If you’re going to build your life, and if you’re gonna get strategic about any kind of planning and do all the work, you might as well think big.” Charles Carillo is a real estate investor, entrepreneur, and mentor. He’s a full-time real estate investor and he currently invests in over 250 multifamily units across three states. He grew up in the business managing multifamily commercial properties. He learned how important passive income was at a young age. And he also purchased his first multifamily property in 2006. He purchased his first commercial property in 2009. But his passion is really helping people as a passive investor, becoming a real estate investor and multifamily property mainly in the southeastern part of the United States.
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Investing in Passive Multifamily FL Properties with Charles Carillo
Brett:
I’m excited about our next guest. He is a real estate investor, entrepreneur, and mentor. He’s a full-time real estate investor and in fact, he currently invests in over 250 multifamily units across three states. He grew up in the business managing multifamily commercial properties. He learned how important passive income was at a young age. And he also purchased his first multifamily property in 2006, which we’re going to talk about he still owns today. Also, he purchased his first commercial property in 2009. But his passion is really helping you as a passive investor, become a real estate investor and multifamily property mainly in the southeastern part of the United States. He’s out of the sunny side state of Florida. Please welcome to the show with me, Charles Carillo. Hey, Charles, how are you doing?
Charles:
I’m doing great. How are you? Brett?
Brett:
I’m doing excellent. And Charles, by the way, is the managing partner of harborside partners. And it’s a real estate syndication firm. And so we’re going to dive into that right now. So Charles would give our listeners a little bit about your story and your current focus.
Charles:
Yeah, but how you were explaining it, I did grow up in the business with my dad. And my dad was an all-around real estate investor from the owned 100 plus units himself with one partner at some, for some of them. And mixed-use multifamily. He self-managed them with a small team. He built properties, he flipped houses, he wholesale, he did a little bit of everything. So it kind of forged my way into the business. And I started right after I graduated college buying a three-family property. And I’m originally from Connecticut. So I have a small portfolio still up there that’s professionally managed now since moving to Florida in 2012. But yeah, like you were saying 2006 I still own it today. And not as much appreciation for Central Connecticut as if I had purchased it somewhere in Florida. But it was, you know, we bought it again in 2008 and did a much better job at it. And obviously, the prices were a little lower. And then again in 2009. So consistently, and I’m getting even a better deal then, consistently buying property reviewing properties. That’s why I’m a little hesitant when people stop looking at properties. Because I think the market has gone one way or the other, I think you just have to consistently review properties, underwrite them, and just pull the trigger on properties that fit with what your goals are, and what your strategy is.
Brett:
Yeah, so we’ll set you up to find a deal on every single market, even the COVID-19 market, in fact, because of that people may have already discounted it. There is a thought, though, that we’ll dive into a little bit later is whether or not there’s going to be more kind of blood in the streets and some distressed debt or debt, own holders who need to get out in the next six to 1224 months. But that being said, Before we dive into some of those strategies and some of those thoughts, I’m kind of curious, I’ll take one more step back, Charles, and help us. I know you grew up in the business with your dad. And that’s fantastic when I remember those days. But I want to focus on you, Charles, and what gift maybe you were given, you know, I believe we’re all been given certain God-given gifts and these gifts are given to us to bless others. And I’m curious maybe what was that gift, one or two gifts you believe you were given? And how does that help? How do you bless others?
Charles:
I think just using lessons that I’ve learned myself, probably by mistakes I’ve made, and people always will ask me, what I would do differently if I went back or what’s led to my success. And I think those are the same lessons that I can show and explain to new investors and new entrepreneurs. And about becoming a lot of things I did when I started which I think a lot of investors or entrepreneurs do is they don’t have a clear plan and they’re not strategic about it. So I think My guess is kind of when I talk to new investors, they really stress, planning, being strategic on what your game plan is for your life, while also for your business as well. And kind of what you want five to 10 years to look like. And then what you can do on a monthly, weekly, daily kind of guideline, right task list of what you have to do to actually achieve that. And once it’s done, I think it becomes everything, your goals become a lot more realistic.
Brett:
Excellent. So strategic thinkers, or having wisdom and insight to reflect on past mistakes that you made or someone else made. And then reverse engineering and saying here, here’s how we can help you not make those same mistakes. That’s exactly. It’s fantastic. I love that. I love that you are probably a good chess player.
