Charles Carillo is the founder and managing partner of Harborside Partners. He has been actively involved in over $200 million worth of real estate transactions since 2006 and carries extensive knowledge in renovating and repositioning multifamily and commercial real estate.
In addition to being an active investor; Charles passively invests in many different asset classes including; commercial real estate, ATMs, and early-stage technology and agriculture (AgTech) startups.
Charles oversees all acquisitions, investor relations, and strategic partnerships at Harborside Partners. He is also the host of the popular podcast, “Global Investors,” where Charles interviews successful real estate investors in addition to his weekly strategy episodes.
Prior to launching Harborside Partners, Charles co-founded an online payment processing company that has since processed over $1 Billion in payments for clients in 5 continents across the globe.
Charles is an Eagle Scout and holds a Bachelor’s Degree from Central Connecticut State University.
What you will learn
- Charles tells us about what brings him joy
- Discover what inspired Charles to invest in real estate early
- Strategies for Foreign Investors: Investing in real estate in the USA
- Current opportunities and trends in real estate in the USA
- Why its important to have a goal beyond financial returns as an investor
- Biggest mistakes investors make in real estate
- How to invest in the right geographical location
- What rent return investors should be looking for
- How to mitigate risks when investing in real estate
- Charles shares his best tips for people wanting to be an entrepreneur
00:00:04 - 00:00:41
Hi everyone and welcome to The Jeff Bullas Show, today I have with me Charles Carillo. Now, Charles is a managing partner of Harborside Partners. A real estate syndication firm has been actually investing in multifamily and commercial real estate since 2006. In fact, he started investing as a side hustle. I wanna find out more about that after he finishes college, but since that time, he's invested over $200 million worth of real estate. Charles is also the host of a Global Investors Podcast. That's why he looks very, very professional there. And he interviews professionals about investing in US real estate. So welcome to the show, Charles. It's an absolute pleasure to have you here.
00:00:41 - 00:00:44
Thanks so much for having me on, Jeff.
00:00:44 - 00:00:59
So this is not anything to do with real estate. I'm gonna ask you the question: what brings Charles joy? What puts a smile on his face every day or maybe every two days but what brings you joy, Charles?
00:00:59 - 00:01:09
I love Italian cooking. I got my dual citizenship years back and it's something that I love cooking, Italian food for myself and family and friends.
00:01:10 - 00:01:23
Is it, so the last guest said that as well. They said that and I asked, now this is the other question I know is when you're cooking, does everything else just fall away and that's all you doing it's like time stops almost in a way?
00:01:24 - 00:01:42
Yeah, it's kind of a serious process. I will, you know, headphones go in kind of and, it's kind of like, you know, don't bother me for an hour and a half and then we'll eat, you know what I mean? Times are relevant. We could be, you know, I know you want to eat a half hour. It could be an hour and a half, but we're gonna eat at some point. It's just that's how it works.
00:01:43 - 00:02:25
That's awesome. Sort of cooking does my head in because it's, I find that getting the ingredients actually almost takes more time than the actual cooking, but maybe I just need to practice more. But, yeah, that's great to hear. So, I like the fact that you put headphones on. So it's almost like you're practicing for a podcast by cooking. Okay. Charles, let's go back to. So you, when you finished college, you said to me in a little preamble that you started investing in real estate pretty well straight after college as a side hustle. So what inspired that?
00:02:26 - 00:03:49
So, just a little background. My dad has been a real estate investor since 1984. And he had him and a partner at one point, they had probably like 100. We call, you know, like flat, we call multifamily here in the United States, but it's like apartments or flats, what you would call in other parts of the world and that they would rent out, they own the buildings with these separate units in it and they'd rent them out. And so I got a second education growing up during the week and on the weekends with my father dealing with all the interesting things that happen when you own real estate. And, you know, you're kind of self managing at what we call. There wasn't really a third party manager. He hired people himself to manage the properties, but he was also involved pretty daily into those properties. So when I got out of college, my dad pressed it upon myself, I guess, a little bit more to buy a property and, if I didn't have him, I wouldn't have done it right away. And we, you know, I did it right away and what we, how I did it, how I got involved with it in the United States. We have a thing we call, they call it now house hacking. But really it is you're buying, at that time I bought a three unit building. I lived in one of them and I rented out the other two floors and I was able to cover a lot of my mortgage and as someone that just graduated college, you know, not much money, it was a great way of going about it.
00:03:50 - 00:04:01
Right. And with your debt, I suppose, essentially sounds like you're almost following around and learning by doing because you didn't do a degree in real estate investing, did you?
00:04:02 - 00:04:26
No, I didn't. It was in, they college had something, it was like a mix between, it was actually entrepreneurship, but it was really a management kind of marketing type of degree and they give you a little bit of all these different facets of business that you have to take classes on. So you have some accounting, you have some management, you have some marketing, you know, some which it's great because it gives, you're pretty well rounded in those fields when you leave.
00:04:27 - 00:04:39
So when you chose that degree, was that driven by investing in real estate or you had basically thought, well, I'm going to be an entrepreneur after I graduate. This is sort of where you're gonna move to what?
00:04:40 - 00:06:01
Yeah. So I was, I had been an entrepreneur prior to going to college just like, you know, doing stuff online, putting up websites like in end of middle school, high school, selling all types of stuff I get my hands on. I mean, it was like, before having a website I remember like, it was like selling on eBay and eBay didn't even take credit cards. I had to give cash to my dad to write checks to, I didn't have a checking account. So I gave my dad like, $8 to write a check to eBay. And apparently, I mean, he got to eBay somehow and they, you know, across the country and they, you know, they cash it. So there was a whole different kind of wild west, I think of the internet and putting up websites and all this kind of stuff. And so when I was in college, I really changed it around and as we were talking about beforehand, I founded a small payment processing company and it's what, how the business really ran in a nutshell was really, I really focused on the sales part of it. Once I had these accounts or these businesses that are interested in payment processing, I would bring them to a processor that I had an agreement with and then I would get paid in ongoing percentage royalty residual. It was passive income at that point. So the whole thing was really semi passive, I guess you would say. So you had passive income many times. But then you'd have that five or 10% of clients every month that would need some sort of contact with you. But most of them weren't. So that's why I'd call it semi passive.
00:06:01 - 00:06:09
Right. So, is that so, did you have a full time job after you, when you left college, or what did you do?
