“Find somebody that has achieved what you want to achieve and either have them mentor you or learn from them. Really find somebody that has walked the path that you want to walk and follow them.”
Chris Larsen is the founder and managing partner of Next Level Income, through which he helps investors become financially independent through education and investment opportunities. He’s been managing and investing in real estate for over 20 years. He has a degree from Virginia Tech and he started out with just a single-family house when he was 21, and then quickly figured out that multifamily is one of the best ways to create and preserve more wealth.
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Taking Your Wealth To The Next Level With Chris Larsen
Brett:
Our next guest is the founder and managing partner of Next Level Income, through which he helps investors become financially independent through education and investment opportunities. He’s been managing and investing in real estate for over 20 years. He has a degree from Virginia Tech and he started out with just a single-family house when he was 21, and then quickly figured out that multifamily is one of the best ways to create and preserve more wealth. And he has raised over $12 million and has over $150 million of real estate acquisitions with him and his team. He also invests in equities, oil and gas, and small business lending. He’s a part of a venture capital group. He’s out of North Carolina. He hasn’t quite told me who his team is yet, but we’re going to get to the bottom of that here in a minute. Actually, he did tell me, but it’s not what you’re thinking. It’s actually Virginia Tech because that’s where he went. Please welcome the show with me, Chris Larsen.
Chris:
Brett, thank you so much for having me.
Brett:
And as a reminder, you can find Chris at nextlevelincome.com. Hey Chris, maybe give us a little bit about your background, your story, and a bit about your current focus?
Chris:
Brett, you did a great job already. Thank you very much. Next Level Income, what we do is we focus on providing education opportunities for investors, with the goal of helping them achieve financial independence. And as you stated, I started myself a single-family property back at age 21. I was in college. I was day trading prior to that. I was doing pretty well in the market in the late 90s. And as we’ve seen here, I’m not sure when this show’s going to air, but it’s been a historic drop here in the past week in the markets. And back in the late 90s, it was not much different. I saw some big gains. I saw some big losses in the stock market. I’m by nature a risk-averse individual. And I was looking at other financial options, other investment options at the time. I knew a little bit about real estate because my family, my mother, and my stepfather, had a few single-family rentals that they managed. I was raised very much middle-class, but the more I looked into it, the more I realized that buying real estate and being able to control it and ultimately the tax advantages that went along with that, that was a great spot to be in. I built a portfolio of single-family properties from the age of about 21 to 25. I managed it on myself for nearly 15 years. And then ultimately in 2013, started moving into the multi-family space and commercial space, largely for the ability to invest passively, as well as a lot of the tax benefits that go along with that. As we were talking before the show, I spent 15 years in the medical device industry. It can be very stressful, a lot of time that’s put in. I was on call for 12 years of my career and I was working 60, 80, sometimes 100-hour weeks on call for sometimes months at a time. I think the longest stretch I went with seven months straight without a day off on call. It was challenging with young kids. I did not want to manage the property myself anymore and ultimately moved our entire single-family portfolio into the commercial space. And then with one of my former partners, we started syndicating. We formed a partnership in 2015, syndicated our first deal in 2016. And we will be about 1,500, 1,600 units here around the time show airs.
Brett:
That’s amazing. And thanks for sharing that. And before we dive into some of the tactical parts of making that transition from single-family homes into commercial real estate properties, and some of the tax deferral strategies you’ve used over the years, I’m curious. Take us back to Chris growing up. In particular, I’m curious. What gifts were you given that helped you help your clients most today? I believe we’re all given God-given gifts. Some people call it a superpower, but what particular gift were you given and how does that help how you help people today?
Chris:
I think I was fortunate to be able to assimilate a lot of information and distill it down and ultimately act. I think you hear a lot of times like paralysis by analysis and you can just sit there like a deer in the headlights. And you look at all these numbers. And for me, spreadsheets are very comforting. I like to look at numbers and break things down. So I’ve always been fairly adept from a mathematics perspective. So it’s been easy for me to look through those. It’s funny though, being at an engineering school at Virginia Tech, I felt like I was kind of the odd man out because I really didn’t feel like I fit with the engineers. I really didn’t fit in with the fraternity, so to speak. I’m in this middle space and same thing with my medical device career. I was joking around like I wasn’t smart enough to be a doctor, wasn’t smart enough to be an engineer, but I can communicate between the two groups. So I think the ability to assimilate information and then communicate the information and ultimately take action is what I would consider my greatest gift in this space.
Brett:
That’s great. And when did you become fascinated and/or obsessed with helping others? I know you also run a podcast and of course your syndication groups that help to buy real estate. So when did you become obsessed and really focused on helping others achieve financial freedom through wealth in real estate?