Charles:
Not as bad as good. I wish I couldn’t, you know.
Brett:
Okay, all right. All right. Fantastic. All right. So now let’s dive into some of the strategies here and help our investors and our, our investors, some of our investors with us that listen to us, help our listeners and understand a little bit about multifamily southeast United States, what you’re looking at, when you’re buying, besides the value add, most of ours are sophisticated, you want to buy, you know, maybe perhaps B or C properties B or C locations, try to upgrade the units right and raise the rents besides the value to add a component. What else are you looking for? What are you finding, and during this COVID-19 kind of shift in the economy and deals?
Charles:
I think you know, you have heard about everything that’s going to happen with COVID. And most of what’s happening we hear about is with commercial real estate, when I’m talking about that, you know, your retail, your office space, industrial, some of these asset classes have had issues, some of them haven’t. multi-family, when you hear about issues with multifamily don’t really read too much when I’m looking on all the different major news sites. It’s all about smaller, smaller landlords, right? It’s not about the larger landlords. And that’s how it was in oh eight. So you have with the larger properties that we call stabilize, right. So less than 10% of people, or 90%, plus economic occupancy, meaning 90% plus people are actually paying rent. And these properties, you have all these government-backed loans we call agency debt. And less than 1% of these went bad and one right through everything that happened. And I feel it’s something like that’s going to happen again if it does, it’s going to always it’s going to affect the smaller landlords more, that are going to have more short term debt they have when the short term debt is hitting, it’s going to be something where they’re refinancing. And first of all the properties aren’t performing as well as when they purchased it. And then secondly, the banks are tightening up on underwriting. So the terms that you were approved for three, four years ago, are not going to be the same as now you might have a lower, you know, loan to value, higher equities required to refinance the property. And that’s going to really affect the smaller landlords, and I think they’re gonna, there’s going to be a little bit of as you were saying earlier, blood in the streets kind of is going to happen there, I don’t think it’s going to be as much and larger properties. When we’re looking at properties, as you were asking for when we’re interested in buying properties. It’s mainly going to be around. We want to see where the wave of gentrification is going. I mean, that’s really the main thing. So for seeing that gentrification is happening and in the neighborhood, it’s going through, so obviously, looking to market, and we’ll figure out to make sure the main thing for multifamily as we feel is job growth, right and having the diversity of jobs, right. So diversity of employment in industries. And that’s the main thing, right, you don’t want to see you want to be in an area that’s all tourism, right, or all hospitality, or all manufacturing. And you kind of want to make sure that when you’re looking at these areas, you’re seeing a consistent decrease in crime and a consistent increase in population. And then you also want to make sure to have a great area that that market is also having an increase over the national average for job growth, right. And then you know, that you’re in an area where people are moving to where businesses are moving to where there’s going to be people that are actually wanting to live there and you know, will have jobs, right. And when we’re really narrowing that down to a neighborhood, right? It’s going to be something that is where is gentrification coming is it going through this area in Florida, lots of markets have it are a handful and Mark is really having a lot of markets that have it as well that are a little too expensive like we’d say like the southeast Florida, something we kind of stay away from, you’re not going to get the returns that you really want there. Other areas in the southeast have it as well. Atlanta is another prime market for its parts of the Carolinas. And when we’re finding this we want to find neighborhoods where there’s already been some value add going on whether houses have been flipped, they’re smaller multifamily Whether someone else is syndicated something years ago, and they’re just finishing it now, and you kind of want to pick out the oddballs that are in that area, and or you want to if your investors have a longer horizon, normally we’re buying for at this point we’re telling investors seven years is probably the timeframe for us to purchase and the dispose of a property. And if you had investors that want to wait a little longer, you can then get a little more aggressive and maybe move into an area that hasn’t seen as much gentrification as normal syndicators that want to see something, they want to drive into a neighborhood and say, this one’s been renovated, that one was already renovated, this one’s value at it, this one here, rents are $200 over where we are, and, and then they want to buy something a block away, and kind of really just ride that whole wave. And so all these different strategies are great. But I think COVID will really affect small landlords, and we’ll see that in the months to come.