00:06:10 - 00:06:44
No, I had this, I was running some, you know, some small, other online businesses during college. And, I started this, I think in junior sophomore or junior of college and then I kind of went full into it when I got out of college. But the last year of college I was working pretty full time getting this to the point where I wanted to and I really kind of got out of college and it was like a year after college. It really, you know, it really started to see it, you know, because once you can really spend a lot of time on it, that's when obviously you're able to really make progress in what you're focusing on.
00:06:44 - 00:06:55
Yeah. So the focus wasn't real estate at the time, real estate was more a passive investment in that you manage the units, obviously in your three unit building.
00:06:55 - 00:07:34
Yeah. And I worked at the property as well so it was something that was very easy and it was very part time at that point. You learn about dealing with tenants, which is great. You don't have to drive anywhere to this property. So you don't waste that much time. And if you're working at the property, it's even better because if something had to be fixed, you have a handy man come over, you know, you go downstairs, you open up the door, they fix it, you know what I mean? And everything is pretty simple. Obviously, some people don't want to live that close to tenants but, you know, it's not something I don't think my wife would sign on now doing, but it was something, you know, in your early 20s, what do you know? You know what I mean? What do you, it's like you just, I just left college so, you know.
00:07:35 - 00:07:49
So what was the next step? So when, how long was it after that initial investment that you started to double down a little bit more in investing in real estate and how did you fund it? That's what I'm curious about.
00:07:50 - 00:09:28
Yeah. So I, you know, end of 2006 was when I bought my first property, which was right around the height and the height was somewhere in, like in the United States, somewhere in, like in ‘07, beginning of ‘07. And then my second property I bought it was like a block and a half away, another three unit property. And that was that was like, I remember exactly. It's October 1st, 2008. So that's so context just why I would know that is because it's like two months after Lehman went down, approximately in like two months before Madoff came out as a fraud. So it was like every time you turn on the TV, it was like somebody knew was going out of business, something it was just a completely insane which if I knew more about anything at that time, I probably would have done it which was great. But it was a great investment. It was definitely one of the best properties I bought at that time and, you know, for many years afterwards and then I bought another property, it was a commercial property. So it was a mix of had like offices on and then it had apartments above it. And I bought that like at the end of ‘09, 2010 and that was just like everything was just in turmoil. So it was, everything was a mess here in the United States when it comes to real estate and a lot of other places throughout the world. But, you know, I was buying at this point because I'm originally from Connecticut. This was all in Connecticut. I moved to Florida in 2012. So Florida had a much bigger peak and a much, you know, bigger valley afterwards. But Connecticut went up peaked in many places where the area I was in, but it really never came back to those same levels even during the last kind of 2022-2021 type, you know, price escalations we had here.
00:09:28 - 00:09:34
Right. So is timing important as a real estate investor?
00:09:35 - 00:12:18
It really depends on what you and what your strategy is and you can make money in all types of markets in real estate. I had a very slow and kind of dumb way of approaching it in the sense of that. It was these were long term investments and they were bought with long term fixed debt we call here. So it's like there's no interest rate changes during out that we usually have a 30 year term. So, you know, throughout that 30 year term, the term of that mortgage, you don't have to worry about any changes to your principal interest, just your tax or insurance can change and those are your major expenses. So buying real estate like that and then knowing that it cash flows, you have positive cash flow every month. It allows you to weather a lot of the storms. And so when going through, you know, ‘09, 2010, any of these times, if you just kept people on the property, you kept it rented the good tenants, it didn't have any issues, you're not getting major rent increases, you're getting, you know, %2, 3%. But you were still, I mean, that was what inflation was back then. So it was just, it wasn't a, it's not that it, you know, it wasn't that sophisticated of an investment strategy, the investment strategies when you're looking for a shorter period of time, that's when it becomes, you add more risk onto that because you're getting shorter term debt. So if anything goes wrong in that six months or 12 months that you have that debt, you're trying to flip a property, that's where you can get into hot water. Because if anything happens, I mean, if you have a 30 year mortgage with a major bank, I mean, and you got 29 years left on it and everything goes dies and you're still paying your mortgage, you're not gonna have an issue. The problem happens is that when you have that short term debt, they want their money back, right? Everybody wants their money back. They're not going to give you any leverage at that point. They're not gonna say, oh, I'll give you another month or anything like this or they're not gonna work with you. If you find a problem with the property, you know, if you find a problem and you can't sell it, you can't rehab it, whatever the issue you're having. And so that becomes a much riskier situation. The other thing too is that when we're having like a pullback in the market, if people are buying properties for the short term, they really have to buy the property correct, when you're buying for longer term, especially in like growing markets, like we do down here in Florida it's something that you have a little bit of a buffer because you're buying it for long term, you're able to, you know, you're able to pretty much kick the can down the road for lack of better word to a better time if you're having an issue at the property or, you know, the economy is not where you want to be the price of the property is not where you want to be the value is, you can work on it and you're not forced to sell it when you start taking the short term debt and you're doing short term investments that adds, you know, dramatically more risk to the investment.
00:12:18 - 00:13:15
Yeah, that's very interesting because that's what I have learned about American borrowing for mortgages or for houses or real estate is that when you take a loan out, it's basically you got a fix for like 30 years, whereas in Australia, you can take out a fixed loan and the longest time a bank will give you will be two or three years of that fixed rate and then whatever the interest rate is in three or four years, that three or four years fixed and then it goes to variable. You end up paying the current interest rates which have gone through the roof in the last year. So in Australia, for example, we would be borrowing might have started at 2%. Now, it's up to five and a half, 6%. So you can imagine what that does to your planning as an investor, whereas you've got it fixed for 30 years. That gives you the security knowing that you could just play the long game. So what you mentioned about short-term debt, that's when it becomes dangerous, doesn't it?
