As long as you have the capital to get into it, the field of multifamily investing can almost assuredly make a millionaire out of you, and yet, not a lot of people are taking a chance on it. This lack of willingness to dive into this unique type of investment opportunity is borne from a lack of understanding what goes on in multifamily investing at its very core, and that has to change. Charles Dobens is the Founder of The Multifamily Investing Academy. In great detail, he discusses the strengths of the multifamily investing market with Brett Swarts. With the knowledge that Charles shares, you will surely be able to up your investment game, especially when it comes to multifamily!
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The Secrets Of Multifamily Investing With Charles Dobens
We believe most high net worth individuals like yourselves or friends and family you know and/or people you serve, they struggle with capital gains taxes, in particular, clarifying a plan when they sell their highly appreciated assets. Not having a plan is the enemy because if you’re not using a plan, you’re probably paying more in tax than you need to. In each episode, I’m joined by some of the best financial independence and passive wealth advisors in the world. Our goal and focus is to share ideas, deal stories and inspiration. Together, we can make complex tax deferral strategies simple, and here’s the key, passive income plans achievable.
Our next guest is a legend in his own right. He’s the Founder of MultiFamily Investing Academy. He’s an attorney. He has bought and sold and managed over 20,000 multifamily units. He also specializes in investment real estate. Beyond his experience, he’s an author. He has his own successful podcast. In fact, over 11,000 downloads alone in his first year. What I also love about this guest, most of all, is his enthusiasm to give back and help others create and preserve more wealth through multifamily investing. Also, he lives in the state of our founding fathers, Massachusetts. I want you to welcome, Charles Dobens. Charles, welcome to the show.
Thank you. I appreciate you putting me in the same sentence as the founding fathers and not chronologically.
That’s the most important question. How does it feel to be from the great State of Massachusetts?
I am not from Massachusetts. I was born and raised in the beautiful, greatest state in the country, New Hampshire. I love New Hampshire. I moved to Massachusetts to raise my family down there. Once Donald Trump became president, he forced me back up to New Hampshire. We’re talking about tax planning. I am a New Hampshire resident, thanks to Donald Trump.
Tell us why. What happened? What was the big change from Massachusetts to New Hampshire? What was the difference?
It had to do with the high property taxes that are no longer deductible over a certain number. I have a nice house down in Duxbury. It’s valuable. I was going to lose that deduction and also 6.5% on my state income tax. I get myself a 6.5% raise. That’s huge. This gets back to why you and I are talking. People who have gained a lot of net worth, who have a lot of assets, understand that during the accumulation phase, when they’re earning and when they’re building their net worth, then they move into the preservation phase and part of the preservation phase understands the implications of the taxman on everything that you do. Every time you go back and you look at any type of expert, money guru, they’re always talking about tax. I didn’t understand this when I was a lot younger. I understand a lot better now that you always have to take the taxman into consideration whenever you do anything, especially in preserving your assets. That’s why I’m up here in New Hampshire, for one of the reasons.
For our readers who don’t know you, Charles, give us a little bit more about your background and your focus, especially as it pertains to helping people create and preserve more wealth.
My family started out in the insurance business. My dad had been an insurance agent for 57 years. I did it for about three years out of college and I hated it. I was the worst salesman in the world. I couldn’t close a barn door if I was tied to it in a windstorm. I realized that I’m never going to be able to compete with the old man because he’s the consummate salesman. What I did was I went to law school. When I got out of law school, I went back to the insurance business, but in a different niche. I went into a narrow niche of the insurance business. I ended up owning a benefit administration company. Worst job in the world, the worst thing you could do. I hated that business.It's best not to take your advice from someone who hasn't gone through a market crash cycle. Click To Tweet
I owned and operated the company for about ten years. I had about 35 employees working for me and I was putting myself in an early grave. I was one of those broke entrepreneurs. I had 35 employees but sometimes I didn’t take a paycheck. Believe me, there are a lot of people reading this who understands exactly what I’m talking about. I told my wife, “I can’t do this anymore. I don’t want to do this anymore.” She said, “What do you want to do?” I said, “I’ve always wanted to own apartments.” She said, “Let’s do it.”