Brett:
Fantastic. What a great answer, and so much to unpack there. I think the key thing was larger versus smaller properties, right. And I remember I was at Marcus and Millichap, and I started in 2006. And then I saw the crash happen in ’08, and then watch most of them. Yeah, it was typically, you know, 4050 units and below, most probably, say 20 units and below, who got impacted the most. And you’re absolutely right because it’s private debt. And perhaps it’s even recourse, perhaps, you know, the big banks, right, are looking at the debt and saying, I don’t want to get behind that debt, right. And so the values go down, read the wrench drop, or collections drop, and now you face your uphill battle, you have too much debt. And so now, with larger properties, I don’t know if it’s 75 units for you or 100 units? I don’t know, you know, I’ve heard 100 125, kind of that 75, maybe minimum, I don’t know how you define that. But more than that, less than 1% actually went bad. So that’s really interesting. Is that across the United States, is that what you found?
Investing in Passive Multifamily: “In investing, what is comfortable is rarely profitable.” — Robert Arnott
Charles:
Yeah, I was, I had a mortgage broker on my podcast a few months back, and in all the eight an agency debt, so Fannie, Freddie Mac, it was that’s what went bad. And I mean, right? It Right. At that point, we had too much built, right. And that was what was going on when people were actually moving into it. But it was smaller, it was a smaller landlord, I mean, I was buying a property at an end of oh nine, for 28 cents on $1 would have sold today, two years earlier, you know, so it’s crazy what was happening and properties were on the market for, I mean, I was making offers on properties that were on the market, 120 140 days, right, you could go in there and just do 30% less, and whatever it is all day long on something and you get a callback, and you’d close on it, you know what I mean? Now, nowadays, if you’re not doing full ask probably won’t even get a call back from your broker. But…
Brett:
Your right inventory is way down. And value add is very difficult to find. And interest rates have dropped, right, which I think is kind of propping up some values right now, I don’t know, to be honest, especially here in California, right. And we’re seeing an exodus in general kind of out of California, in some ways, an exodus out of the bay area to areas like Sacramento, though at the same time. And then it exits maybe from the inner cities to a little bit of the suburbs, seeing this trend, as I’m talking with my clients who are considering selling multifamily properties here. And so it’s really interesting to see what’s you know, of course, the election coming up and with where the economy is going to go and, and what’s coming with COVID a lot of change, but at the end of the day, you know, I think multi-family mobile home parks, as well as like senior housing assisted living. To me, it’s still the best risk-adjusted rate of return opportunity, as long as it’s a big enough property, right, you have you know, performing an opera and they don’t have you don’t have too much debt. So all of those reasons, make a whole lot of sense. Any thoughts on that?
Charles:
Yeah, I mean, I just I’ve turned down deals over the last year from different partners, and we turned down one that they want to purchase it and they want to raise rents in November, they want to an 80% loan to value on it, they were going to do all the renovation, it was smaller syndication, 50 units, and they want to do it all in one year. And I was like, This is completely too aggressive. You can’t be raising rents during COVID. At this point, it’s just a very, it was really hard for me to Okay, or to sign off on getting rid of a paying tenant so that I can put in the 3000 to $5,000 to try to get the rents 150 an increase of $150 or 175, which all these syndicators do. It’s much easier for me to swallow too if I have a turnover to kind of put a little lipstick on it, you know, put in a few $100, raise rents 20 bucks, put someone in there and keep it going and to renew people that have been good tenants in properties that we have. And I mean, that’s it’s really the way you have to do it for your investors and just let everybody know, I mean, this is what’s happening, right. And if we can keep the occupancy going, there’s no you know, we’re not going to have any type of issue. But the problem is that I think syndicators in areas that are I mean, we’re we on a lot, and C plus b minus areas. So maybe someone in a B plus area or an A-minus area might be a little different. But for C plus b minus what we call workforce housing, those type of areas, you have to be a little bit more, you have to be a little bit more conservative, I think during times like this, and, and make sure just, you know, keep the lines of communication open to your investors and let them know, this is what’s happening. This is what our delinquency is now, this is what our plan is, and, and you know, knock on wood, we’ve been under 10%, delinquency and all our properties, once we get them stabilized initially for properties that we’ve purchased. But it’s really been, you know, mid-single digits of where we are so hasn’t been too bad for us. We had 110 of a property we bought last year, that lost your job out of a whole complex. So there were a lot of essential people in workforce housing.