00:13:15 - 00:14:38
Yeah, the short term debts will become dangerous. And the same situation that you're experiencing is similar to what they're experiencing around in the UK as well where they're having that issue. And a lot of people, it's terrible that their interest rates are going up high and, you know, when you can get variable rate loans, but people got really burnt with this during ‘07-’08. And so it's not as popular, you can still get them, but it's usually like something that if you see the product, it's like five years, then it will change, like you said, you know, like a three, then it changes every year or something like that for the life of the mortgage. But the main important thing here or the main popular thing here, which makes sense is the 30 year fixed and then people prior to this low income rate, income, interest rates, people in America used to only keep their mortgages on average seven years. So now that's going longer because people have these fantastic fixed rates. You know what I mean? That are like, you know, 3% or something. It's like I was reading something. It's like 90% of Americans have a fixed rate or something under 4% or under, you know, it's just so that's why people aren't selling houses. But, in normal times, it would be seven years that they, in that seven years, they would sell their house and go to a bigger house or downsize or get a new mortgage. So at that point here, it's a little different because of this in, you know, how low we went and how high we went. A lot of people refinanced and, you know, they don't want to lose those rates.
00:14:39 - 00:15:01
Yeah. So that's, it's very interesting. So there's quite a difference in terms of that market in America or the USA versus the UK and Australia especially. So let's then talk about how would an investor, foreign investor, invest in real estate in the USA. How does that work as a foreign investor?
00:15:02 - 00:17:03
So there's a couple of different strategies that investors can use. Number one is you can invest into which probably one of the easiest ways of doing it with the least amount of investment, is gonna be going into a real estate investment trust and they can purchase that probably right through their brokerage account. And something like that, that's one way of getting exposure to the US market and to all different types of classes of real estate. So if you want, you know, retail in there, you want restaurants or anything like this multifamily apartments, what we deal with anything like that you can get exposure to. What we have talked to a lot of people about and what the podcast is a lot about is people come to the United States or interested in investing in the United States as a passive investor and or they can become an active investor which is taking a whole another just like you would be investing in a real estate in Australia, which all the people that you need on your team, you have to now rebuild that on the other side of the world and into a different country with different laws and regulations. So that makes it a lot more difficult. When we're working with international investors, we typically they'll come in and work with us as a passive investor. So what happens really is they set up an entity in the United States, usually an LLC, what we normally use for real estate and they're able to invest into array of different deals from different syndicators, operators, what we call deal operators like ourselves. And that allows them to get exposure to different properties and their investment is gonna be a lot smaller typically compared to what they'd be investing into. Say, if they bought their own, say five unit or 40 unit apartment building. So that's one of the pluses. The other thing too is that you don't have to do anything. It's completely passive after you make that investment. And how it works is we typically will send out like monthly reports to investors and then they'll usually get a quarterly distribution from the profits of the property. And that those are really the three main ways that people can really take advantage of investing in the United States.
00:17:04 - 00:18:03
Okay. So yeah, it's, I suppose setting up a company as a foreign investor just depends on what level you want to play. But so, what are some of the opportunities you're seeing at the moment? Because the pandemic pushed up prices, didn't it, around the world really and also there was and always with real estate, there's markets within markets. So one suburb can differ to another. So what are some of the big trends you see in real estate that you think you should be aware of? Is it catering more for the elite ultra wealthy, you know, the middle market, where do you think the opportunities lie moving forward because the prices went up during the pandemic, people could work from home. So they wanted to buy a home, work from home. In other words, house prices went up here and apartments didn't in Australia, for example. So what are these some of the opportunities that you see post pandemic that you think are worth noting in the USA?
00:18:04 - 00:21:33
So how our strategy works is we really focus on what we call B class apartments. And then B class apartments are apartments that have been built from say 1985 to, you know, 2005-2010. And these are properties that probably haven't been updated that much, however, they're in good areas, we call them B class areas and they have a solid tenant base there with actual real jobs, solid jobs. We, when we're doing underwriting on these tenants, we typically are looking for three X. So that means that they're making three times more or the household is making three times more than what the rent is, which allows them to afford that mortgage. We stay away from very high end apartments. It's not something that , you know, we invest into. The reason for that is number one is that when there's so right now, we have about 4.3 million apartments that we are missing in the market that are needed to cover the demand. And these are mainly in what we call the sun belt. So in the southeast where we invest, these places that are high in growth that people are losing the growth from the northeast. We're coming down to the southeast where we are Florida, Atlanta, Dallas, these places and, you know, Phoenix as well. And these are the areas where people are moving to and this is where these apartments are supposed to be or need to be built. So when you're buying anything, when you're buying these newer apartments, you're competing with anything new that's built, is going to be competing right alongside that. So if I'm buying an apartment built in, you know, 2017 and there's something new that's gonna be built right now in 2023 and the rents are similar, obviously, they're gonna go with the newer place and it's gonna be difficult. And that's gonna be, let's say $2500 a month for rent. And if I'm, you know, a half mile down the street and we are in, so we're pretty much the same area and we have this B class property that's say 30 years old, but we've just renovated the units. We've updated the whole pool and the amenities and the gym and, you know, our rents are gonna be at, you know, $1700 a month and that's where you're gonna be able to pull those, pull people that are going between say lower apartments that want to get to a better price. The better product that can't get to the higher one they're gonna be right there where we are and that B class and that's really what we've seen over the years as one of the best places to be in real estate. I just see that we have a lot of inventory that was started about three years ago. A lot of products, apartment buildings that were starting construction that are gonna be coming online here shortly and then a lot of stuff pulled back last year. So that's gonna slow down what's coming on in 2025. But if you're in that slightly older, that slightly older window, but not too old where you're getting into less than ideal properties and less than ideal areas, but not that brand new product. That's something that can't be built because if I tried to build the apartments that we have now, we can never rent for $1700. You know what I mean? It just wouldn't make sense and it makes no sense too. If you're gonna build a property, you might as well spend an extra 1000 or so dollars, a couple of $1000 per unit to make it, you know, put in all the nice finishes and all the nice appliances to get it to the next level and it doesn't make sense to do that. And our type properties we can get as close to that. But there's always gonna be a little difference from what was built 30 years ago, which is today.
00:21:34 - 00:21:38
So what you're really saying is buy something you can add value to.
00:21:39 - 00:21:43
Yes, that's correct. That's exactly what our strategy is.
00:21:43 - 00:22:36
Yeah, because then you can actually, so if you're just buying a brand new apartment, it is modern, everything's done. It's squeaky, you know, new design, everything, no value to add there. Now. So the other question I have about apartments is now, I don't know what you call them in America, but strata fees, in other words, you are contributing towards the maintenance of the block. How's that done in the USA? Over here in Australia, we have strata which you contribute to both maintenance and day to day care as well. So long-term maintenance, like you might have to upgrade the fire safety, for example or the building is some concrete cancer in it which needs to be done for the whole block. How does it work in the USA with paying for the unit block and having is that called a strata? What is it called in the US?