We burned the ships and I sold the business. This was years ago. I went out there and started buying apartments. We built up a beautiful portfolio of apartments. The market crashes, I keep some and I lose some. That’s one of the things that I advise people like, “Don’t take advice from someone that hasn’t been through a cycle because if you haven’t been through a cycle, you don’t know what it’s like.” Brett, I’m 72 years old. I’ve been through many cycles.
Speaking of that, where do you feel we’re at with this cycle, with multifamily investing and where the values are at?
I love this topic. I try to figure out what’s going on with this market all the time. I was doing some research on the internet. There’s a senior economist from the Federal Reserve Bank of Kansas City. His name is Jordan Rappaport. I recommend, if anybody is interested in finding out more information, google his name. He has written a lot of documents on what’s going on in the multifamily economy. He’s talked about it back from 2013, all the way up.
I reached out to him to say, “I’ve got to have you on my podcast. Can you be on my podcast?” He says, “I can’t because of the investment nature of your podcast. I can’t be seen as giving investment advice.” I said, “All right. I’m going to keep reading your articles because they’re fantastic.” I love and I had a great podcast with a banker. The two of us were hashing it out on what’s going on in the market, “Let’s talk about this. I have no idea. I’ve never seen a market like this before. It is unique.”
If you go back to 2008, it was easy to see what went wrong back then. We don’t have those same factors going on. As a matter of fact, it’s an entirely different world today than it was back then. You look at the Amazon impact. Do you know what that is, the Amazon impact? It’s about how these prices remain ridiculously low, keeping inflation low because everybody can find everything at an incredibly low price. That drives a lot of the inflation issues within the marketplace. If you start looking at multifamily, in my estimation, this is the one thing that is magnificently different between then and now, then being 2008 and now. Do you know what the one thing is, Brett, if you were to pick one thing?
Tell me, what is it? I don’t know. What’s the biggest difference?
It’s student debt. Student debt is changing this economy like you can’t imagine. My kids are not rushing out to buy a house like I did when I was out of college. They are living their life. They’re apartment dwellers and they have no issue with that. My sister, she and her cardiologist husband, live down in the Seaport District of Boston and she says, “I’m houseless but I’m not homeless.” She said, “I will never own a house again.” That’s how a lot of people are thinking.
There’s a new law dynamic that they’re talking about. The divorce rate is skyrocketing for people over 50. Those people are coming into the rental market. There are many things that are entirely different about this economy compared to back then. What you always have to think about is, no matter what is going on with the market, you always have to boil it down to the basic essential which is, where are your customers? What do your customers want? In any business, that’s what you always have to think about. In our case, the demand for our product has never been higher. The customers want our product. We can’t build them fast enough.
It’s expensive to build too. I know you can’t get them fast enough, but the cost of labor, contractors, you name it. They are part of the problem.
Let’s talk about that. What I am thinking about and I’m doing the research because I’ve got two of my biggest complexes under contract and I’ve got another one that’s a development deal. Because of the numbers that I’m looking at, because of the high demand, we’re looking at workforce vacancy rate on average of about 5%. We’re looking at a workforce vacancy rate of less than 1.5%. Being here in Southern New Hampshire, I love Southern New Hampshire. One of the nicest things about Southern New Hampshire is we’re right next door to Massachusetts. It’s a lot cheaper to live in New Hampshire than it is in Massachusetts. We’ve got a great draw by being right there.
I’ve had my VA go out and we’re building all the models from one community, nine communities over to the seacoast. We’re looking at every single workforce housing property in that area. We’re figuring out what the cap rates are, what the land costs are, what the assessed values are, how much the taxes are. We are putting together a model to know which one of these nine communities is going to be the easiest one for us to get into because we want to build. We might be looking at modular housing. Modular housing might solve those problems that you talked about, but it all has to be done and I’ve talked to a lot of my friends who are developers. We have to steal the land. That’s how we have to find the deals.
Let’s walk through that. Let’s get a little tactical here. You’re selling and part of the show is capital gains tax solution. In the past, how have you deferred capital gains taxes or eliminated it or mitigated some of that, especially as it pertains to trading? It looks like you’re going to trade out of multifamily units to maybe a little bit different segment, maybe buy some land or develop. Walk us through how you’re going to navigate those hurdles.