Brett:
Excellent. Well, Sam, by the way, you can find Charles at Charleskcarrillo.com. So that is very well said, I’m curious, what’s the most rewarding part of what you do, Charles?
Charles:
I think giving it’s with alternative investments, whereas what we call real estate, it’s you’re giving people that might not have the knowledge might not have the capital, most usually just don’t have the time to invest into assets that they weren’t able to invest into. And I think I learned about syndication years and years ago, and I avoided it, I didn’t want to raise money, I didn’t want to go through that whole process. And I think that I have so many people asking me how to invest what they’re doing full-time jobs, and they would really get involved with small multifamily. And they would kind of hate it right, because it’s very difficult to manage, especially if you have a full-time job. And or if you’ve never done it before, as well. So it’s something where you’re giving the people the ability to make residual income, and they can be anywhere in the world. And they can fulfill their dreams, which is most likely not owning multi-family real estate. And they’re able to, you know, build additional assets for their family and additional income streams other than you know, investing in the stock market.
Brett:
So well said, absolutely fantastic. Love that. Would you give our listeners a little bit about your average investor or the accredited walkthrough? Maybe the average returns? I know there are no promises here, but just give us some thoughts on that.
Charles:
Yeah, so what we’re really seeing is, you know, we do a lot of 506 b, so I don’t really want to get too much into the return section of it. My sec attorney would probably frown upon that. But what we could talk about is average investors we have, so we have a mixed between, probably most of our investors are US-based investors, we have a portion which is just under half that are foreign investors that invest with us. And we’re like we said, we’re purchasing what I like to call syndicated properties when I’m in short, and that’s usually something $5 million-plus 75 plus units, something where there’s some sort of scale of economy for doing for having the property as I said, we still will purchase smaller properties ourself with will be called joint ventures smaller if it’s something with our partners ourselves without limited partners. But for passive investors, that’s what you’re going to be investing into. And they’re going to be in areas that are going to see above-average growth, and they’re going to be we have, we usually will deal with properties that are from the beginning, what our criteria is when we’re buying property is eight to 889 percent cash on cash, typically, and we’re going to want to see like in the Internal Rate return 15% Plus, but every deal is different, and some go higher, some go lower from what we expect. So
Brett:
Beautiful, are you seeing more or less or about the same competition for deals that you’re bidding on?
Charles:
We’re seeing what we’re seeing for deal flow is we’re seeing what I always say was like, it was like 90 days of the beginning of COVID, where everybody was conservative, and no one was doing deals. And then something happened that lasted for like 90 days, and everybody was like back to January 2020. doing deals and there wasn’t really any kind of COVID testing, I think and when we’re looking at deals, I think everything’s really picked up and it’s back to not as bad as it was before. We’re like when you call the broker, you have to be pretty much hard, you know, have hard money down. But it’s getting to that point, I think, again, where people are still doing deals. And I think even more people are looking for straight multifamily because I think a lot of people are avoiding these other asset classes whereas you know, Airbnb, student housing, these different places and there’s just an article on student housing that came out I was reading and you know, areas that used to be very, very, very well populated, I guess you’d say overly populated with students are now kind of receding and you have a lot more people coming in there. So in these areas, there’s gonna be fewer people People in they’re renting. And I think people are going to really be looking towards multifamily. So I feel over the next year is going to get even more competitive for multifamily. Whether it’s small stuff, or whether it’s the large stuff, and I feel you’re gonna have other people from other asset classes that we’re investing in are going to start investing even more in multifamily versus where we were in, you know, say an office or, or other places. So,
Brett:
