Chris Larsen 0:00
If you look at Warren Buffett, you say, well, Warren Buffett, what type of investor is he? He’s a he’s a value add investor, right? He buys companies, and he improves these companies. And it’s all based on Benjamin Graham’s philosophy that he put together. So I read those books, I was always I always gravitated towards these lower risk endeavors. And really, I look at a multifamily property Darren, not as a not as an apartment, but I look at it like a business, because that’s how the IRS sees it. They say you’re running a business and we’re gonna give you the tax benefits like you do a business but you happen to get even better benefits because you have this real estate associated with it that has these terrific depreciation benefits. So you know, what we do in our value add model is we look to improve income revenues, we look to decrease expenses through improving our operations, which yields an increase in net operating income, and whether it’s net operating income or EBITA. A business a property is sold on a multiple of that, that number. So if you’re looking at multifamily property, and you look at a carwash it’s the exact same formula. It just takes different levers and different knobs that you have to pull.
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J Darrin Gross 1:32
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Today, my guest is Chris Larsen. Chris is the founder and principal of Next Level Income he has been investing in and managing real estate for over 20 years. While still in college. He bought his first rental at the age of 21. And from there Chris expanded into development, private lending, buying distressed debt, as well as commercial offices and ultimately syndicating commercial properties. He began syndicating deals in 2016 and has been actively involved in over 1 billion real estate acquisitions. And Chris is passionate about helping business investors become financially independent. And in just a minute, we are going to speak with Chris about why and how he invest in cash flowing businesses like car washes, in addition to real estate.
But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. You can like, share and subscribe. And as always, we encourage you to leave a comment. We’d love to hear from our listeners. Also, if you want to see how handsome Our guests are, be sure to check out our YouTube channel. You can find us on YouTube at commercial real estate pro network. And while you’re there, please subscribe. With that, I want to welcome my guest, Chris Larsen. Welcome to CRE PN Radio.
Chris Larsen 3:48
Darrin Great to be here.
J Darrin Gross 3:50
Well, I’m so looking forward to our conversation. But before we get started, if you could take just a minute and share with the listeners a little bit about your background.
Chris Larsen 4:00
Yeah, Darrin, so great intro I really appreciate that. And we’re going to talk a lot about different types of real estate and even some businesses that kind of layer into that. But I started off in college, I wanted to race my bike. So I went to school actually for engineering with a Virginia Tech. But my passion at the time was racing bicycles, specifically rode bikes. I was I was doing that I go to class every once in a while. And in between my freshman and sophomore years, my my best friend, my roommate, my training partner, Chris passed away a race for another year after that. And I realized this is this is silly. This is not the most I could be getting out of life. And there’s a lot of stuff going on in the sport at that time. And I got to train with people like Lance Armstrong, I got to race against that whole generation. So I got I got to know people that were going to Europe and I was hearing the stories firsthand. And I also I tell people, I’m lucky that I wasn’t good enough to have to make some of those hard choices that some of my friends had to make. Because I realized that even if I was using performance enhancing drugs, I wasn’t going to be a great Pro. And I sure wasn’t gonna drug myself to be a crappy professional cyclist. And the thing is, cyclists don’t make a lot of money, even if you’re good. You know, they don’t really make a lot of money. And I always had this entrepreneurial streak. So after racing for another year, I made this decision to hang my wheels up, so to speak, and I said, Okay, I’m not going to let an opportunity pass my bot pass me by, I’m going to live life to the fullest. And the thing is the reality of the world. And if you’re listening, you know this, you need money, to be able to take advantage of opportunities, whether it’s an opportunity to invest, whether it’s an opportunity to take a trip, whether it’s an opportunity to put your child in the best school, you know, all these things cost money. So between my kind of entrepreneurship, as well as this, this desire to really live life to the fullest, I looked at all these different investment options, over 250 books, actually, more than that on investing finance, real estate, I got an MBA in Portfolio Management. And along the way, I bought my first property at age 21, and built a strategy around real estate to help me achieve financial independence, financial independence in a very predictable way. And we’ve since gone from small residential properties, single family rental properties, to multifamily syndications to self storage, carwashes, hotels, mobile home parks, we have a debt fund as well, where we do basically hard money lending, private loans. So we have whole spectrum. And we brought along a lot of investors along the way with us as well.