Some of those things, we have done. It’s going to be a tough structure because of how I own the other properties. Some of them are in a trust. Some of them are family assets. They’re going to remain in those trusts. That’s how I’ve protected myself for those assets. Going forward, I’m telling you, Carnegie said, “Own nothing but control everything.” That’s pretty much how I am going to control this and start doing these deals. I’m going to buy the land for cash and then we’ll start to build upon that. I see it as if we can figure out the numbers, if we can get the numbers to work. The jury is still out on that.
I’m not going to sit here and say, “I know I can make it.” If I can’t make it work, I’m not getting involved. I’m 72 years old. I can’t make any more mistakes. If the numbers don’t work, we’ll move on to something else. We’ll find another source. That’s where I see the huge opportunity. Part of the problem with multifamily is it’s in such high demand. You can’t find deals. New investors are having a hard time finding deals. Let’s build them. Let’s build the deals. That’s where we’re at.
This is great wisdom and great insight. We’re all given certain gifts in life. Some people call it a superpower. Who was Charlie before his success? Who was Charlie growing up? What was the superpower you were given and how’s that shaped how you help others?
Two things. First off, I always knew I would end up doing this. Starting off with the insurance business, I knew that wasn’t the right thing for me. I knew that what I would be doing is exactly real estate investing, having a specialty in my particular field that I could get out there and help other people and teach other people how to do it correctly. I’ve always known that my life would end up doing this and I absolutely love it. It’s the first time of my life I jump out of bed and can’t wait to get started working. I was lucky that I always had something in the back of my head that said, “This is not what I meant to do. There’s something else for me out there.” That’s part of the superpower.
The other superpower is having great people around me that have enabled me to have a vision. I love telling the story about when I was fresh out of college, New York life agent. I had a manager and his name was Tim Miller. He was a successful agent in the field. He came out of the field to teach guys like me how to be agents. I said, “Tim, why would you do that? Why would you want to go into management? Why wouldn’t you want to stay out there and be your own boss?” I’ll never forget what he said. He said, “Charlie, I feel great at helping you succeed.” As a 22-year-old kid, I thought that was the stupidest thing I’ve ever heard in my life. What a ridiculous statement to make. Fast forward 30 years, I’m like, “I get it. I enjoy helping every one of my students succeed in this business.” Having those two things were informative for me and made me who I am right now. It certainly wasn’t all me.If the numbers aren't working out for you, move on to something else. Click To Tweet
We can get a lot of stuff ourselves but at a certain point, it’s not lasting. You’ve got to be able to give back. That’s part of what marriage does, it helps you to give back. It’s what kids do because you’ve got to give, especially when they’re young. I have five kids and I’m experiencing this. I used to be the single guy growing up. Boys in particular, in teenage years, it’s about themselves and then you mature a little bit and you realize life does not revolve around you. You get married and you give away. It’s a wonderful thing. You have kids, not only do you give away, but you sacrifice even more because they are babies and then kids and they’re learning for the first time. The act of giving of yourself and loving is the most rewarding part, even though it’s a lot of work. That makes perfect sense. If you can give more away, the more you’re going to receive. Everybody, you can find Charles Dobens at MultiFamilyInvestingAcademy.com. Charlie, talk to us about that. How does MultiFamilyInvestingAcademy.com help people create and preserve more wealth?
The MFIA is the big thing. Within that, we sell one product and that’s coaching with me. That’s called the Owner Forum. My Owner Forum is the greatest group of students. I’ve got about 150 people in the program. They are all friends with everybody else. Everybody connects with everybody else. We all help each other get across the finish line. That’s what my job is. I am one of these gurus but every one of my students has my cell phone number. They text me, Slack me, call me whenever they need me. I don’t have regularly scheduled coaching calls. If you need me, you call me. That’s how I operate. I make sure that everything you do is done correctly. You analyze the deal correctly.
We’re going to make an offer. We’re going to draft the offer the right way. We’re going to get a deal under contract, the contract is going to be my contract and written to protect you. I’m going to help you find the money. I’m going to help you get over all the roadblocks to getting that deal across. As I tell my students, “You’re only going to need me for the first two deals. After that, you and I are friends.” That’s how it works. It’s not one of these $50,000 coaching programs. For years, it’s been nothing more than a monthly fee. That’s it.