00:22:36 - 00:25:05
Yes. So that's very interesting, this is one difference between many different countries in the United States. First of all, when we're saying we're buying apartments, we are buying the, it's, we're buying the whole building. So we will buy a whole building. What we focus on is 100 plus units. So we'll buy what we call a whole complex. And so we own all those units within them. We usually will have, when I say amenities, we usually have, we, you know, we're in the southeast, so we'll have a pool, we'll have a gym, we'll do work to get them up to the level that we want them at when we buy them. And then we'll have a small office and we'll have full time staff say it's 100 units. You probably have two or three full time people, a leasing person, a handyman, maybe a part-time handyman as well. And this is all really self contained. What you're explaining is what we call here in the United States, like a HOA, Homeowner Association. And that's really with condos. And that's a very similar premise where we might have a building that could be, you know, five units, it could be 500 units and everybody will pitch in to the maintenance of the property. And then if there's not enough money, the Homeowners Association doesn't have enough money. They have to do what's called like an assessment, especially like if you have a major problem like you were talking about with concrete that probably people heard about when in Miami about, you know, 100 kilometers south of here where we had that high rise that fell down. So that was something that it wasn't maintained and stuff like that. So when you're buying a condo like that, you have this HOA and in certain areas, especially down in Miami, they're very expensive, thousands of dollars a month for this HOA depending on the amenities of that property. You know, because there's some buildings that have, you know, it's very simple, like my parents live on one on the beach. It's very simple. 30 or 40 units, not a problem. You go to some of them in Miami and they've got, you know, valley parking and the concierge. So I mean, it's, you go to your level of the property that you really want. But you have to pay for the HOA which is similar to what you're explaining, but how our strategy is really just buying the complete building if we ever wanted to, I guess we could change those into condos and sell them at a premium. But the goal here is to control the whole property, we can do our upgrades to the unit as we own it over our proposed five to seven years and then we don't have to worry about any other owners not going along with us or, you know, just like getting in the way because then when we sell it's gonna have a much higher value to the end buyer that now has an upgraded asset that makes more money that they don't have to do anything with.
00:25:05 - 00:25:25
So it's actually quite a different market in Australia really compared to the USA, because some of the strata fees, for example, and they don't have to be, well, they're nice properties but you know, it can be $15-20,000 a year per apartment and that quickly takes away your rent yield.
00:25:25 - 00:26:41
Yeah. And you can't control that. That's the problem too is that, and what we have a problem here in the United States and when I talk to people is that so all these different HOAs, like, as you were saying, strata, I mean, all these different they, everybody has different goals of what they're trying to do. So the problem is that if you get into one of these associations and these HOAs are lower, they might have a lot of deferred maintenance that hasn't been done, especially if people are buying them for investments. And that is where it becomes an issue because say you have 100 units and say 65% of them are investors that are buying them. Their only goal for that is keeping that monthly or annual fee to the association as low as possible, which means that they're probably not putting away enough money for repairs for the future concrete work for anything that might need to be done in the future. And then at some point in the future, then they say, okay, everybody's paying $15,000 or what, you know what I mean? Or we have this huge problem and the property is not maintained as much. So when you're buying into these properties, if you're buying them as you know, do you really have to do as much due diligence on your individual unit as you do on the whole association or, you know, the complex that you're buying them. Because it's really too much due diligence because you're gonna be living or owning both of them.
00:26:41 - 00:27:21
Yeah, I remember someone bought a harbor side apartment, didn't do their due diligence or their lawyer didn't, it was about a $8-900,000 apartment but they got hit with $180,000 like to because there was so much, you know, I live near the sea, concrete, you know, iron are all part of a building. So someone didn't do their due diligence. So what you're talking about and that's quite scary. Like where do you find $180,000? Take a bigger mortgage if you don't have a cash flow? Well, then it's a problem. So, but what you're talking about is getting as much control as possible, aren’t you?
00:27:22 - 00:28:22
Yeah. I've been, there's people that have done a strategy similar to what, where, you know, they might have a building with 100 units in it and they want to buy 55 of them or 60. And I always avoid those. We turn those, always down. We need to have a, when we buy, we have to buy a complex that we own everything and that way that you can, because then we're gonna rebrand it. So, because it's probably gonna have, you know, it's gonna have some sort of like Google rating and like the threes or something. And we want to rebrand it with a new name. We want to put new signs, we want to repaint it. It’s we're really putting this, we're remarketing the whole property too under everything and that's where we're gonna get the value and that's where we're gonna be able to turn it around and you're going in there, you're taking out troubled tenants, you're putting good tenants in there, you're actually doing your underwriting, you know, reviewing the background of these tenants that are coming in, making sure they're fine and getting rid of old tenants, getting rid of old managers that maybe kind of were just, you know, not doing what they're supposed to and you're really coming in ever changing the whole thing up.
00:28:22 - 00:28:43
Yeah. So it's basically total control. We can add the most value if we wanted to sum up what you've been saying for the last five, 10 minutes, is that correct? I love it. So, if someone wants to start investing, just like you, would you recommend trying to find a block of a small block of units, like three or four or two? Is that where you'd think you'd start?
00:28:44 - 00:30:13
I would think about your goal. I mean, what is, if you're investing here in the United States and let's just say you're coming from a foreign country to do it. It would be something that I would really focus on. I would focus on exactly what your goal is. And if your goal is, I want to start an investment, real estate investment business in the United States, then I'm probably gonna start with properties actively purchase them and I'm going to put together like a team over there and find out exactly what size properties I really want to start with because we do have a lot of international investors that come into the United States, especially in Florida. And that's kind of what I would do and you could start with smaller properties. The thing though is that when the smaller the properties, the cash flow, the monthly cash flow is more volatile because you don't have as many streams of income coming from that property. So if you bought a two unit or something like this, and, you know, half of it's vacant. I mean, that's gonna kill your cash flow. If you have, say putting a new $8000 air conditioning unit in there or something like this, that's gonna kill your cash flow. Compared to if you went in maybe with a partner or two and you bought something that was 15 or 20 units, that's where two units are vacant or not paying and then you have, you know, 16 that are paying on time and then you have two that pay late. I mean, you're gonna be able to cash flow and you know, you're gonna be able to put money in your pocket every month and you know, and build up a nice reserve fund from that. So it's a little bit when you're buying smaller properties, the cash flow is just not as consistent.