J Darrin Gross 6:39
Wow, that’s, that’s quite the, the history there as far as the different things you’ve done. And it sounds like you’re a very goal oriented person, I can only imagine with the the bike racing, and just the dedication it took to get to the level you are at the design discipline, I’m assuming that that paid off maybe didn’t didn’t sound like at the time with your school based on the way you describe you barely went to school. But
Chris Larsen 7:05
But yeah, well, tongue in cheek there,
J Darrin Gross 7:08
ya know, I’d say the the, the, but still, I have a lot of admiration for anybody that’s really dedicated themselves to a particular, you know, thing or a passion. And, you know, and then also had to make the decision as to whether or not they could continue, but that how those those traits, the gotcha as far as they did, can transfer and help you and other aspects of life. So So I appreciate you sharing that. And I agree. So you mentioned you, you you started with a was it a single families that we started with in
Chris Larsen 7:46
Yeah, yeah, bought a single family rental. And I think I saw you have a copy of this here as well, Darrin, and I go all in. If you really want to dive into my story, you can get a free copy of my book at next level. income.com. Yeah, I talked about how I started with one single single family rental at age 21. And I just just kept going from there. Got it?
J Darrin Gross 8:07
And since then you’ve done multifamily office. And was it self storage? Of those? The?
Chris Larsen 8:16
Yeah, so multifamily and self storage are kind of the base of our investment pyramid. Yep. Okay.
J Darrin Gross 8:24
And between those, is there a preference? Or have you found them to be equally satisfying? Or, or profitable? Or?
Chris Larsen 8:33
Yeah, I think, you know, we, we guide ourselves by demographics and the fundamentals. And, you know, if you look at kind of the framework that I built out for our, our investment thesis, it’s based upon demographics. So you know, where, where’s the tide going, you know, we’re gonna have, we’re gonna have short term movements, we’re gonna have waves. You know, on any given day, or any given year, we’ve seen a lot of kind of ups and downs in the real estate market, we’ve seen interest rates rise, but the long term fundamentals still persist in multifamily. And a lot of those same fundamentals cross over very nicely with self storage. And one of the things is self storage, actually, historically has outperformed during recessionary times. So, maybe you asked me after the next recession, which one I like better, but I’m definitely if you ask, you know, at best, I always put my money where my mouth is multifamily is the absolute bulk of our investment portfolio, both from our our investment group, but that we work with investors as well as from a personal perspective.
J Darrin Gross 9:36
Got it? And did I understand you’re also you’ve developed some of your properties, is that correct?
Chris Larsen 9:43
So I, my wife is an architect, and we’ve done my wife and I have built several spec homes. We have a residential development that we’re working on right now. As far as the car washes are concerned that, you know, imagine we may dive into in a little bit. We’re building we’re building some of our own locations on that Park. and even some of our self storage facilities have expansion opportunities. But for the for the multifamily for the Self Storage Unit for the car washes, we’re basically running with value add model, we’re buying, you know, established stabilized properties development as a minority in our portfolio.
J Darrin Gross 10:17
Okay, I just wanted to make sure I know that they at least looks a little bit on your portfolio there. And I thought, wow, that’s the slowest properties are significantly large, more than a couple 100 units, and the development of that quite the task there. So I was just curious on that. Alright, so in you mentioned, you have been syndicating how many? Since I guess 2006 16? How many deals? Have you gone? full cycle with?
Chris Larsen 10:51
Full cycle? Oh, geez, I have to go and check here. At least a half a dozen, I’d say five to 10. Private attend total fullcycle deals at this point.
