any taxes because we did a ten thirty one exchange. And since it was a refi, we didn't pay any taxes on that money either. You know what I did with that money? I rolled that into a syndication. Okay?
Chris:A passive syndication. So I assume most of your listeners know what that is, but you can invest in these bigger deals, and this was a large multifamily deal. That deal just sold here last year, and we I'm trying to remember the exact return on our money, but I got about $300,000 out of that property, okay, out of that syndication. Plus, I still own the office building in Downtown Asheville, which is now worth nearly a million dollars. Okay?
Chris:And the mortgage has been paid down. So all combined with the cash flow and everything since, let's call it, just 2015 to make it easy since I sold that first property, that $3,000 initial investment has turned into over $1,000,000. And if you add that up, that IRR, that internal rate of return, is around a 25% rate of return. So everybody listening can follow those steps, can do a house hack. They can do a ten thirty one exchange.
Chris:They can find a distressed property that a bank or a seller, you know, needs to get rid of and improve it and bring it up to market. They can invest in a syndication. That's nothing fancy there. Right? And they can benefit from all of those strategies combined to ultimately, you know, create what's really it's an impressive rate of return, but it's not a crazy rate of return.
Chris:Right?
Trent:Right. Yeah. I mean, it's a great rate of return. Don't get me wrong.
Chris:But Oh, I'll take that all
Trent:day long. It's not something with four digits in it where everyone's flaunting it, saying it's crazy, hit a home run. But couple of things I wanna say, though. The blueprint and the process that you just described is very basic. I heard a quote recently.
Trent:It was real estate is simple, but it's not easy. And by following this blueprint that you had, it's a simple process. If you just stick to it, it's going to reap rewards down the road, and you're gonna benefit from it. The other thing I wanted to talk about is the fact that you and maybe I missed something, but you have not paid taxes on from the, you know, from the first townhouse that you sold, right? Or did you pay it from the syndication?
Trent:We
Chris:just sold so that syndication sold outright, but I reinvested those funds. So there's prob you know, there's some income that's been collected over that period of time. So the taxes that have been paid have been minimal if you if you look at that. Yeah. And that's you know, I think that's one of the keys.
Chris:It's like real estate. It's you know, going back to the plan portion, Trent. You know, if you put a plan in place and you follow the rules that the IRS lays out, you shouldn't be paying much, if any taxes at all, when it comes to your real estate income.
Trent:So another thing you said is you did a refinance cash. You pulled some cash out of the commercial property, invested that into the syndication. Yep. So this is something that I've actually been looking into, whether it's we're looking at a HELOC right now, but because we have a HELOC. Yeah.
Trent:It doesn't make sense for us to do a cash out refi at this time. But the HELOC leveraging a HELOC and investing in something passive like that, you really gotta make a decent return to cover the interest payment. Right? How did you analyze that when you were doing the cash out refi to invest passive syndication?
Chris:That's a great point. So, you know, this is where, you know, you have to, you know, if you have like a value add property, you know, where you're you're adding value, and you're significantly increasing the income, then you're going to be able to, know, cover some additional debt service. Now, you know, we bought that property, some would argue, at, you know, nearly $200,000 below market. So, you know, looking at that, it's like, Well, this cash flow, we have a car wash here locally, which, you know, we bought that. We kinda did a similar value added strategy.
Chris:We put new equipment in, and we knew that there was margin there. So we ended up putting a little bit more money down. So we had the ability to ultimately do a line of credit, you know, and pull money out of that. So you definitely have to look at it. And as you evaluate the strategy that you're gonna employ, you know, you should consider, hey.
Chris:What's my exit strategy? Because if you can't get your money out because your cash flow won't cover that additional debt service or you can't sell the property for whatever reason and get that money out. Or if you sell it, you have to pay a prepayment penalty, or you have to pay, you know, taxes or that sort of thing, then that's gonna be challenging.
Trent:Another question I had about your process that you laid out is Yep. Did you have this intent to go as far as you did with that first deal when you bought that first house? What was your mindset like when you bought, like, hey. Well, I'm just gonna buy a house and have some roommates, or were you planning on using that to lever up?
Chris:Yeah. So I knew I was gonna bring in roommates to help cover that mortgage and do that. At the time, I just thought, hey. I'm gonna own this property, and I'm gonna pay it off, and I'm gonna live off the cash flow at that point. Okay.