00:30:13 - 00:30:30
Right. So you mentioned what are the goals of the investor. So, you're talking about basically two types of goals. In other words, you want to generate cash flow would be one goal. Is that correct? What are the other goals that are important to investors that you've seen over the years?
00:30:30 - 00:31:32
So you talk to some investors that actually want to be active investors. So they want to come over here, they want to pick the properties, they wanna have a team, they want to hire the manager, they wanna be having more, they want to have more control over the deal and that's whatever people like to do. But that's gonna take more work. We have other investors that come, that invest alongside us and it's much more of a passive role where they're really investing usually 50,000 or more into a deal. And at that point, they're able to invest alongside us and they're able to get exposure not to a smaller property, but into something that might be 100 units are, you know, our last property we bought was over 500 units. But typically there are about 150 units that we usually buy size of property. And now you're able to get, we have a lot of scale of economies in there that you're not gonna have that ability to and that's gonna make it a little bit harder for you to make money on. But, I mean, a lot of people start, if you want to be active, I started with small properties, there's nothing wrong with that.
00:31:33 - 00:31:51
So let's get on to the biggest mistakes that investors make in real estate. Can you, I'm sure you've seen quite a few mistakes over the years and you've learned from them both by actively doing and starting small and then getting bigger. What are some of the biggest mistakes real estate investors make?
00:31:51 - 00:34:04
Yeah, I would say some of the bigger ones are number one they're buying in areas that aren't the best and I don't have to say you have to buy, we just said we're not gonna buy in A plus areas, but you want to buy in areas that are, you know, there's solid property, there's solid areas that are growing that are, you know, that are gonna be able to appreciate when you go into lower areas that you maybe don't want to live in yourself. That's something where we call less ideal or C or D class properties, these properties don't appreciate as much. They become more of a management burden on the investor and on the manager, which is a problem because if you're not self managing them, then, you know, either way there's, it's more time consuming, there's gonna be more headaches, it's gonna be constant calls from the property or from your manager. So you can avoid that by buying better properties. The other thing I would say is people not having a reserve fund. So whenever you're buying properties, you need to have a separate reserve fund and just like you would with running any type of business, but in this scenario, you need to have a reserve fund that you add to every month and that's completely separate from the property and that's where you're gonna put money into that you make from the property. If you know that 10 years down the road or five years down the road, that roof is gonna have to be replaced, then you're gonna put additional money in there to make sure for that. But also, I mean, there's gonna be emergencies that pop up and having access to that capital so you can correct the problem correctly as fast as possible. You don't wanna like, you know, do something halfway, they have to go back, especially if you have tenants there, you want to keep them happy, they're paying rent. You wanna make sure that they stay. So that means that you're correcting any issues as soon as possible. And then the last thing I would say is they're not investing for cash flow and when you're doing out your numbers, if the property doesn't cash flow, it's something that I would avoid. It's not something you want to do for your first couple of properties. Once you get down the road and you find deals that are a little bit more of what we call a heavy lift, like a major renovation, something like this. You can do that down the road, but don't do any kind of major renovations on your first couple of properties. Figure out exactly what you're doing. I made the mistake on my first one. I'm not doing like a major renovation, but it was more than I wanted to handle. My second one was a very light renovation and my third one was a major renovation. But I, at that point I had like a team, I had good contractors, stuff that you don't have on your first property.
00:34:05 - 00:34:29
Yeah, so the first point you mentioned was about finding, investing in the right area. In other words, a quality area, not elite as you mentioned before, but a good solid area. How do you go about doing research for that? I know you guys would be doing that all the time. You must have got a team of researchers that does that. But if you're doing it on your own, what sort of research should you be doing?
00:34:30 - 00:36:22
Yeah. We have a number of great websites. If anybody's ever really interested in this, just my contact information will be at the end of it and you guys can reach out to me and I'll send it to you. But we have different websites and we have a lot of data that we can pull up and we can put addresses in and it's all free the stuff that we normally use and it will tell you the incomes per neighborhoods and you can really see where those lines are made because when you're doing, you know, the good old days without the Google Maps, you would drive around and you're like, oh, this is a lot different than this over here. And you might look down when you're on, you know, you're on satellite view. Everything looks great, right? And you don't see that there's a train track there and there's a road that really divides neighborhoods. So if you can do like an overlay on that and there's other, I don't know the name of the website we use, but there's one great one who really tells you exactly. Draws the lines of where the income lines are and that puts you right where, you know, in the United States, like we're looking for the apartments we're buying, we're typically looking for people, their household income in these properties. 60-80 we have, you know, 80-90 up to 100,000. Typically we're gonna find our typical renter base, right? And so, you know, household, so probably if there's one or two people in there, that's what they're really making. So you can really figure out exactly where that is. And then if you go over here and you're looking at a property and it might be in that 20 or 30, you know, it might not be exactly what you're looking for. So it allows you to really hone in because you can't change the neighborhood, you know, you can, if you're buying it really long term and it's right on that line, you know, maybe you'll get lucky and it'll change. But if, how you're doing with us and we buy, and I wouldn't say it's short term, but we're buying for five to seven years. That's what we usually, we'll tell investors even if it's shorter than that. That is in that scenario. That is where you really want to check and make sure you're buying in an area that is already seen. That's already solid and you're just kind of writing it a little bit as it gets better.
00:36:22 - 00:36:44
Yeah. So you want to make sure that it's a rising demographic hopefully, but you got to make sure you're buying at least it's good quality right from the word go really with the right level of income of the general population that are in that. So what, so real estate is very much about knowing your numbers, isn't it?
00:36:45 - 00:36:47
Yeah, it's very much about that.
00:36:47 - 00:37:31
Yeah. So what are you looking at in terms of rent return? And I suppose you know that if I do a small renovation, in other words, paint carpet, in other words, not major, you're not gonna be replacing kitchens or you might even replace a kitchen, but it's basically one from a, you know, cost you 10,000 instead of a hundred thousand. What sort of rent return is your guide at the moment that you are trying to achieve? And of course, the other one is too, is adding more value, you're adding more value by doing a very simple renovation without spending too much. Also, you can increase the rent by doing that. But what's the rent return that you are looking for generally, or is that too broad?