It’s a one-year contract. It was a monthly fee. If it’s not the right time for you, you say, “You’ve got to cancel. I’ll be back soon.” We shook hands and parted as friends. That’s it. That’s the way I want to run my business. It’s nice. It’s beautiful. It’s a blast. You’re on my call. You were a great guest. You had everybody going. Every Monday night, we do a Monday night live call and all the students come on. That’s where Brett and I met. I said, “I’ve got to get Brett on my Monday night call.” That was fun.
We were able to talk about 1031 exchanges and the Different Sales Trust and other ways to escape feeling trapped by capital gains tax and it was a wonderful call, student participation, and questions. That is on YouTube for those who want to watch that. It’s got a number of views. Go and search Capital Gains Tax Solutions on YouTube and then search in there. It’s one of the largest ones and it has Charles on there as well. If someone is interested in joining MultiFamilyInvestingAcademy.com, what are some of the top three questions that they should be asking?
“Do I get to talk to you?” I had a call with these types of questions. The guy was an analyst. He had ten questions that he wanted to go through. The same question I get all the time, “Do I talk to you or do you pass me off to one of your coaches?” No. I am the guy you talk to because I’m a lawyer. I’m not your lawyer. We’re going to work with your lawyer, but I still have to run my law firm like I’m a lawyer. If you need to speak to your attorney, you have to be able to pick up the phone and call your attorney. That’s how we structure it. That is one of the biggest things. People are amazed that they work with me. I review everyone’s documents. I review everyone’s contracts because I don’t want you to send out something wrong.
“Can I help you get the money?” Yes. All my students have access to up to $50,000 for earnest money. It’s structured like a hard money loan so you can make offers and not have to worry about like, “Where am I going to come up with the earnest money?” I got you covered. Also, we have what we call the equity assist program where you can go out there and depending upon the size of the deal, we can get you the funds you need or we’ll go out to the marketplace to find you the funds you need for the equity. No guarantee. If your deal is a bad deal, nobody’s going to touch it anyway. I do everything I possibly can to get my students across the finish line.
The other thing is the access to everyone else. This can be a lonely business. You’re out there by yourself looking for deals. When you come into my program, my Owner Forum, you’re connected immediately with every other student of mine. As some of my students work together on the same deal, some of them invest in other students’ deals. It’s a great group of people. That’s the thing I love about multifamily investing is that the people who are in it are such nice people. It’s not like insurance, which is like backstabbing, cutthroat, conniving business. We’re talking multifamily. The guy you’re talking to today could be your partner tomorrow. He could be an investor tomorrow. You could be in his deal. He could be in your deal. You never burn bridges in this business. It’s fun.
Thanks for sharing those hands-on and the ability to have access to you and then to share in the community to raise funds. Those are all valuable. Share with us the top three wealth secrets you have learned. You’ve been in this business for so long. What are the top 1, 2 or 3 wealth secrets you have learned?
One of them is going to be things not to do. The first thing is understanding the power of the cap rate. Multifamily investing is unique to all of the types of investing because we have what I call the power of the cap rate. That cap rate is what makes millionaires. When you understand how that cap rate works, and how it makes millionaires, you will understand multifamily. I don’t know if you’ve heard Than Merrill and FortuneBuilders, they’re out there on everyone’s podcasts and iHeartRadio. They’re always advertising, “We’re coming to your town to teach you how to fix and flip houses so that you can build wealth and have lasting income-producing property.” What the heck are you doing? You’re out there telling people how to flip homes, but you know that the ultimate goal is cashflowing property because that’s where the millionaires are made.
A millionaire is not made from the single-family fix and flip side, they’re made by holding the assets, and it’s all about the power of the cap rate. I teach that. I was down in Orlando, I spoke at the MREX conference and they said, “Can you come down and speak for 45 minutes?” I said, “Sure, I’ll do it.” They said, “What’s your topic?” I said, “Power of the cap rate.” When I was done, you should see people get it and they’re like, “I have to be in multifamily.” No other business has the power of the cap rate. That’s the number one thing, understanding about multifamily.