I agree with you completely. That’s so well said, and so I’ll put there, I think it’s going to be an exodus, just kind of like people moving out of California, there’s gonna be an exodus of folks who were traditional retail, you know, office, especially now I’ve seen industrial actually do very well. And I have some industrial holdings in it as well. But the retail office, you know, it’s gonna be a whole shift, that’ll be interesting to see. That being said, I want to shift a little bit and capital gains tax, you know, solutions are our is the name of the podcast and want to know how perhaps you guys work when you guys go to sell, you know, with carried interest or for deferring capital gains tax. And by the way, in our previous episode, we have a mini-episode with Charles and I, and we talked about some of the struggles with 1031. And some of the struggles with having a 1031 end of the deals for him. But now want to shift on the other side, Charles, so when you go to sell, what’s the biggest frustration, when you exit these assets, perhaps you haven’t quite yet, maybe you have because of the capital gains tax, but walk us through that strategy when it comes to capital gains tax deferral,
Charles:
When you’re working with investors, normally, you know, it’d be great to be able to 1031 of the properties into other assets. But you have to have, you know, if it’s not the plan from the beginning, it’s kind of difficult to change that. If you have a smaller investor base. It’s something that we’ve been going back and forth on four smaller holdings that we’ve been looking at, and possibly buying smaller portfolios, and keeping some of them and then also, you know, 1030, wanting them after the value add, but that’s really the way that your investors can keep their money working for them. And, obviously, by avoiding the capital taxes, but it’s also one of the things too, is that once you’ve built that value in those properties, and these investors, most of them right want to reinvest back into other deals that you have. And it’s something that we never from the beginning when we started syndicating properties really focused on. And I think it’s something now that we have a lot more investors that are asking about. And I feel that probably within next year, we will be setting up something doing a project that will have the end goal is to 1031 the whole syndication to something else. And possibly, you know, tell them that, hey, instead of five or seven years, now we have something it’s going to be 10 to 15 years all in, possibly refinancing out earlier into the second project.
Brett:
Yeah, really well said. And that is one of the biggest challenges, right, because typically, the whole entity must move to mean all the investors must say yes, and some of them have different horizons and different needs for their money. And, and so to get everyone on board, or to get someone to replace their spot, or to try to TIC becomes kind of a really complex thing. So now there is a solution for that. And this is a little plug for the deferred sales trust, you can now literally take each of the individual investors if their portion was big enough to do a deferred sales trust, and or just a single GPS and they’re carried interest or their portions. And they can do, you know, their own deferred sales trust and the rest of them can pay their tax because you’re not having to do 1031, which is pretty sweet. We actually just did a deal in Georgia, it was a $7.6 million sale. And the gentleman sold 128 units. And he’s a baby boomer and he’s looking to retire and he’s like, I’m just tired of the toilets, trash liability. I also don’t want to overpay all by myself, not diversify, go into one property with all this debt. Instead, he got rid of all of this debt, moved his funds into the deferred sales trust, deferred about 1.1 million in tax. And then he actually put a big chunk of that, with Brian Burke and his multifamily fund. And then a big chunk of that with Joe Fairless. And his multifamily phone, which is pretty sweet. So for those who are listening, you can go to capital gains tax solutions.com to learn more about that. That being said, Are you ready for the lightning around?
Charles:
I am.
Brett:
All right. So knowing what you know now, Charles, if you go back to your 25-year-old self, what’s the one Golden Nugget, you would make sure you would do?
Charles:
Be more strategic on what my goals were?
Brett:
Excellent. Be more strategic on what your goals were. So you had goals, but you would have just maybe tried to be more How would you have been more strategic? What would you have done to be more strategic?
Charles:
When I was buying properties, then I would just see properties and I would buy them and you know, there’d be three units three, and you can’t really scale that I remember the first multifamily property we bought was from a group of older investors that were going into larger investors going into larger properties. And now we’re doing that. So it’s kind of funny how that works. And it just I would have just had more of a plan over five or 10 years, not just Hey, we’ll buy a property that has cash flows and it’s going to be great and which is a very good goal to have, right? every investor should have that goal in real estate. But it’s a better goal when you say, this is what we’re looking at. And this is where we’re purchasing, because the end goal is going to be selling this as a portfolio, or we’re going to hire full-time management for this portfolio or whatever it might be awesome.
Brett:
Love that. Yeah, especially if you can start with 100 units, right, versus starting with 10, you might be the same amount of work, actually might be more headaches for the 10, and then just 100. So I love that what is the one book you’ve recommended or gifted the most in the past year?