00:37:32 - 00:41:49
No, there's two things that are part of that. So those are great questions. So the one part is what we're looking at for a return and every investor is going to or should kind of do their own self evaluation before they invest and see what they really want to make when we're going into investing into a property. Well, you know, and everything is no, there's no guarantees with this. But when we're doing our numbers, we want to see if the property is gonna make a 15% return. That's like the minimum and I know that's high, but that's just something that for the risk that we're putting into the property and we wanna make sure because we're gonna share on that as the, you know, the general partners, the operators of the deal, we're gonna share on that with our limited partners, our past investors. So we wanna make sure it's 15% usually in the higher double digits is what we're gonna shoot at. And if the property can't do that. I mean, because you have to also think that's what we're shooting for. If there's any type of pullback that obviously, we can't see into the future, we have to make sure the property is still making money. So that's why we shoot for that number or above. And, you know, if it, that's, if you see that, then we, you know, there's enough meat on the bone where if there's an issue, a pullback, we're able to still secure, you know, be able to pay all the bills, keep everything going. There's not gonna be any type of issues. So that's how we're doing our numbers and that's kind of the metric we use. If a property comes in underneath that, we might renegotiate with the seller or we might just pass up on it or do both. So the second part of that is when you're investing money into a property and this is a great metric that I'm not really asked much, but it's our goal is that for when we're investing into a property to do renovations, we want to see whatever we're investing into the property, we want to get it back in what we call 36 or 48 months. Okay. So if I'm putting it $4800 into an apartment, we want to see that we're getting that back in three to four years. And if it goes over that, it's that renovation does not, it doesn't make sense whether it's the rents won't hold it because the area. So it means that you have to do a less a renovation that's not as in depth, right? Not as expensive. You might do something that's saying, hey, maybe we can get $80 more a month if we put in, you know, $3000 or something like this. And that's the renovation we're gonna do, where we are now, where we've been like over the last several months is that, you know, we would go into these properties when vacancies come up and we say, okay, we're gonna fully renovate this apartment. We're gonna put $5000 into this and we're going to, and these apartments are usually like somewhere around like 1000 square feet. So that's like a hundred square meters, right? Something like that, 90-100 square meters. And so that's what we say. We have a contractor team that comes in there say they put $5000 into the unit. We want to see that we're gonna be making back, you know, that type that divided by 36 or 48, you know that 150, that $200 a month, we're gonna be able to get that premium. If we have a lot of units that come up at once, we might do just two or three, you know, we might just do say there's five of them, we might do two or three fully and then two of them or three of them, we might just do where we just put $1000 into it where we paint it, where we clean it and where, you know, we change it, you know, some hardware on the, you know, on the cabinet, stuff like this and we rent it, right? And then we might just say, alright, we're gonna just test the market. We're gonna put that rent at, you know, $50 more a month and see exactly what happens. You know what I mean? That way that we don't have to outlay all this money for all the units and we can kind of see exactly what rents faster. We might get a better return on just doing the cleaning and the painting. Obviously, you're not gonna make as much money. So you're not gonna raise the net income as high when you're doing that. But when you're going through an area at a time, like now where we don't really know exactly. You know, people tell us there's gonna be a recession, people tell us it's not a recession, we don't know, interest rates are going. This is kind of how we act very, you know, it's very cautious if we're in a hot market. Like if this is 2018-2019, we're gonna, those five units come up, we're gonna do five of them right away because we know we can get that premium. But when you're starting into an area, like now this is where we're going to kind of scale back, that business plan a little bit and some of the units we're gonna do fully and some of the other ones we won't and then next year or when that tenant moves again, that's when we'll fully do that.
00:41:49 - 00:42:18
Right. So when you talk about 15% well, let's say 15% return, that's very high compared to Australian values and rents. Okay. So if you're, let's say you bought, so when you talk about 15% you're talking about gross. And in other words, if I bought three units, $100,000 each total, you know, block of three units, 300,000. I'd want 45,000 gross rent return. Is that what you're talking about?
00:42:19 - 00:44:54
Yeah, so it's, that's great. So there's a couple of different metrics that are allowing us to, there's a couple of things that we integrate into this deal that are gonna allow us, we're not buying these properties with straight cash. Typically, what we're gonna do is we're gonna buy these properties, we're gonna leverage them on the high end 75% loan to value on the low end, 65% loan to value the other 35-25%. We're gonna raise that from past investors. We're gonna put in probably 25% of the money that's required. You know, the general partners put 20-25% in the other 75% required to fully fund the purchase and then also the renovations, we're gonna raise that from past investors. So that for off the bat, that's gonna give us a little bit of a buffer because if we're paying say five and a half or 6% for that mortgage on that property, that's gonna allow us the ability to. Now, we're able to, that the equity portion of it, that 35 or 25% is gonna be able to take the rest of that 15% gain where we're only paying five and a half or six and a half percent for our money. So it allows us to escalate our returns versus just paying cash for it. The other part of this is how in the United States, you know, or how these deals work is when we do the distribution out to investors, that's only about I say about 40% of your full return is coming out in the distribution when we sell the property. That is when the investors are gonna get the majority of their return back, they're gonna get the rest of their initial principal back and then they're also going to get the majority of the return at the end of the sale days. So when we're saying it over many, you know, over years. So for instance, if you know, someone put in $100,000 into a deal, you know, our goal is really, by the time that we, that deal sells, we really would want to do what we call an equity multiple of like 1.5, 1.6, 1.7 something like that. So at the end of the day, when you add up all the distributions we sent you, when you add up, exact everything that we, you know, you got all your money back, everything you got from us. That's when we're looking at getting in that, you know, $150-175,000 and the majority of that is going to be at the end of it, during it you might just get, you know, you might get a hundred thousand, you might get, somewhere between 3-4 to 7%. You know what I mean? In the beginning, it's gonna be less, maybe year two, year three. That's when you're gonna be getting 7% and that'll be sent out to you, quarterly and that's, you know, in most deals, right? Different deals have different business plans. But that's kind of how it works.
00:44:54 - 00:45:03
So, really what you're talking about, you're taking you when you run the ruler over it, you're going 15% return, that's over the lifetime. Is that what you're saying? Both capital as well as cash flow?
00:45:04 - 00:45:05
Yeah, that includes both. That's correct.