Chris:And but that like I said in the beginning, Trent, that wasn't the best strategy. That was the long way, you know, to get there. But ultimately, it's a winning strategy because if you build up equity, then ultimately, you can take that equity out in some way, shape, or form. And that's great. I talk to people.
Chris:I'm an investor. She's in her fifties. She's like, I'm so far behind the eight ball. I haven't been investing and this and that. And she she then drops something.
Chris:She's like, oh, I've invested, like, a million and a half dollars over the last year. Because she had this money saved up. Right? She did the hard work, you know, to get that money saved up in her retirement plans and her accounts and those sorts of things. So my point is like, don't let the analysis turn into paralysis, right?
Chris:You don't have to have a perfect strategy. And by the way, whatever you're doing today with your real estate strategy, probably is going be a little different than five years, ten years, fifteen, twenty years from now, tax laws change, economics change, or economies change, you know, different asset classes, you know, kind of rise and fall depending you know, the different cycles. But if you are disciplined, if you are buying properties at a reasonable price, if you're putting a reasonable loan to value loan on the property, where your cash flow is ample enough to cover it, and you have good reserves, and you can ride out any short term, you know, bumps. Because that story I just told you, Trent, we went right through the great recession, right through it, right out the other side. Was it awesome?
Chris:No. But did we survive? Yes. Because we followed those rules. And now here's a word from our sponsor.
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Trent:Uptown syndication is now offering a syndication coaching program for you to take your real estate portfolio to the next level. This is your opportunity to have experienced syndicators, AJ and Chris Shepherd, coach you on your way to controlling your real estate investing future. Our coaching program will provide you with the tools and framework needed to begin syndicating real estate in your target market. Go to uptownsyndication.com today to learn more. That's actually that brings up a good point because currently, we're in a interest rate climate that is putting some people in a tough spot, especially when it comes to commercial syndications and Yep.
Trent:The types of debt that they have on their properties. Do you use those same philosophies in the properties that you syndicate yourself with good LTV loans, fixed rate, that kind of thing?
Chris:100%. So yeah, low LTV, you know, a reasonable LTV, like we our LTVs are usually between 50 and say 70%. Now, there were some times here in the past few years, where it made a lot of sense to do a floating rate loan with an interest rate cap on it. So we were manufacturing or creating a fixed rate loan, but we had the ability to participate in lower near term rates. And also, the challenge is if you get some of these fixed rate loans, and you know, a lot of listeners are probably familiar with this, you lock yourself into a specific loan term.
Chris:And that loan term, if you don't ride it out, you have to pay a prepayment penalty. So it may prevent you from selling that property. So there are people that like even today, I have a lot of colleagues and friends and operators in the business, they're still doing floating rate debt with interest rate caps. And people say, that's crazy. Why would you do that?
Chris:Well, reason is they want to sell within, say, three years, and it doesn't make economic sense to do so a lot of times with some of these other loans that are out there. So you just have to be cognizant of all the factors and educate. You know, if you have investors, you have to educate them to that. And, you know, like we have reserves in place, you know, to pay those additional, you know, fees and those sorts of things.
Trent:Absolutely. Okay. Kind of segueing into the syndication side of your career and your journey because it sounds like that's what you're Yep. Most recently focused on.
Chris:Yep. Syndicated first deal seven years ago. Yeah.
Trent:Okay. So you've been you've seen enough deals at this point. What made you want to get into being I'm assuming you're on the operations side as well as capital raising. Almost you've done both. What made you wanna do that?
Trent:Yeah.
Chris:You know, starting out, again, I wanted to be an investor, Trent. And along the way, people would ask me, they'd be like, oh, you have an MBA? You know, like, what do you do with your money? They'd ask me. And I'd tell them.
Chris:And then they'd say, well, hey, can I get involved with that? So as time went on, we made some investments. My first partner, I introduced to the space, and he made some investments. And then next thing you know, people want to invest with us. You're like, Wait, this is not only is this fun, I can bring people along with it, but there's money as well.
Chris:Right? You can be compensated for that. So you say, well, okay, that's a win win. Right? If I can help people out, if I can make some money with this, then this is a win win in this circumstance.
Chris:So it kind of evolved. It wasn't the first thought that came into mind. I was like, hey, I'm gonna invest. I started as an investor in the space, and then ultimately became a syndicator after being an investor for several years.
Trent:And you're still doing it. So you must be having fun with it. Right?
Chris:Yeah. I mean, there's you know, when rates are going up and, you know, investors or banks are failing, you know, you have to talk to investors and you have to be transparent. You have to be honest with investors. You have to share, you know, the information that's coming out. But I spent almost eighteen years working in ORs and dealing in stressful situations.