The second thing is, and this is something I cannot stress enough, bad partnerships. Stay away from them. Don’t do it. Here’s what I do in my program and I rolled this out. I did this because I saw many new investors going down that path. The reason why I’m an expert on this is that I have violated many of these rules already. I’m teaching you from experience of what not to do. What my students do is they’ll come to me and say, “I went to this gurus’ program on how to find private money and I met 400 other partners. This one guy and I hit it off. We want to start a partnership to go out and do these things.” I realized, they haven’t even asked the most basic questions of why they need to be in a partnership, why is this guy the right guy?
What I did is, in my program, when you sign on into your membership site, every product that I’ve ever created is there. I’ve got over twenty different products. My newest product is a memorandum of understanding product where the students go on and they click on this program. They book half an hour’s time with me. When they booked that time, they then completed a questionnaire that says, “Who’s party A? Who’s party B? What do they bring to the table? What conversations have you had so far?” They map out exactly what they want this agreement or partnership to look like and then they send it to me. We have a coaching call on this particular document where I go through it and I ask them the tough questions. It’s tough love. It’s got to be tough love today because it’s going to be tough love tomorrow, that’s for sure.
It’s like pre-engagement counseling, Charlie. You’re saying, “You’re about to get married in this business relationship.” It’s not even pre-marriage counseling, it’s pre-engagement before you even get into getting engaged to do this.
It’s pre-engagement where all we’re talking about is the divorce. We know it’s going to happen. Let’s see if we even should be in this relationship together. That’s the first thing. Once we get it all figured out, then I draft a memorandum of understanding and both parties get it, they sign off on it, and they know what they’re into it for. You would be amazed.
You can monetize that to about every business professional, not just folks who are in your MultiFamily Investing Academy, someone who has your background and your experience. That seems invaluable to have. For those who are reading, think about that. Call Charlie. Maybe he’ll make an exception and pay him a little bit more.
I’ve already thought about, “How can I get this out to everybody else?” I want to focus on multifamily. This MOU is what everybody needs. Whenever you’re in a situation like that, put it in writing. You’ll be amazed at how short everyone’s memory gets at the closing table. Put it in writing. The MOU is not a binding document. We can make it binding. It’s a stepping stone to the next document. You get to find out whether you’re even going to get to that next document.
What’s the last one, the third secret? Do you have a third one for us?The business of investing in real estate can be a very lonely business. Click To Tweet
Here’s another one. The thing I like about multifamily investing is that it has five ways to make money. There are five ways that you earn income in a multifamily. No other business is like that. When I do my speech, I always compare it to a Subway franchise like, “How do you make money in a Subway franchise?” You’ve got to sell a Sub for more than what you can make it for. That’s the only way you make money in a Subway franchise.
In multifamily, you’ve got the cashflow or the profit, which doesn’t happen every month. We all know that. There’s the forced appreciation, which is what we call when we drive the NOI. That’s the power of the cap rate. Those first two things help to make the millionaires. You’ve got the mortgage pay down, where you’ve got 100 people in your unit paying off your bank a little bit every single month. That’s why I don’t like interest-only loans. If you got 100 people writing a check, you might as well have them pay off your notes. You’ve got the acquisition fee which is, if you’re syndicating the deal, you can build in a little vig for yourself because it takes a lot of work to put a deal together. You should be compensated for it.
The fifth one, which is my favorite because it’s consistent, is the property management fee. You hear a lot of these gurus out there saying, “Outsource your property management. Have some third party do it.” All the successful owner-operators that I’ve trained, that I work with, they are all owner-operators of their property management company. They keep that 5%. As you build your portfolio, as you build your net worth, you’re going to keep that money because that money is what’s going to allow you to quit your job. It’s going to allow you to pay your mortgage, pay your kids tuition, live nicely because those 3 or 4 different ways to make money, they may not always work. Sometimes we get into deals and we don’t make money. You take your first nickel off of every dollar before anyone else gets it. That’s how you’re going to keep a nice lifestyle in this business. That’s it. Compare that to a Subway franchise, you don’t make money that way.