J Darrin Gross 11:02
That’s impressive resume and definitely you’ve, you’ve managed to get in and get out and make your investors happy. That’s that’s all good. So let’s talk about how you transitioned from or saw the opportunity tunity to start investing in, in cash flowing businesses, in addition to real estate. So what what is the or what’s How did you how did you go from a real estate guy to now I’m, I’m investing in operating businesses? Yeah, I
Chris Larsen 11:38
think that’s a great question. And you know, one of the questions I get a lot, Darren, as people say, Well, hey, Chris, how did you make the transition to real estate because I spent 18 years in the medical device industry as well. And when I was in college, I was racing my bike. So I’ve always had kind of, I’ve always been doing typically multiple things. So my life always had kind of these these dual areas that I was operating in, you know, whether it was academics, and sports, or whether it was a career in sports, I ran a developmental cycling team, or whether it is my medical device, business and real estate, I’ve just always had a couple of different things going at one time. So it’s always been natural for me to have, you know, kind of overlapping businesses or multiple endeavors to keep me, I don’t know if maybe, maybe I get bored, easy. I’m not sure what it is. But I think the first thing is, I see myself as an investor. So I started off as an investor, I put together my my strategy, and then I needed to fuel that strategy, specifically with capital. So you know, for somebody that doesn’t come from money whose parents made, oh, geez, they didn’t make six figures combined. Why lived with my parents, and I don’t know if they ever made six figures combined. Except maybe in the very later years of their careers before my, my parents retired. But I needed, I needed a way to buy more real estate. So I said, Hey, what’s a career that I can go out, and that is going to be stable, so I can have stable income coming in, that I can put into a reliable, predictable strategy? Because I think first off society, in my opinion, does young people a disservice by saying, take risk early in your career? I think that’s backwards. I think you want to take risk away early, have a predictable path to success. And then specifically, if you’re financially independent, if you don’t need to work anymore, and you’re 3035 40 years old, well, how much risk can you now take, you can take infinite risk, as long as you don’t, don’t damage, you know, the kind of that that principle and that initial equity that you built. So that was my strategy, I reversed what society told me so I’m kind of a contrarian with respect to that. And then if you read my book, you may say, Well, Chris, this is all about multifamily real estate. But if you look at Warren Buffett, he said, Well, Warren Buffett, what type of investor is he? He’s a he’s a value add investor, right? He buys companies, and he improves these companies. And it’s all based on Benjamin Graham’s philosophy that he put together. So I read those books, I was always I always gravitated towards these lower risk endeavors. And really, I look at a multifamily property Darren, not as a not as an apartment, but I look at it like a business because that’s how the IRS sees it. They say you’re running a business and we’re gonna give you the tax benefits like you do a business but you happen to get even better benefits because you have this real estate associated with it that has these terrific depreciation benefits. So you know, what we do in our value add model is we look to improve income revenues, we look to decrease expenses through improving our operations, which yields an increase in net operating income, and whether its net operating income or EBITA. A business a property is sold on a multiple of that, that number. So if you’re looking at multifamily property and you Looking at a carwash, it’s the exact same formula. It just takes different levers and different knobs that you have to pull. So if you look at multifamily and self storage compared to, let’s say a carwash, or assisted living, or even short term rentals, which we have two short term rentals here in Nashville. To me, those are real estate plays, but they’re on what I would call operating real estate. So you have this operating component of that business on top of them. But they’re still simple businesses. You know, there’s this complex if you deal with the people, but it’s not as complex I can tell you is being an O R. And working with surgeons as I did for nearly two decades of my life. That’s a that’s a very complex, very high stakes environment. So I like simple businesses. I looked at car washes for the first time, nearly 10 years ago, with my uncle, we almost bought one, I decided that, you know, I was I still had my medical device business at the time, and we were focused on apartments. So we passed on that opportunity. But a couple years ago, talking with my partner, and the opportunity in carwashes, something had changed. And what had changed was that private equity was now interested in these businesses, because what we’ve seen here and you know, we’ve kind of alluded to it or discussed it, at the beginning or before the show, is that everybody’s searching for yield, because as interest rates have climbed and cap rates have lowered, that spread has shrunk and shrunk and shrunk where there might not be cashflow where there was cash flow before. And investors, private equity groups are saying Well, where can we now get yield. And some of these operating real estate plays are close to real estate, if not have a large component of real estate. They’re simple. They’re scalable, which I talked about in my book. And when you scale them, you increase the multiple that you can sell versus what you acquire at and we’re seeing 50 to 100% increases in the premium that we get from purchase to sale when we package those assets.