Chris:
I think it kind of happened over time. It’s hard to pinpoint one specific area, but my father passed away when I was young when I was five years old. I always had family, friends, people from church, or people from the community that helped me out and pointed me in directions that either wanted advice or I needed advice or needed help. As I kind of went along my path, whether it was when I was racing bicycles, I was a captain of my cycling team when I was 15. I was the first captain of my junior team. And then, I started coaching people in college. I guess I always felt like it was my responsibility to pass it on – my responsibility to pass it on, pass on the information, pass on the knowledge to the next group. I think when it comes to the financial space I did have help, but I was doing my MBA in finance, I was learning about the financial industry, and I did all this research and I realized that in large part a lot of the financial industry is driven by salespeople and they’re just selling a financial product. And what I felt was a better way through investing in real estate or looking at some of these quote-unquote alternative assets that people they’re like, “Oh, they’re alternative.” Well, what is the alternative? Their alternative to the stock market. But what’s ironic is the products that we call or the investments that we call alternative today were mainstream 100 years ago. You look at what the rich are investing in, real estate, precious metals, small businesses, oil, and gas, it’s just ironic that these things are called alternatives today. I think as I learned this information and then I went out into the working world and started to see how people were investing it really became apparent to me that I needed to share this information. And then when we started really what became next level income about five years ago I would get phone calls, I would get emails every week and the questions weren’t, “Hey Chris, what should I invest in?” I’d get that and they’d say, “Hey, what do you have? What are the opportunities?” But I got about the same amount, Brett, from young people that said, “Hey, how can I get to where you are?” And it hit me that there’s a real need for the ability to understand the financial world that’s out there, the ability to say, at Next Level Income we say, “Here, we’re going to help you make more money, keep more money and grow your money.” And the first step is to make money and I think a lot of us have gotten to the point of investing and some of these asset classes we forget that “Hey, there was a time when I was making $1500 bucks a month and I didn’t have that information.” So specifically with our podcasts and now our website we have the print edition of our book that’s coming out. You can go on our website and find that as well. People can come, they can get the information, and then hopefully get to the point where they can start on their first step towards financial independence.
Taking Your Wealth To The Next Level: “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” — George Soros.
Brett:
Excellent. As a reminder, you can find Chris Larsen at nextlevelincome.com. So Chris, maybe you can give us an example of maybe the service that you do and or a recent deal that you’ve been able to get some solid returns on for real estate and multifamily. And also maybe also tie into how you shifted from single-family homes to multi-family and what were the major driving reasons for that?
Chris:
Yeah, thank you. Every deal is different, so I won’t talk about deal specifics but what we specialize in Brett we do multi-family, we do self-storage, we do commercial office, and we do oil and gas. A large part of the bulk of what we do is in the multi-family space. Personally, that’s where I have the bulk of my investments on the real estate side and that’s the bulk of what we do as far as an offering. So today we’re focused on the Southeast so we’re looking for deals in the Carolinas and Georgia, Texas, maybe Florida as well, areas that are strong demographically. So we like big cities that are growing faster than the national average. A big reason why I personally moved to North Carolina was because of the demographic trends of people moving down here and I meet people every week that says, “Oh yeah, I’m moving here from New York.” “I’m moving here from the Northeast, Illinois, for tax reasons, for the weather, whatever it may be, for job opportunities.” I was talking to a young person last week and he said, “Hey, can I talk to you? I’m moving to Raleigh from Chicago.” ” Why are you moving?” “Oh, better opportunities down there.” So there’s a perfect example. We’re typically looking at deals that are about 200 units or more. We like the value add space so for your listeners that may not be familiar with that. First off, we look for deals that are on the larger side because they have economies of scale. So unlike a single-family house, you can’t have a handyman that’s there every day and a manager that’s there every day and somebody answering the phones, it just doesn’t make sense. Maybe you have 50 units, it might make sense to have somebody their part-time but when you get up to a couple of hundred units it makes sense to have a full-time staff there and it makes things more efficient and more cost-effective over time. Two, the multi-family space it’s like buying a 1980’s style home where nobody ever fixed up the kitchen. So, you’re going in and you might be buying a property that’s anywhere built from the 1980s up to the early 2000s. I think the oldest property we bought to date is 1973, the youngest is I think 2013. So somewhere in that early 90s to 2000s range plus or minus. We’re going in and we’re typically putting five to $10,000 per door in but these properties are already stabilized. So as an investor when you come in what you get if you get cash flow from day one, then you get the appreciation and I talk about this in my book, a lot of people call it controlled depreciation. It’s called controlled because you can control the value going up by the improvements you make, any income that you increase in that property. And the way that’s different for residential is that if you buy a residential house you’re really just hoping that it goes up in value. It goes up, it goes down, it goes up, it goes down. For anybody that had property from 2000 to 2010, they saw their property go up and they’re watching it come back down. It’s a lot nicer when you can make an improvement, see the income increase, and then have a proportionate value increase with that. And then ultimately investors get that back-end return when we either sell or refinance the property. So again, big properties in the Southeast, multi-family space, value add that are already stable and need a little bit of love and improvement in operations to get them up to speed. And then finally, the reason that I moved from a single-family, there’s multiple reasons but the big ones are one it’s passive. So, if you’re a busy professional that’s out there, working Brett, like I was saying I didn’t want to pick up the phone on the weekend or my honeymoon. That’s a true story. You can ask my wife. I was in Costa Rica and I got a call from one of my property managers because I had an issue with one of my residents. So, I didn’t want to deal with that anymore. Two, the returns were better. So here I could have a passive investment with better returns and the tax advantages was better as well. So, when I looked at all those things it made abundant sense and I sold my entire portfolio and moved it into multifamily in the space of about two years.