Chris:So I feel privileged to be able to work with investors and work with their capital and be a good steward of that capital. But, yeah, I'm having a good time. I love putting deals together. I love making deals. I love doing small deals.
Chris:I love doing big deals. So, you know, some of those small deals are really good deals as well.
Trent:Absolutely. And so you may have mentioned it earlier on today, but I know we talked about it before we started recording. Yeah. It sounds like you've syndicated quite a few different asset classes from multifamily to commercial, you know, office, retail, car washes, I think you said you've syndicated, right?
Chris:Yes. So our primary asset classes are multifamily,
Trent:which
Chris:kind of form the base of our investment thesis or pyramid, self storage, which are similar in a lot of aspects from a demographics perspective, mobile home parks, which a lot of people would even classify as multifamily. We've done hotels and also car washes as well. I have commercial office, some retail space, but we don't specifically syndicate those deals. But probably the most recent but fastest growing asset class are those car washes.
Trent:And before we dive into the car washes, would you say when you first decided to go from investing in your own assets and your own portfolio and the, you know, the passive side of things, when you started this the transition into the operations and being your own, you know, general partner, did having that track record of the single family homes and the personal investments, did that help your investors with the confidence that they had in you?
Chris:I think so. And look, I think it's very important. I mean, so we all have skill sets, and we all have interests and things that energize us, right? So for me, arguing or negotiating over a dent in a refrigerator might not be my highest and best use of my time or what I love doing, you know, from like an operation side. Right?
Chris:But I do love talking to investors. I love educating them on the concepts and, you know, different strategies to really help them maximize, you know, their dollars and do that. So I've done all the aspects of operations. I still do some of those. You know, we're talking about the car wash we have here locally.
Chris:But, you know, over time, you know, we have hundreds of investors now. We've done, as you said, actually about a billion and a half in deals in some way, shape or form. At some point, you have to relinquish control of certain aspects of the operation and realize kind of what you're good at and what you really enjoy and do that. But you really need to understand operations. I think growing up with a stepfather who was a contractor, swinging a hammer, doing those jobs, understanding the basics of property and asset management are important.
Chris:When it comes to our larger express tunnel car washes that we bring investors along with us It's important I have a car wash here locally. I understand the basics. I understand what happens, the traffic counts, the seasonality, right? Like it's about to be pollen season here in the Carolinas. This is the high season, right?
Chris:Oh, yeah. Managing an app. What about self storage? Like, you know, what are the trends, the industry trends, the things that help drive that? Do you need people on-site?
Chris:You know, mobile home parks. I grew up going to church, and we had a youth group. And that youth group, every summer, would go and do a service project, and we worked in mobile homes. Or, know, we worked on mobile homes and help people out that didn't have, you know, maybe the resources to keep their homes in the right shape, the right quality. But I saw that these people had a pride of ownership.
Chris:I saw the way that they took care of us, that we're trying to help them out. And you realize that, hey, there's a much different individual that lives in a $10,000 mobile home than lives in a luxury class A apartment building in Fort Myers, Florida, for instance. I think, from my perspective, being able to understand those aspects of the different investments and being able to communicate to those investors, I think it's valuable, and, you know, I think those are some things that you can ask syndicators that are out there. You know, hey. What's your experience?
Chris:You know, explain these things to me. And, you know, there's certain asset classes that maybe I don't find to be a good fit for me personally or for our business. And maybe that's because I don't quite understand them the way I do, you know, kind of these nuts and bolts value ideals.
Trent:Absolutely. Okay. One more question before we dive into the car wash syndication strategy. So you mentioned I mean, we've talked about multifamily, mobile home parks, car washes. There's a ton of different realms that you guys are involved in.
Trent:And like you said, you have to have a base knowledge at least of the operations. I'm assuming you have a great team around you that can help with some of those operations and How understanding of do you go about putting that team together? Because, I mean, for us, we focus on multifamily syndications. We, you know, property management, construction, multifamily syndications like the back of our hand, but we don't know mobile home parks and all these other things, how'd you go about developing that team to get involved with all these different niches, I guess?
Chris:Yeah. Yeah. That's a great question. So, you know, it's kinda you know, my focus is a value add strategy trend. So and that's what like, if you read my book, you're like, Chris, talking about multifamily.