J Darrin Gross 17:02
Now, I love the kind of the path and appreciate you kind of walking us through that. So let me ask you, I get that the numbers, you know, operating income and, you know, whatever the multiple port for a particular industry would avail itself as far as value and in the desire to increase revenues and decrease expenses to increase that spread. I’m curious, have you found that there’s any expertise beyond that, that you’ve you’ve needed or you’ve had to find others to provide for you or or how hands on the actual operations of a company? Are you are you the CEO of those companies and you do all the hiring or are you more of an investor in a business?
Chris Larsen 17:54
Great question. So let’s let’s speak specifically about the carwash business. So I personally own a carwash here locally in Asheville with just one partner. So we have a it’s called an automatic inveigh. If you look at the car wash business, you have a few different kind of models. So take away like the the detail portion, right? That’s not really you know, that’s that’s kind of a separate section because you know, people aren’t washing their car, you’re having some I detail it typically every single week, which is typically going to be one to $300. So talking about like self service where you go and maybe you have a coin operated machine and you wash your car yourself. You have in Bay automatic, which it’s really like a big robot, you pull into a bay net robot washes, your car typically goes around your car, ours is touchless. And then you have what are called Express tunnels. And he’s expressed tunnels, it’s basically a large tunnel. Shaka Express tunnel, right? It’s a large tunnel with a conveyor belt and and that conveyor belt pulls your car through the tunnel, and it washes kind of dirt. With these little stations inside the tunnel, it typically only takes three to five minutes to wash your car. So when we did our research, the carwash I have here locally, it doesn’t have any employees on a day to day basis, it’s automatic, we get the robots in there that are washing cars, self service, you don’t really need a lot employees there because people are washing their own cars. But the Express tunnel model is it’s it’s pretty simple and that you don’t need a ton of employees. But you typically need about a half a dozen employees. And yes, that is the crux Darren of that, that model. So what we’ve found is if you want to go do this yourself and scale this model, there’s a couple of ways you can do it. One, you’re a large operator, and you already have a team built out and you just build new locations, to you work with an operator that franchises their model, and they kind of give you the blueprint to do that. And that’s it. That’s a quickly scalable model. But you give up a lot on the back end when you scale in that manner. Or you build your own operating team, which is the path that we chose, and there was a lot to learn. So we brought in consultants, we brought in our head of operations that used to run a medical production facility. So if you think about car washes, there’s really three components to being successful in the carwash business one having having efficiently run machines to optimizing chemicals. So you want to optimize, you know, the concentration of the chemicals, even the spray angle of the chemicals, and the speed at which you apply those chemicals, and three people. So you want to make sure that you have an individual and somebody that runs and their entire medical production facility has those types of expertise. So it’s not it’s not as complicated. But it still isn’t, is a necessity to understand all those things. However, what we found, even though getting the best advice, as we built out these teams and buying locations where we already had employees in place, now having over 100 employees on the operating side of this business, which I that’s not that’s not my primary focus is you heard me say we have somebody that runs that I know where I’m good. And I’d rather hire somebody that’s better than me at those things. I always joke that, you know, I’d work I wasn’t smart enough to be an engineer, so I had to go and so, so the components that these engineers developed and the surgeons used, but what we found is the industry, it’s simple, and a lot of the technology hasn’t caught up to where it could be so CRMs customer resource management tools are not are not optimized. If if a patient’s credit card is declined, their membership might be canceled. Simple things like figuring out if you bill on a Saturday instead of a Friday can enhance your your the retainment of memberships. Operating more like Chick fil A, where we have well dressed staffed that are paid more than the industry average that are taught how to sell and be polite to our customers or clients in the carwash can rapidly increase memberships. I was just looking at our quarter over quarter numbers. Our memberships are up 75%. And what does that from? It’s from basic sales paying our staff well. And what we do is we add one more employee per location that employee can focus on selling. This isn’t a complicated sell there. If you’re washing your car a couple times a month and paying 50 bucks and we offer you a membership for $30. Well, why would you not take that if you can wash your car twice as much and pay about half as much that’s a good deal for you and helps us out because we have this consistent revenue that private equity groups really like on the back end? Because we can we can show them that monthly recurring revenue, which is very is obviously very popular when it comes to a stable investment opportunity.