Brett:
Thanks for sharing all that. Let’s dive into some of the tax advantages that you were talking about here and maybe some of the most favorite ones that you have. I think you were mentioning a shift between your net income working a W2 job and at one point getting hit with a very high marginal tax rate. Maybe touch on that and then move it into how multi-family is better.
Chris:
It’s really easy. So W2 for anybody that’s listening, which is probably 95 plus percent that’s had a W2 job, you get your paycheck after you pay taxes. And you’re paying marginal tax rates, you’re not getting benefits that Warren Buffet gets or a business owner gets. People talk about how Jeff Bezos pays no income tax or Warren Buffet pays 10%. Well, how is that? The reason is they’re structured differently. They’re not a W2 employee. The reason is they’re structured differently. They’re not a W2 employee. So the problem that I faced was I was a W2 employee, and I had these rental properties that weren’t structured properly from a tax perspective. So I was taking that income, and I was putting it on top of my W2 income and paying a higher marginal tax rate. So let’s say I was making 7% on my investments. I was keeping maybe 4% after tax. And I think almost anybody out there can get better than 4%, as far as their rate of return. So that was very challenging. From a multi-family perspective, it’s typically structured. The way we do it, we structure it like an LLC, so you get the tax benefits within that structure. The other thing that’s different is that you can do what’s called a cost segregation analysis. If you buy a single-family house, you have one washer, dryer, have one refrigerator, you have one oven, you have one landscaping for the property. Well, that all depreciate faster than your standard straight-line depreciation of residential, which is 27 and a half years. What that means is if you have a $275,000 home, over 27 and a half years, it depreciates $1,000 a year. Well, if you have a multi-family property with 100 units, what you can do is you can have basically an engineer that’s a tax specialist come in and break out all the stuff that’s in each of those units, lump it together in the timeline that it depreciates. So does your oven last 27 and a half years? Probably not. We replaced our dishwasher and our new home after, I think, seven years. Well, the government recognizes that and allows you to depreciate it on a faster timeline. The new tax law that passed at the end of 2017, also allows you to accelerate that even further. So an investor who makes a $100,000 investment, can depreciate a very large chunk, typically in year one, and also a lot sooner than that 27 and a half years. So what that means is if you’re collecting income on the front end, you can offset that by that depreciation. We call it phantom losses. It’s a loss on paper, but you still get to keep the cash flow. And when you add those two together, it can be very powerful over time. And there’s a lot of other tax solutions that you can incorporate on the back end, and I know you’re very familiar with those, Brett, one being the 1031 exchange that you can incorporate on the back end. And you can start that whole clock over, and you can accelerate that all the way into perpetuity. It’s pretty amazing.
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Brett:
It is truly amazing, and the key is finding a deal at the right time, the right place, and making sure you’re buying on the intrinsic value in the forced depreciation opportunity, not just to defer the tax. But if you can find that, and you can find value add, which you can find in any market or place. It is, generally speaking, a seller’s market right now, but every market’s a little different and there are different opportunities, so you can always find deals. But that being said, I’m curious, Chris. What was kind of the biggest mistake that you’ve made or a partner or a friend or a client has made when it comes to capital gains tax deferral?
Chris:
That’s a great question. I think that the first thing is I wish I knew about the multi-family space 15 years before I found out about it. And again, going back to why do I share what we do. But if you look at the back end, I had my portfolio of properties when I was unwinding them. It was a few million dollars’ worth of property at the time. And the way it was structured, I basically had to sell each property one at a time, pay the tax on those properties, and move it into a different asset.