Chris:I'm talking about value add, which is kind of like the Warren Buffett strategy of investing. Nobody questions Warren Buffett when they're like, well, hey, Warren, why are you getting into, Gillette razors or Coca Cola? Like, these are totally different industries. He understands value. He understands how to understand intrinsic value in a business, right?
Chris:And that's, to me, that's what I see in real estate. So when I see a piece of real estate, and this will be a nice segue into the next deal here, but I feel like I understand the basics to understand that. And I also understand when I don't know enough about a certain aspect to bring somebody else in to do that. The car wash is a great example of that. Mobile homes park space is a great example of that.
Chris:We have a different operating partner that works in the mobile home park portfolio and works on those class a multifamily deals. So you have to have, you know, you have to have the right people in that space, and you have to be willing to give up a piece of the pie to bring on the right people as well. So I think that is probably the biggest thing. You say, hey. If you look at my career in the medical device space, know, when I brought on partners or brought on reps, you know, that worked on my team, you incentivize them properly.
Chris:And I think if you, you know, put the proper incentives in place, obviously, the proper training, you know, knowledge base, all that stuff is super important. But if you say, hey. Listen. There's a reward here, you know, if you can operate there and you hire the right talent in place, that's a recipe for success.
Trent:One thing I wanna say, and it's one of my favorite quotes, if you wanna go fast, go alone. If you wanna go far, go together.
Chris:It's There we go.
Trent:The sports background in me, but it's exactly what you're talking about right now, and I love to hear that.
Chris:Yeah. Yeah. Super good.
Trent:Car washes.
Chris:Super good quote.
Trent:Car washes. I personally so I've been kind of an investment junkie since I was, like, 16 years old, always, like, looking at the different investment strategies. And car washes is something that I've actually looked at for a decade now probably, but I've never bought one. I've never really seen how to acquire one.
Chris:Be upset after our conversation that you didn't buy one ten years ago.
Trent:But the thing is is they're never publicly listed. Like, you have to know the brokers. You have to know the owners. Yeah. So that's kinda what I wanted to segue into.
Trent:Obviously, I wanna hear the strategy and everything, but Yeah. I'm more focused and more interested in the acquisition side of it because our washes aren't you don't slap a for sale sign on the outside of it and expect to sell it. So how does the acquisition piece of a car wash happen?
Chris:Yeah. So we have a great acquisitions team, you know, whether you're talking about the multifamily self storage or the car wash space. So I think one thing to note, and we'll kinda excuse me. We'll start kind of at the beginning, and we'll kinda walk through the process. So when we talk about acquisitions, you you and I know multifamily trend.
Chris:Multifamily, the larger deals, 85, 85% are owned by institutions, maybe 90% when you get into some of these bigger, you know, more institutional quality deals. By definition, they're owned by institutions. Right? The car wash space, the mobile home park space, it's an inverted relationship. Only about ten, fifteen, 20% are owned by larger operators.
Chris:In the car wash space, 85% of car wash locations are owned by operators with four or less locations. Okay? So mom and pops. So to your point, you need to go to the owners. And mom and pops, they wanna sell.
Chris:What do you hear? Oh, my kids don't wanna run it. You know? The other thing is it's challenging. Like, you buy a nice multifamily deal, everybody's dressed in a suit.
Chris:Everybody works Monday to Friday. You know? The deal gets done on time. You know, you're working with commercial banks, Fannie, Freddie, agency debt. You work with a car wash, maybe somebody's brother-in-law is getting paid off the books.
Chris:You know, maybe their friend is selling them like, it's you know, you just don't have the standardization. So you have to deal with a little bit more, you know, kinda hair on the deal, so to speak, going into it. But again, and this is look, if you're listening, whether you're trying to find your first deal or apartment deal or car wash, whatever it is, this isn't magic. Just go find the owner and reach out to him. Hey, Trent.
Chris:I noticed you own this location down the road. You know, are you interested in selling it? My wife and I used to build spec homes. She would send postcards. Three years after we stopped building spec homes, my wife gets a call.
Chris:Hey, are you still interested in buying my property? My wife's like, what are you talking about? Like, well, I got this postcard from you three years ago. It wanted to know, were you interested in selling? I put it in my drawer, and you're the first person I called.
Chris:She didn't call the realtor. Right? She called my wife. So it's you know, you can build a relationship. It takes a lot of numbers to do that.
Chris:So that's the first thing. You gotta fish where the fish are. Right? You gotta be the bear in the middle of the stream and do that. Once you get to the bigger deals, it's no different than multifamily.