J Darrin Gross 22:42
Yeah, I was gonna ask you about the highs and lows. I am kind of curious on you know, I think of a carwash and obviously, the first get dirty need to be washed. We’re where you’re located. Is there any seasonality to it?
Chris Larsen 22:57
Yes, good question. It’s interesting. I just had an investor email me this morning and her inquiry was a Why would you buy a carwash in Florida instead of a wash somewhere like Colorado where you’re gonna have more storms and more need to wash a car. What’s interesting is, if it’s bad weather, people don’t wash their cars in bad weather. They wash you wash your car when it’s nice out after the bad weather. So there’s there’s absolutely seasonality people wash their car less in the winter. And they wash their car more specifically during like spring summer when there’s a lot of pollen out right. So there’s a lot of pollen, people might wash their car twice a week, when there’s a lot of pollen. And that, you know, you want to wash your car when when it’s nice out because you can kind of see and tell that it’s nice. So we see seasonality, but we also see geographic seasonality. So our car washes are located everywhere from Maryland, all the way down to Florida on the Eastern Seaboard. And you know, we’re looking at locations significantly further west as we underwrite opportunities for our portfolio. But that’s another thing that you can say, hey, we’re gonna hit a peak, say the first week of April, in Columbia, South Carolina. But in Baltimore, Maryland, that may that peak may come a month later than it does in Columbia, South Carolina. So you have to be able to adjust and have systems that adjust for for those those peaks and troughs. And maybe you also adjust your your selling techniques, right. Again, this isn’t complex, but maybe you maybe that’s when you add your additional staff is during those peak times and do that. And the big threat to this area is is really saturation. So it’s going to be about 15 years before this market is built out. But it’s all local. So we want to make sure that we’re focusing on you know, well placed locations or well placed acquisitions. When we purchase those with traffic flow. It’s a little less sensitive than when you’re buying say a multifamily property where you want somebody to have an average income of $80,000 somebody an area with an average income of 40 years. $80,000 can do very, very well, in this space, you just don’t want to be right across the street from another wash necessarily.
J Darrin Gross 25:09
Right, right. So you transition into the carwash and if I understood right is the the kind of the value add plan is that essentially what what is the plan with the carwash is are you looking for an exit the future exit eventually?
Chris Larsen 25:30
Yeah, so if you look at it just an individual carwash by itself, if you buy a carwash and you run it, well, the margins are about 50% Really nice margins in the carwash space, investors can see double digit cash flow, which is which is really nice if you look at that compared to multifamily or self storage properties. But here’s, here’s the one variable that can be very appealing. So we’re buying at a seven or 8x, multiple from small mom and pops. And this is this is the opportunity Darren. So if 85% of multifamily properties are owned by institutions. It’s inversely proportional to the carwash base where only about 15% of these Express tunnel carwash locations are owned by large institutions or large operators. So that means 85% are owned by operators with four locations or less. So 1234 locations, we can buy at a seven or 8x, multiple EBITA from those operators, package them into a portfolio of 50 100 200 locations, we can sell somewhere between a 12x and a 20x, multiple of EBITA. So again, you’re seeing a 50 to 100% increase in the Exit Multiple. So if we just buy these, these carwashes implement our branding, or national contracts, our sales strategy, our proprietary software systems that we’re we have done we can do very well. But if you pair that with the opportunity to exit on the backside, with those multiples, then you have some really, really exciting returns on the backside as well.
J Darrin Gross 27:09
Yeah, that sounds exciting to go from, you know, seven, eight to 15 at 20. That’s, that’s a that’s a big jump. On the the timeframe, do you have any kind of timeframe that you would expect to accomplish the the packaging of and annexes are like a seven to 10 years? Or how do you look at the the energy?