Brett:
Let’s pause right there. You’re referring to the single-family houses that you had, so about five single-family houses we were talking about before the show. And for you, you’re able to maybe do one exchange for one property, because you had an exchange lined up. But the other four you had to sell, and it was a substantial tax hit because they were all individual properties, versus a multi-family property, had it all been one entity and one property and collect the same sales price, it would have been easier to do a 1031 exchange. Is that correct?
Chris:
That’s right. I was losing probably somewhere between 20 and 25% of every dollar of profit that I made in the properties. That’s how I felt when I was paying the tax bill. So again, it’s having the ability. As we’ve talked about some of the things that you specialize in, having the ability to structure things differently and having the right legal and tax professionals to talk to as you move money between investments, or setting up your investment structure on the front end to prepare for those tax situations. I mean, if you look at it over time. Again, in my book, I try to put a lot of comprehensive examples in there. One of the examples I put in there, shows the difference over time, and it’s breathtaking. I mean, it’s like you lose half your money to taxes over the course of a 20-year investment. It’s a significant amount, and over the course of an investment career, you start when you’re 20 or 30 years old, it adds up to millions of dollars.
Brett:
Yeah. We found it to be 30 to 50% of every sale of any high-end appreciated home business, commercial, real estate, or other things today you might be selling. And we’re working on a racehorse deal right now, and a Bitcoin deal. But essentially, if you’re going to be paying that it’s gone forever, but if you can keep it deferred and earn on that and reinvest on that, you can create and preserve more wealth. So oftentimes, it’s the single largest expense for the single largest transaction that anyone faces, and capital gains tax deferral is so important, versus seeing all that wealth just decimated. Now, that being said, the 1031 exchange, just to clarify what Chris was referring to with the single-family houses, one of the biggest things is finding that deal that makes sense and being able to move the ante. It’s got to be equal or greater value. It’s got to be within 180 days. You got to identify within 45 days. I’m working on a similar deal in Sacramento, now. It’s a hundred single-family homes this gentleman owns, and worth over $20 million. And his biggest thing is he goes, “Bro, I feel trapped because I don’t want to sell to one big investor at a 30% discount by pulling them together as a portfolio. I’d like to sell to these single-family homeowners who can get a traditional financing, 30-year rates, 3% down type of stuff and get a higher price, but I don’t have a good solution to do it with 1031.” That’s where the deferred sales trust is the solution for that, and you can sell each individual property, move it in any time into this one single trust, pull all your money together, and then have the ability with up to 80% of it to move like a self-directed IRA into a new investment property, all tax-deferred, and eliminating the need for the 1031 exchange altogether. But the key is having a proven tax referral strategy that’s been around for a long time, that’s been vetted by the IRS, and then having the professionals to help you perfect that strategy to make sure that you’re not getting caught in anything that’s going to make you pay the tax. So Chris, shifting a little bit, I consider you a wealth advisor for commercial real estate. So after interviewing countless people, doing all these deals, and really having a big, big success with building wealth, what is the single best wealth advice that you would give to our listeners who are listening today?
Chris:
That’s a great question. It’s something that we kind of incorporate in our show. We ask, “What would you go back and give yourself if you can go back in time?” And for me, I think the biggest piece of advice I could give is to really find somebody that has achieved what you want to achieve and either have them mentor you or learn from them. Really find somebody that has walked the path that you want to walk and follow them. I mean, why recreate the wheel? Why continue to make those same mistakes? And what amazes me, the people that have had this experience, a lot of times they really enjoy sharing it. So I guess, again, finding somebody that’s done what you want to do, and then don’t feel afraid to reach out to them and ask for advice. If anybody asks for my advice, it might take me a few days to get back to them, but I’d happily point them in the right direction. If I can answer their question or help them out, I will gladly help out.
Brett:
Yeah. You truly get more when you give, right? Then just receive. And being able to give back and help inspire folks who are maybe a step behind you, or two behind you, is really encouraging for everybody. So with that being said, are you ready for the lightning round? And we’ll finish with the last question and we’ll be done.
Chris:
I don’t know if I’m ready for the lightning round, but let’s do it.
Brett:
Maybe the best book you’ve read in the last six months, Chris.
Chris:
Brett:
The best podcast you’ve listened to recently.
Chris:
I like Tim Ferriss when I can get through the full two hours.
Brett:
Best real estate new tool that you’re using for the past six months.
Chris:
Ooh, that’s a good question. We have a new spreadsheet model we’re using for evaluations. It’s more a proprietary tool.