Charles:
I would say I really like the book at 20 Marketing. And it’s, it’s a great book for anybody that is in any type of I mean, everybody’s a marketer. So I think it’s for any person in business, it’s great. And it talks about obviously, marketing, but also about the value of your time. And that’s something that you don’t see written in a lot of books.
Brett:
Excellent. check that one out. Give me mobile or digital resources you recommend for your business?
Charles:
Um, I would say if we have a few free resources if you want to go to my website, Charles Carrillo or Charleskcarrillo.com. We have some PDF books that we put together and we’re also putting together it’ll be out and probably by the time this goes live a white paper for investing in the property, it’s gonna be about 20 pages from a few different industry professionals.
Brett:
Cool love it. Favorite leadership quote, or theme you try to live by.
Charles:
Um, I like, it was actually my yearbook quote, in high school, and it’s, I like thinking big. And if you’re gonna be thinking things, always think big, it was Donald Trump, which is probably hugely, so many people are on different sides of the fence on that one. But it’s, it’s a great quote if you’re going to be you know, if you’re going to be planning anything, you might as well just, if you’re going to build your life, and if you’re gonna get strategic about any kind of planning and do all the work, you might as well think big.
Brett:
Love it. What are you curious about right now?
Charles:
I’m curious about the election. But I’m really curious to see exactly what happens. With all that, with all the money we’ve been printing this year, and seeing how is that going to come out in the wash, and how we as a company, and also with our investors, how we’re going to be able to weather it and the best way of getting involved in it.
Brett:
Love it? How do you stay centered in your values? After all, your success, Charles, and all the other folks that helped you invest with? How do you stay centered in your values? And how do you stay encouraged to charge to reach new goals?
Charles:
I always keep a list of non-negotiables. And between business and personal. And I work off that and whenever I’m making a decision, I will refer to them. And I also have two Word documents about what I learned in real estate and what I learned in business and there It’s nothing. It’s nothing sexy. They’re just bullet points. And you can read through them and be like, oh, yeah, that’s when I, I almost lost money there. That was a deal that wasn’t that great. And what I did, and you just keep on referencing all this experience, everybody has so much experience, even if you haven’t started in real estate investing, say, and you’re in a business or something you can, you can take that experience and move it over. And that’s how I stay. I stay humble in my approach to the future.
If you're going to build your life, and if you're gonna get strategic about any kind of planning and do all the work, you might as well think big. Click To TweetBrett:
I love that. It’s a great, great strategy, your strategic thinking on that one for sure. And great. Well, that basically wraps it up, Charles, maybe give the last word for our listeners, one last thought, and then also remind them where they can find you.
Charles:
Yeah, so if you guys have any questions, and you’re interested in investing actively or passively, it’s not a problem, let me know and come to my website, Charlesgorilla.com, you can sign up for the mailing list, or set up a free 30-minute call with me and let me know what’s holding you back from investing. If you want to do it actively or passively, I’ll speak to you and then I can point you in the right direction of how we can work together in the future, or how you can jumpstart your real estate Empire.
Brett:
Excellent love that. Well, thank you, Charles, for being on the show sharing all of your wisdom, sharing your expertise, and some inspiration for us today. We definitely are better because of it. And I want to encourage you to keep using the gifts you’ve been given to bless others and all of their real estate investing endeavors and strategically thinking along the way, and also want to thank our listeners for listening to another episode of the capital gains tax solutions podcast. As always, we believe the highest net worth individuals and those who help them struggle with clarifying their capital gains tax deferral options, not having a clear plan is the enemy and using a proven tax deferral strategy, such as the deferred sales trust, or getting with someone like Charles to help invest passively to build wealth is the best way for you to grow your wealth. And with that, please rate review, subscribe, and share this with somebody who can help out we shall appreciate you. Goodbye, everybody. Take care.
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About Charles Carillo
Charles Carillo is a real estate investor, entrepreneur, and mentor. He’s a full-time real estate investor and he currently invests in over 250 multifamily units across three states. He grew up in the business managing multifamily commercial properties. He learned how important passive income was at a young age. And he also purchased his first multifamily property in 2006. He purchased his first commercial property in 2009. But his passion is really helping people as a passive investor, becoming a real estate investor and multifamily property mainly in the southeastern part of the United States.