Chris Larsen 27:35
Great question. Great question. So if if you heard me before, I mentioned that there’s about a 15 year period where we’re going to basically be built out in this space. So if you look at that, and you say, alright, if we’re selling a portfolio, a savvy buyer is going to want to run that portfolio for multiple years to take advantage of it. So let’s say they want to run it for five to 10 years, okay, we want to acquire, package and sell our portfolio in the next three ish years. So three to five years. So we’ve been doing we’ve you know, so let’s say we’re, let’s say five years was our initial timeline, we have about three years left. So in the next three years, we’d like to exit a portfolio of 150 or more locations.
J Darrin Gross 28:18
That’s awesome. And as far as the the I think it’s from trying to decide on the the value of a carwash, I’m assuming is directly proportionate to the, to the volume of sales. So it’s not a matter of doors, is it? Is that based on a traffic counter, or when you’re underwriting and looking for the value of the opportunity to increase the value is traffic count kind of the the primary indicator of the opportunity?
Chris Larsen 28:51
Yes. So if you look at if you look at a multifamily property, you’re going to want to know what are the what are the in migration demographics, you’re going to want to know what is the employment in the area? What is the employment diversity in the area, you’re gonna want to know the area median income, you’re wanting to all these things for multifamily property. For a carwash, the metrics are going to be exactly what you said, Darren, you’re going to want to see the traffic count. But you’re also going to what’s interesting is you also want to see the traffic speed. So let’s say you have somewhere where 100,000 vehicles passed by every day, but you can look on like the software we use and see that the average speed is 55 miles an hour. Well, maybe that carwash is right next to an interstate, that’s probably not a great location. But let’s say the average speed is 30 miles an hour. It’s in an intersection and it gets a traffic count of 40 or 50,000 50,000 cars a day. That’s a terrific location, area median income. Let’s say it’s 40 50,000 plus that’s that’s very reasonable for somebody that’s going to pay 20 or $30 for a monthly membership. So and then you also want to look at the salary raishin. So again, as I mentioned before, you want to see are there other washes within, you know, a mile of that area five miles in that area. So most people will probably understand intuitively after I say it, the number one reason of if somebody goes to a specific wash or not is proximity to their residence or location at work. So we want to make sure that, you know, we look at that we look at that area median income, the proximity to households, the traffic counts, make sure that those all meet our metrics, and then is the location that we’re looking at is it is it already is going to be cannibalized by other locations? Yes or no. And then, you know, if it checks all those boxes, the value of that wash is going to be directly proportional to the EBITA of that property to the profitability of that property property. And that’s, it’s pretty simple math, because we can just plug in what we know, to be our system that works, you know, and it’s predictable after we take over locations. And we can determine, you know, if those numbers are going to work for us and our investors.
J Darrin Gross 31:05
With respect to like multifamily, I mean, historically, no, I mean, you could just ballpark 50% is just a starting point. You know, and hopefully you’re able to, you know, lower lower expense, increase your your revenue, and maybe get that, you know, raise the NOI and lower the expense percentage. In comparison, how would you Is there a ballpark starting point, when you’re looking at a carwash what you would expect for, you know, an expense ratio, compared to income.
Chris Larsen 31:40
That’s actually not a bad number than one you just threw out there. 50%. But really, our metrics are driven by that membership growth. So that’s where we’ve really found we can definitely make improvements on operating margins because of our national contracts. But if you take into account like why would we add a six employee per location versus the industry, you know, or as an employee versus the industry average of five or six? Well, the answer is, we’re going to realize a significant value increase by increasing those memberships. And that’s where, you know, some of these smaller operators, they say, hey, $1 saved is $1 made. Whereas, you know, we say, well, if we can spend $1, and create $10, that’s going to be a little bit more like, you know, the way a value add multifamily investor thinks, where they say, I’m going to spend $10,000, to renovate this unit, but I’m going to create $50,000 in value from the NOI increase on the back end. So, you know, even if we kept the margins similar, if we’re if we’re increasing that revenue, you know, 50 plus percent, we’re gonna have a massive increase in value.