Chris:You know, if you want a broker to call you with a larger portfolio, they have to know that not only can you close, will you close, but you have the firepower. You have the capital to close and do that. So if we're buying, you know, a larger portfolio, that's important.
Trent:So you have one location in North Carolina and Nashville locally. How many total car washes do you guys control or operate?
Chris:Yes. We yes. We have 18 current, and we're on our way to 24 here. We got some in the process of closing. So depending on when this airs, about two dozen total.
Chris:And then I have one here locally that I own. So our model so the ones we syndicate that we offer to our investors are express tunnel car washes. So these are the larger tunnels where it basically has a conveyor belt that you park your car on, and it pulls you through. The one I have here locally is a little bit smaller scale. It's a two bay automatic in bay, and you just park your car.
Chris:It's basically a giant robot that washes your car. And don't worry, there's no chat GPT four that's, you know, gonna, you know, be talking to you while you're in there. But it just it just goes around and washes your car. It's actually frankly, it's a higher quality wash than the tunnel wash, but it takes a little bit longer. So if you're out there and you're like, hey.
Chris:I wanna buy my first car wash. In one of these automatic in days is nice because you can buy it, you know, say between a million and $2,000,000. You know, with the big express tunnels, you know, they can be 5, even $10,000,000 for, you know, a large, you know, prime location.
Trent:And so you have about two dozen of them now. Are you buying these as a portfolio, or are you acquiring them one at a time, typically?
Chris:Yeah. So it vary. It varies. Great answer. Right?
Chris:We bought single locations. We bought anywhere from one to seven. But, like, the last two portfolios we bought have been three. So three locations at a time. Yeah.
Chris:So that's kind of a good number. And again, if you go back to the acquisitions portion, we are targeting individuals or businesses that own four or less as kind of our primary model. And our model is we're rolling them up. And the reason we're rolling them up, Trent, is because if we're paying around the eight x multiple of EBITDA on these single or, you know, two, three locations, as you roll them up, there was just a recent Wall Street Journal article, large private equity groups are paying an 18 to 20x multiple. So you can buy at an 8x, if you can sell it 50 to 100% higher than that, you know, assuming revenue is the same, which we're always increasing revenue, that's a massive, massive value add for investors.
Chris:Right?
Trent:Absolutely. How do you go about I know how to underwrite a multifamily deal, like I said, but how does the underwriting vary from a business? And are these car washes coming with the real estate owned as well? Or are they just the business?
Chris:Good question. Good question. Yeah. So, well, let's back up. Owning an apartment, it's owning a business, right?
Chris:If you have a 100 unit apartment building, you have a 100, you know, customers every month that are paying you. Yeah. So if we have a car wash and we have a 100 customers that are members, every month, a 100 members are paying us. Right? So very similar.
Chris:The difference is a multifamily deal is gonna be based on NOI and cap rate, and a car wash is gonna be valued like a business on EBITDA and multiple of EBITDA or revenue. So it's gonna be underwritten. It's like you would look at it, and it would translate very, very well. So you'd say, oh, okay. Like, I understand, like, OpEx.
Chris:OpEx is gonna be similar. You know, 50% OpEx is reasonable. You know, you're gonna have, you know like, for us, our headcount is at or maybe slightly above the industry average because we operate kinda like the Chick fil A model of car washes. So we want a higher quality experience for our customers coming through, more repeatable. We're gonna pay our employees a little bit more than the industry average as well, those sorts of things.
Chris:So, you know, those tran you know, you can look at all those things. But you would you know, you can basically, you know, line by line, you could say, oh, okay. This is what this is. This is what that is. We have a vending machine, other revenue.
Chris:Right? Other income coming in. So if you're listening and you've seen the underwriting for a multifamily deal and you see the underwriting for, you know, one of these car washes, it's not gonna take you that long to understand it.
Trent:Got it. So at the end of the day, you're underwriting the business, and the real estate could be owned or could be leased type thing.
Chris:Yeah. But we own it. Yeah. We own it. And, you know, that is one of the nice things.
Chris:The depreciation on these car washes is at or above what you're gonna see on multifamily deals as well. So great tax benefits.
Trent:Okay. Okay. So the car wash model isn't necessarily focused on IRRs and AARs and all that stuff. It's multiple and what you can buy it at and how you can increase revenue?