Charlie, those are three powerful wealth secrets and I appreciate you sharing that. How do you stay centered in your values and encourage driving to new heights and reaching new goals?
I have a system for what I do every single morning. I’m a pilot, so I work on checklists. I check off everything that I’m supposed to do every morning. I get out there. I’m always reading. I’m always trying to better myself. I manage my time incredibly well. I have my focus planner where I keep my goals and I see them every single day. I’ve never been more focused on my life on achieving my objectives and living a great life. I take the time to grow myself personally, spiritually and physically. As you get older, you’ve got to work harder at it and stay in shape. I feel I’m successful in doing this because I’m focused. I love what I do and I want to keep growing it. I don’t want to lose this.
I’ve been in situations where I’ve lost it all. I’ve lost it all twice. I’ve got a great business and I don’t want to lose it. I want to build it up nicely for my kids so that they can go to the Harry Potter thing whenever they want to. My goal in setting up the MultiFamily Investing Academy and the Owner Forum was I wanted to live a life like my father’s. My father was a successful insurance agent. He works seven days a week. I said, “Dad, why don’t you take a day off?” He goes, “Why? Every day is like the other. I love what I do.” I don’t want to work seven days a week, but the guy loved what he did. It was never work for him. That’s the way I feel. Every morning I wake up, I grab my phone like, “Who contacted me? Who do I have to reach out to today? What do I get to do today?” I’m blessed. I’m fortunate in my life. I also know that it could all disappear tomorrow. That’s life. You’ve got to realize we’re all working towards the same goal, death.
Do not take it for granted. Keep driving ahead and all the people you can help. You mentioned the focus planner. People might be curious which one you use. Where did you get it?
Years ago, I went to Michael Hyatt’s BYE, Best Year Ever. I drank the Kool-Aid a little bit, but I’ve got to tell you, I did what he told me to do and I had my best year ever. It built off of that. He came out with his Best Year Ever planner. My girls and my wife are doing the Rachel Hollis thing. Everybody is on to Rachel Hollis. This works for me. It’s amazing how much I can accomplish and stay focused using this. It’s the right system for me. Folks, if you don’t have a system, figure out why. Figure out what’s going to work for you. It’s all about remaining focused.
I don’t know about you, Brett, but back when I was right out of college, all of these guys would come with their goal planners or what have you. I remember one time cleaning up my office and pulling out these goal books. Looking at all these amazing goals I put down, none of them have been accomplished. I thought, “I don’t want to be that guy. There’s a reason why I put these down as goals. What can I do to make this work?” It’s entirely you, nobody else. You’ve got to be focused on this and that’s what I’m doing every day, morning and evening.
That’s Full Focus Planner. That’s Michael Hyatt. Look him up and you’ll find him. Charlie, any last words for the audience?
I’m glad that we’re finally able to make it work. This has been a lot of fun. I liked you when I had you on. I have students that are still reeling from what they learned from Brett.
For everyone, in case you’re wondering, that’s our Deferred Sales Trust niche. We specialize in helping people escape feeling trapped by capital gains taxes and not having to do a 1031 exchange. Learn more at CapitalGainsTaxSolutions.com. I want to thank our readers again for reading another episode of Capital Gains Tax Solutions. As always, we believe most high net worth individuals and those who helped them struggle with clarifying their capital gains tax deferral options.
Hopefully, you learn a little bit from Charlie here on how to mitigate and build cashflow. We didn’t dive into depreciation, but that’s a great way to offset any cashflow that comes in which is tax savings. Not having a clear plan is the enemy. The best thing to do is have a proven tax deferral strategy such as the deferred sales trust or the 1031 exchange to help you grow your wealth. We look forward to connecting with you in the next episode. In the meantime, go make some great things happen.
- MultiFamily Investing Academy
- Jordan Rappaport
- Capital Gains Tax Solutions on YouTube
- Than Merrill
- Michael Hyatt
- Best Year Ever
- Best Year Ever
- Rachel Hollis
- Full Focus Planner
About Charles Dobens
Charles Dobens is the founder of The Multifamily Investing Academy and host of the Multifamily Investing podcast.
Charles has personally owned over 800 multifamily units representing over $20 million in assets and in assisting in over $1B in acquisitions on behalf of his clients.