J Darrin Gross 32:49
For your carwash, business, are you are you doing like syndication? Or do you have a fund? Are you doing this individually? Or how are you gone about erasing the capital? Or were Tell me a little bit about that, that side of the of your business?
Chris Larsen 33:07
Sure. Yeah. So we’re at two dozen locations currently. And we’re, we’re underwriting on a on a month to month basis 1020 Or 30 locations on a monthly basis. So we always have deals coming in on the carwash side significantly more than the multifamily side. And what we’ve been doing to bring investors in, we have really their funds, but their small portfolio, so typically, anywhere from, say, two to five locations. So investors get to pay and diversify, but they also get the benefit as we roll those locations up into the overall portfolio. So typically, an investor like the fund, we’re actually closing on three more locations here on Friday of this week, because we’re recording this. And that fund has four locations, and they’re spread out between Florida and Tennessee.
J Darrin Gross 33:58
And it’s a little bit of a diversification as far as the exactly the weather, you will want to go out and don’t have everybody in the same dark snowy town that you can’t get any carwash. Sounds good. So, yeah. So if you were going to give some advice to one of the listeners that’s, you know, liking what they’re hearing, what would be the first thing you or what would you encourage them to, you know, to do to get started or how would they, how would they go about? You know, how they best go about getting started in like carwash?
Chris Larsen 34:36
Yeah, so I think first off, if you’re an investor, you need to come up with your own personal strategy that makes sense for you. So as you can imagine, Darren, I have investors call me and they say, Chris, I’m looking at this multifamily deal the Self Storage journalist Carl to which one should I invest in? And that’s not that’s not my job to provide an investor with that answer. Investor. If you’re listening, you need to come up with your own personal strategy and say Hey, does this fit into what I want my portfolio to look like? If the answer is yes, and again, whether it’s any of those different opportunities that I just mentioned out there, one you to understand, does the strategy makes sense to you? Maybe you want to get into development. I know investors, they say, I want returns that are twice what you’re doing, Chris? And they say, well, we don’t have deals like that, can you send me one, and they send me a development deal. So a development deal with no cash flow for two or three years, is going to look significantly different from a deal that has like our recent Self Storage portfolio that we acquired it 52% loan to value and cash flow from day one, like that’s a different deal. So you need to decide what you’re going to invest them be, say car washes makes sense, you need to understand that a carwash investment is is more of a business than real estate. And if you if you invest in something like car washes, or senior housing, or short term rentals, make sure that you understand the operations and your operator and your operating partner that you’re investing with can explain that to you. And you understand how are they going to be better than, than what’s already out there. So we walked through a lot of that today, right? So those are really important questions to ask. Also make sure you understand the structure of the investment. So are you investing I’ve seen carwash investments out there, they’re their debt offerings, so investors are investing in a carwash, but they’re just getting paid a percentage on their money. So there’s not any upside, I think we’re fairly unique in the fact Aaron, that we allow investors to participate, like they wouldn’t a multifamily property where they get the cash flow from the deal. And they get some of that upside, which, again, if you’re looking at it, increasing your Exit Multiple, you know, 100% over what you went in at, those are exciting returns, you know, out the other side. So, you know, as an investor, if I’m investing in a business like this, you know, I’m Will I’m taking potentially a little bit more risk, there’s more variables, I want that upside. Whereas if I’m investing in a multifamily property, you know, that’s a institutional, you know, core asset that things like, you know, life insurance companies invest in pensions invest in, that’s going to look a little bit different. And that’s my last thing, if you’re an investor, don’t let the tail wag the dog. Don’t look at the returns first look at them last, you know, make sure you understand the strategy that fits into your personal portfolio, make sure you understand who you’re investing with who the operator is, and then then look at the returns. And you can get excited at that point. But if you just look at the returns and say, Oh, the carwash returns that the Chris is talking about are better than the multifamily returns, probably, but don’t, don’t let that tail wag that dog.