Brett:
Excellent. Let’s see, maybe the top or best leadership quote that you live by or try to incorporate into your values.
Chris:
Ooh, I’m not good with quotes, but going back to what I was saying earlier. It’s, “Choose who you want to be and then start being that person.”
Brett:
Excellent. That’s it for the lightning round. That’s all I have. Oh, we mentioned it in the very beginning, so I know it’s Virginia Tech because that’s where you went, but you’re in North Carolina now. And I know you get pressure from all those crazy basketball fans out there. And being that we’re recording this show in March, I can’t help but ask, if you had to pick a team, would it be Duke, North Carolina, or NC State, Chris?
Chris:
I’ll go to UNC.
Brett:
All right. UNC, it is. Well, I’m a Coach K fan. I’m a Duke fan. So, we’ll have to agree to disagree on that one.
Chris:
We like the underdog sometimes, so yeah.
Brett:
Yes, the underdogs, I hear you, I hear you. That’s great. So how do you stay centered? This is our last question and probably my most favorite question that I get a chance to ask guests. And it’s really focused on how you stay centered in your values, Chris. And then the second part of it, how you stay encouraged to reach new heights after you’ve achieved so much, right? So essentially, how do you stay centered in your values and how do you stay encouraged to reach new goals?
Chris:
Yeah, I think the easiest way to stay centered is to really look at my children every day and my, I have a life mission statement that I’ve written out and what I wrote in there is, I want to live a life, I want to be the person that my boys are proud to call their father. So, I look at my children and I say, “How can I be the best role model for them?” And I’ll admit that some days I’m not the best role model. And as I’ve been, from a centering perspective, I’ve been meditating for over three years. It helps me kind of come back down, spend a few moments every day to really think about what’s the most important. And then at the end of that period, I remember what I’m grateful for. And that helps me maintain really what I’m truly thankful for in this life. And then, looking at my children and trying to provide for them is what helps me to continue to push and achieve. And the last part of that is my father passed away when I was five and I live every day like it’s a gift. I feel like if I get up and I don’t make the most out of every day, Brett, then I feel like I’m leaving something on the table.
Brett: 
Well, that’s encouraging. And thanks for sharing your heart there and some of the ways that you help to stay centered. And I can’t help but think about Hal Elrod‘s book, The Miracle Morning, which kind of has a framework for that where you’re meditating, you’re in silence, you’re reading, you’re scribing, writing something out, and you’re visualizing your day and having a life mission statement alongside that is a very, very powerful. I try to practice that myself as well. And I have five kids myself. So, I hear you there. I appreciate you sharing some of the tons of wisdom and encouragement. Any last words or thoughts to leave with our listeners to wrap up the show?
Chris:
Well, first off, thank you, Brett. Again, you can go to our website, nextlevelincome.com. And by the time this show launches, we’re going to have probably a paper edition of our book out. It’s launching right around the end of March, early April. So, any of your listeners that go on, they can go on there on our website and get a free copy. And I would love to share that with your listeners instead of having to go on Amazon and pay for it. So please go to our website, pick up a free copy. And then again, you can reach out to me with any questions. If I can be of help, I’d be happy to do so. If I can, I’ll try to point you in the right direction.
Brett:
Hey, well, thanks Chris, for being on the show. And again, you can find Chris at nextlevelincome.com. I also want to thank our listeners again for tuning into another episode of the Capital Gains Tax Solutions podcast, where we believe not having a tax deferral plan is the enemy to creating and preserving more wealth and being prepared and looking at things such as cost segregation or looking at things such as what your net income could be if you were to shift entities and prepare well before you set up any kind of investment, can help you create and preserve more wealth. Hey, take the information you just learned, take the inspiration you just heard and go out and make some great things happen for you and your family. Thanks so much for watching and we’ll see you on the next show.
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About Chris Larsen
Christopher Larsen is the founder and Managing Partner of Next-Level Income, through which he helps investors become financially independent through education and investment opportunities. Chris has been investing in and managing real estate for over 20 years. While completing his degree in Biomechanical Engineering and M.B.A. in Finance at Virginia Tech, he bought his first single-family rental at age 21. During his subsequent career in the medical device industry, Chris expanded into development, private-lending, buying distressed debt as well as commercial office, and ultimately syndicating multifamily properties. He began syndicating deals in 2016 and has been actively involved in over $150M of real estate acquisitions. In addition to real estate, Chris has invested in equities, oil & gas, and small business lending, as well as being active in Venture South, one of the nation’s Top 10 Angel Investing groups. Chris lives with his wife and two boys in Asheville, NC where he loves spending time with them in the outdoors and enjoying the food and culture that the region has to offer.