00:45:06 - 00:45:34
Okay, that's what I'm trying to work out. Is it just you're trying to make sure you're getting 15% rent return on cash flow, which is basically almost unachievable if you did. So you're talking about you're building into that the capital gain that you try to predict both from your experience and also the market. So okay, I get it now. So the 15 I was going wow, 15% rate return. That's awesome. But it's not what you're talking about.
00:45:35 - 00:47:28
Yeah, I'm sorry if it's different, it's not as clear. The main thing is that when that return comes back, that's gonna include the majority of your return with it. In the United States, with these commercial properties, they are, not to get too intense, they're really priced off of what the net operating income of the property is. It's not like you're buying a property and go, my neighbor just sold his for a half million. So mine's worth a half million because it's the same exact thing. That's not how we do it. It's done off the net operating income where you could have a complex here, complex across street. The same exact thing could make 20% more money because they just manage it better. They know how to handle the tenants, they keep the tenants there, they have better amenities, all this type of stuff that you might not see from just looking online and that's where they're getting that extra value. That's why it's very difficult just to, you have to really get into the numbers with the commercial properties and that's how we're able to do it because we get in there and we're getting the rents up the market. We're doing work to get them to the top of what that property can handle over the whole lifetime. We're not going in there right away and, you know, increasing people's rents 25%. But we know that, okay, from year one to year five, it's gonna go this way while we're putting work into the apartment and there's a lot of people in there that we don't raise the rents on. You know what I mean? As you're not doing it because if you have 100 units and you have 20 leases come up one month, you're, I mean, I wanna resign 15 of those people and maybe you give them a rent increase of 3-4%. You know what I mean? Just to keep them in there, right? Like close to market, even though you maybe can go 10% with what the market is just how the units are. We want to keep them in there and we want to stagger out those leases. We can't do, we're not gonna do 20 units in one month, right? So we'll do five of them. We'll keep those other 15 people, whoever leaves, you know what I mean, because there's gonna be people that want to leave and there's gonna be people that want to move into the new units too. So you can kind of try to keep everybody happy and that's how it goes and it's a lot of work because you have no idea. And we do this due diligence before and, but you still don't know if someone can leave before the lease is over this lot of stuff. You just, it's a lot of, it's on the fly in the beginning.
00:47:28 - 00:47:42
Yeah, it's a lot of moving parts, isn't it? So, and that's the thing that I suppose investing through you, like essentially like a, you're doing almost a, is it a syndication? What would you say investing with you would be a syndication?
00:47:43 - 00:48:15
Yeah, it's a syndication. We have to go through the SCC and everything like that here in the United States because you're the investors are passive. And there's all different types of stuff of how people have to vet these deals because obviously it's a long-term partnership. It's not like a stock where you can buy and sell it, whatever your leisure is. These are partnerships and usually they, over the last few years, they've been less than five years. But we always tell investors five to seven years because we can invest in, you know, we can invest May 1st or something like this. And it by, you know, by September 1st the market could fall out and hey, we're in here for another, we got 5-6 years to go. You know what I mean?
00:48:15 - 00:48:19
So, with real estate you're playing the long game. That's really what it's about, isn't it?
00:48:19 - 00:48:26
Yeah, that's what I found to be the best, the longer you own properties. I found to be the less risk with them.
00:48:27 - 00:48:54
Okay, so it raises the other question, is, how do you mitigate risks? So there's the opportunity. That's great. Everyone gets rose colored glasses and going, I'm, you know, gonna meet my 15% and hopefully you do and you guys mitigate the risk by all your experience and also through regulation as well. So what are some of the ways that an investor in real estate can mitigate risks? What are the, tell us those.
00:48:55 - 00:51:20
So if they're as I mentioned before, mitigating the risk is if they're active, you know, having that reserve all that kind of stuff going with it and investing for long term, if they're passively investing in a deal, you're really investing into the sponsor and the operator. So getting to know that sponsor, that operator understanding exactly what their business plan is and what their track record is number one and number two is really vetting out the deal and, you know, the wealthier the people I know that invest with us, they really vet out this, the sponsor and they're really investing in the sponsor. And that means that if, you know, that's what they're really putting all their eggs in that basket when they're investing with that sponsor. The deal. Yes, they care about the deal, but it's really a person running it because the deal could look great, but something could happen and they need someone that can fix that problem, that happens and rectify it and make sure that we're coming out fine on the other side. When I passively invest in a lot of deals as well and that's what I'm looking at. I'm looking at the sponsor, I'm looking at their track record. I'm also looking at, I wanna know I'm very interested about the team that they have on the ground. Okay. So I want, I, you know, if I'm investing in something, I wanna know that, hey, we have five other properties like this within 25 minute drive of it. And so that means that, okay, so you have this system already worked out and this is just sixth property there, right? So me investing with you is that I'm kind of riding right in on your coattails right alongside you. You've spent years, maybe decades building up these contacts and now I can, I know that there's not gonna be any issue with you having to change management or you're not gonna have issues really with vendors or contractors because you've been in this so long and you have these teams that work for you on a consistent basis and you don't have to change the management. All these things are all green lights. You know what I mean? The thing is like, oh, it's our first, you, it's our first complex ever or, you know, you're not investing there and it's like my first complex in this one area or the people boots on the ground, this is their first time there. This is all stuff, red flags you want to avoid. You want people to have a proven system in general and then also a proven system in that area. And then you're like, okay, this is just really kind of printing money because you have it all set, you know what you're doing, you know, more about the numbers than anybody else would really know because this is, you know, you have a thousand units there already and now this is just an extra 250.
00:51:20 - 00:52:08
Yeah, so basically mitigating risk by riding their coat tails and doing your due diligence on them before you hand over the money. And obviously that's taken you decades of work almost to actually for you guys to build a reputation as you have. So is there any areas you're investing in that have been like amazing returns. Like, is there any areas that you're going, you obviously do due diligence. So the right area, right demographic, right age of units, like we've gone covered on all those. What's some areas that you've just know well, this has just been a fantastic investment. What areas in, I supposed way of investing or?