J Darrin Gross 37:45
That’s, that’s really good advice. Hey, Chris, if we could, I’d like to shift gears here for a second. Sure. By day, I’m an insurance broker. And as such, I work with my clients to assess risk and determine what to do with the risk. And there’s three strategies we typically consider, we first look to see if there’s a way we can avoid the risk. And when that’s not an option, we look to see if there’s a way we can minimize the risk. And if we cannot avoid or minimize the risk, and we look to see if we can transfer the risk. And that’s what an insurance policy is. It’s a risk transfer vehicle. And as such, I like to ask my guests, if they can look at their own situation. It could be your clients, your investors, the political environment, interest rates, however you would like to identify and describe what you consider to be the biggest risk that you face. And again, for clarification, while I’m an insurance broker, I’m not necessarily looking for an insurance related answer. So if you’re willing, I like to ask you, Chris Larsen, what is the Biggest Risk?
Chris Larsen 38:59
Yeah, so I think everybody’s talking right now out there, and about interest rates and cash flows. And you can mitigate those, you can lock in interest rates, you can set money, you can increase your reserves that you have out there. And those those are all good things. For sure. But I think the biggest risks that that we face, and we kind of talked about this in an indirect manner. It’s people, it’s people, you know, do you have the right people on the team? If you’re an investor? Are you investing with the right people? Are you investing with somebody who’s just a sole operator without partners? What if something happens to them? Obviously, I’m acutely aware of that I lost my father at age five, I lost my best friend in college at the age of 18. So I know that, you know that there’s, there’s things you need to put into play. So things like life insurance, estate planning, are probably more apparent to me when it comes to that. But if you’re if you’re an investor, I would ask that question. I would say, hey, you know, Chris, how Are you addressing this issue? How was the team built out? So if something happens to that fantastic operator that you have that came from the medical production facility, you know, how’s the team structure, something happens to him? You know, where’s the point of failure when it comes to that? What we do we put systems in place. So I really, I really like kind of the methodology of optimizing the solution, and then automating that solution and ultimately outsourcing that solution. So again, that’s optimized, automate, and outsource. And if you do that, that doesn’t mean you release control of it. But after I opt, optimize or iterate, you know, engineers, they iterate right, you iterate, you get better, you get better. And then you figure out how do you how do you automate that and oftentimes with automation, it’s it’s bringing on technologies that may be better than people. So we have we have certain technologies that we use, like our, our customer, our CRM system, where it automates responses, and it’s able to check logs, and then it’s able to say, Okay, did did, did we check this box for Darren yes or no, and then maybe it moves it to an individual so that, you know, a human can address that situation. And then finally, that outsource piece, if you can, if you can automate something, and then outsource it, that means that, you know, if, if something happens to me, then my partner or one of our employees can address that situation. And I think that’s, that’s really important, because it handles two situations, one, immediate downside risks there. But it also reduces your upside risk. And what I mean by that is, as you scale, quality can go down. So how can you scale a business, but increase the quality and increase the benefits that you get from scaling? And I think that is really, you know, talking about the risk, but also talking about how you can use that as a competitive advantage as well.
J Darrin Gross 41:49
Now, let’s that’s that’s awesome insight. I appreciate you sharing that. Hey, Chris, where can listeners go if they’d like to learn more connect with you?
Chris Larsen 41:58
Yeah, mentioned earlier, if you want a free copy of our book, Next Level Income, go to our website next level income.com. Not only can you find the book there and get a free copy by putting your address in, but you can also find our blog, you can find our podcast. And if you did hear what I said today, and you’re interested in learning more about of our investments, click on the InVEST link, and you can schedule a call with our team and learn more about what we have going on.
J Darrin Gross 42:20
Awesome. Chris Larson can’t say thanks enough for taking the time today. I’ve enjoyed our talk, learned a lot. And I look forward to doing it again soon.
Chris Larsen 42:31
Darrin, it’s been my pleasure. Thank you.
J Darrin Gross 42:33
All right. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Till next time. Thanks for listening to commercial real estate pro networks. CRE PN Radio.
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