Chris:Yes. And actually, yes and yes. So I mean, we're looking at cash flows that are typically 50 to 100% higher than a multifamily deal, really strong cash flows that are coming out of these. And we're looking at, you know, rates of return that again, are 50 to 100% higher than a multifamily deal. But to your earlier point, Trent, this is a business, there's a lot more variables.
Chris:And all things being equal, more variables mean more risk. So you just have to be very comfortable if you're looking at a deal like this, a business. You are really comfortable with the operator, and you really understand what they're doing. You understand the model. Right?
Trent:Absolutely. The way I like to look at multifamily real estate is if you're doing it on a conservative underwriting and projecting a, I'd say like a seven to ten year hold time on some of these syndications, It comes out to be a get rich slow plan. Right?
Chris:Get rich slow. My favorite. That's my favorite. Yeah. And look, if you read my book, you'll see my book.
Chris:I talk about 6% cash flow. I talk about 12 IRR. Like, if you look at my model for our family and, like, our generational wealth model that I have, it's based on about a 12% rate of return. You know? Like, I don't expect you know, I mentioned 24, 25% rate of return on on, you know, as we went through those deals.
Chris:Mhmm. Now if you average everything out, that's about what I've averaged through my investing career on these real estate deals. But I never assume that, and I'm gonna shoot for that. You know? But if you say, hey.
Chris:You know, let's be conservative here and assume, you we're gonna get these results over five, seven, ten years. You know, as long as the cash flow is decent and you have good tax, you know, benefits and Mhmm. Even if the economy goes down, even if things slow down, even if, you know, there's a little oversupply like there's probably gonna be this year in the multifamily space, okay, wait another year and sell. Wait another couple years and sell. We need four and a half million more units by 2035.
Chris:That's a lot of units. I'm pretty comfortable with those tailwinds.
Trent:Absolutely. And so the I guess, I'm still trying to understand the carwash underwriting. So your IRR target is Yeah. I'm assuming fairly similar to a multifamily or a mobile home park or any other syndication. Right?
Chris:Yeah. So if if you look at our investor waterfall, you know, we're typically targeting, you know, like a 20% IRR for investors in our car washes. Whereas in a multifamily deal, it might be, you know, mid or low teens for a multifamily deal. And, you know, our target cash flow for a car wash deal, maybe 10% or target cash flow for a multifamily deal, maybe 6% or 7% for a higher quality deal. So, you know, again, you know, we typically, you know, again, just, you know, in general, not a specific deal, but cash and total returns typically 50 to a 100% higher for a car wash versus a multifamily deal.
Trent:Got it. And then you talked about packaging up these different car wash locations and the future plans and the disposition plans. How long of a hold time are you projecting when you do this the underwriting on these deals?
Chris:Yeah. So, really, we're pretty aggressive here. We think we can do that in three to five years.
Trent:Okay. Okay. And that's assuming you get to how many different locations?
Chris:Yeah. So we'll be at 25 here shortly. Our target is one to 200 locations.
Trent:Okay. So it sounds like the car wash is the focus going forward then.
Chris:You know, the thing is the deal flow is so strong in the space trend, and the price point is significantly lower. So instead of looking at a 50 or a $100,000,000 multifamily deal, we're looking at, say, a five or, again, 10 on the very high side car wash, you can multiply. If we say, Hey, we're going to buy 10 multifamily deals over the next few years, you'd be like, Okay, that's reasonable. We could multiply that by 10 and say, we're gonna buy a 100 car washes over the next few years, and the numbers are gonna be similar. Mhmm.
Chris:It's gonna be more it's more work. Our team's a lot bigger on the car wash side, but we're built for that.
Trent:That's awesome. That's awesome. Yeah. Well, you answered all my questions today, Chris. I appreciate it.
Trent:One more time, I wanna say thank you so much. And your book Yep. Next Level Income. Can we get that link one more time?
Chris:Yeah. So check us out. So if you heard anything that you find interesting here during our conversation today, you can go to nextlevelincome.com. You can click on the book link to get a free copy of the book. If you do wanna learn more about our specific investments as we touched on today, you can click on the invest link, schedule a call with our team.
Chris:We can go through it, answer any questions that you have. Although, Trent, you've done a pretty good job diving into the the underwriting, but we can always dive in more. You could check out our webinars. We have all kinds of resources up there. Tons of free stuff on the website in addition to our podcast and our book, blog, etcetera.
Trent:Very nice, Chris. And we'll make sure to put that link in the description down below. Chris, again, thank you so much for your time, and I hope you have a great rest of your day.
Chris:Thanks, Trent. You
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