00:52:08 - 00:54:44
Yeah, so we invest where we have properties now called Markets in Florida at greater Atlanta and then also Dallas, we've seen a lot of growth in all those markets. Over the last 13 months, we've sold two properties in Tampa and we've exceeded what we said, but we also went through some fantastic growth periods there. So it's not, you know, that's a market and that's what we did. It's not just us. So, but that's one of the areas that's had a great growth of Tampa. We don't, even though I live in the southeast of Florida, I don't invest down here. I don't live in Palm Beach, I don't invest anywhere in the south. I really focus. If we're in Florida, it's really Orlando, Tampa. And we also like Jack and then we really like Greater Atlanta is great. I mean, it's very business friendly, it's very easy to get to, it's a delta hub. So it's number one and then Dallas, you know, 50 of our fortune 500 companies in the United States are in Dallas. I mean, it's just a, it's a powerhouse with people and these places have, like, for the most part, especially like Dallas, a lot of articles on it as well where they just have a lacking of housing and, you know, when you're building houses and when you're building apartments, as we spoke about before, you're not building, you know, less than nice ones, right? You're building, you know, you're putting nice granite in there, you're putting everything beautifully appliances. So that's the thing when you're buying properties that are a little older than that, but still in these good areas, like we bought one at the end of 2022. And, you know, it's literally like a less than a 15 minute drive from downtown Dallas, you know, Starbucks around the corner that means that, you know, we have Starbucks that has done their due diligence on the area as well. They know it's a strong area, you know, these are all the things that we look for. There is a brand new, A class property, less than a quarter mile away. So it's another group that's invested as much money that we've invested in the area on putting brand new construction and it's a great way because they go, they walk in there, then they walk into ours. You know, ours is a few $100 less per month. And if someone at that property, someone loses some hours or someone loses a job, they're moving into ours, in a great market where people are coming out of those C class properties, those properties that were built in the 1600s and 1700s, maybe not the best area of town. They're gonna move into our asset. They're not gonna be moving into that, A class asset. You know what I mean? And we're gonna have access to better schools. And so that's really what we've seen is in these main three areas in the United States.
00:54:44 - 00:54:49
Yeah. So in other words, the growth areas and they're in a sun belt almost. Is that what you said? Yeah.
00:54:49 - 00:56:09
Yeah. And the one thing about this is not just where the growth is, there's three things that we really look at. Number one, we're looking for population growth, which is easy. We're looking for where job growth is and it has to be diversified, job growth. So you can pull up all these numbers online and you can see exactly what kind of jobs are going there, right? You don't want to go into an area and 25% of its military because that can be shut off when the next administration comes in and you don't want everything just like, oh, everything is in one type of industry. You want it really diversified. And the last thing we want to look at is we want to see a decreasing over 20 years in crime and when you see a decrease over 20 years in crime, anybody can, like, you can show like, three years and go, oh, yeah, we locked up everybody in this town and, you know, and then, you know, but we don't show them and when they got out right, over 20 years that shows you that they've not only, had a strong police presence which you probably see in the news a lot, there's cities that don't have that in United States, but also they're reinvesting into education and health. And that means that people that are, have issues are getting the help they need. They're not just being like, let out, you know what I mean? And they're not being just locked up and that's where you are seeing the community actually bettering and when you see that investment then, you know, okay, all these things line up. This is, you know, very simple. You can do all that stuff in five minutes online for picking a market and are looking at a market and you can pull it and that's where you really know exactly what you, what's going on there.
00:56:09 - 00:57:01
Right. Again, it's the numbers, isn't it? So just to wrap it up, Charles, it's been very insightful for me, you know, from Australia, looking from outside, looking in, I think it's really fascinating. And so as an entrepreneur, because it looks like you really haven't had a proper day job since you left college. As an entrepreneur, what are some of the top two or three things you've learned along the way that you could share with other want to be entrepreneurs? Those who want to start a side hustle, you obviously did a side hustle in real estate, which was very cool and a lot of people do, they put their toe in, buy one and then keep going. So what are the some top tips, two or three tips, one tip for people that want to be an entrepreneur or just starting the journey? What have you learned along the way?
00:57:02 - 00:57:54
I would start that side hustle with as little money and time as possible and get a proof of concept, you know what I mean? So make some money. You don't have to do anything. You don't need any fancy, just whatever that what they say in like Silicon Valley is the minimal viable product, you know, put out the smallest thing, make something on it and then you're like, oh wow, this thing works like let me go to the next step and then you can build on that. And if it doesn't, what did you wasted a weekend of building some stuff and putting out there. So that's what I would say. Number one and the other thing too is that
its a difficult thing with people that entrepreneurs, especially with all the stuff that were all over, social and online. All these shiny penny type things. So, it's difficult. You got your day job or something you're working on and then you got a side hustle but trying to keep focus on both of them and really breaking time because when you start spreading that over a number of different things, that's when you're not exceeding anywhere.
00:57:54 - 00:58:02
And that's what you said you did, you've started that payments business and you sort of think you don't focus on that now, I think your brother does. Is that correct?
00:58:03 - 00:58:25
Yeah. My brother handles that and then we have two full time people or one full-time person and another part time person that work on that property that business as well with my brother. But I check it on that sometimes it depends on if we, if there's a large client that comes in, that's something that I'll take those calls. But it's not something that on a daily basis now.
00:58:26 - 00:58:55
Cool. Charles, thank you very much for your insights. It's been really cool. I've learned a lot and that's almost the only reason I do this because I just learned from the smartest people in the school frankly. And you're one of those, you've obviously learned a lot along the way and thank you very much for sharing your wisdom and experience. And I think there's a lot of wise investment tips in there. Any one last thing you'd like to share with the listeners before we leave or?
00:58:56 - 00:59:23
Yeah, if anybody's ever interested in learning more about investing in the United States or investing passively or actively, you go to our website harborsidepartners.com and if you go to harborsidepartners.com and that's spelled Harborside both ways, just you know, the English way and the US way with or without the U. So, don't worry about that. And if you go to the website, we have a lot of information on there. I have a podcast, we have a YouTube channel. So learn more about what we're doing if you're interested in, you know, expanding horizons out of your home country.
00:59:23 - 01:00:02
Great. And that's for me was I really enjoy expanding my horizons because I do know the markets between Australia and the USA are quite different. So it's and but on the same, you still, what is the same is you just gotta do your numbers. And I think what you guys do is you minimize risk by bringing your expertise and experience as the manager of the syndicate if you like my best way to describe it. And you've got a track record. So, that's fantastic. So thank you Charles for sharing today. It's been absolutely awesome. Thank you.
01:00:02 - 01:00:03
Thanks for having me on Jeff.
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