Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host, Charles Carillo. Today, we have Christopher Lento. He has over 20 years of experience in multifamily ownership, management, and investing. Chris’S background is in Mechanical Engineering from Carnegie Mellon, and he has also received professional development training at Boston University and MIT. His firm, EM Capital, focuses on acquiring and repositioning multifamily assets throughout the Southeast United States. Christopher, thank you so much for coming on Today.
Christopher:
Yeah, thanks for having me. I’m looking forward to a, a good conversation. Yeah,
Charles:
It’s gonna be great. Give us a little background on yourself both personally, professionally, prior to getting involved in investing real estate and primarily multifamily. Yeah, sure.
Christopher:
So as you mentioned I graduated with a mechanical engineering degree and started working for an aerospace company right outta college. And almost right away I started investing in small apartment complexes in the Boston area. So, you know, shortly after I moved into my first rental, I was kind of interested in like, who I was renting from and why my rent was so high and how do you get into this business. And and then I bought a three family in a kind of a kind of lower income neighborhood, not far from where I lived in the Boston area. And then that’s where I started my kind of real estate career. In parallel, I worked in the defense industry for 17 years and grew my portfolio kind of as I worked very, you know, not, not passively man, I bought properties and I managed them. But it was not a main focus. It was sort of like a side activity. And then in 2017 I had my first kid and it sort of triggered me on what kind of life I wanted to have. And, you know, my career was growing rapidly and I was doing a lot of traveling, and I decided, and it had been in the back of my mind for quite a while, how to trans transition over to this full-time. So, so that was what I made it made the switch. What
Charles:
Was your first property? What town? What town was that? I’m, I’m originally from new England, Connecticut area. What was, what was your first property? Where was it located?
Christopher:
It was a three family with an illegal in-law apartment in the basement in East Boston, which is where the airport is.
Charles:
Okay, I gotcha. All right. Yeah, no, that’s that’s interesting. Yeah, it’s, it’s interesting to hear about low income areas of Boston because of everything, of all the years of going there and being there and having friends that live there and how everything has just gotten extremely expensive, you know what I mean? Yeah.
Christopher:
Low income is probably not the best way to say it. At the time, in the early two thousands, it was a bit of a rougher neighborhood. It’s certainly changed dramatically since
Charles:
That. Yeah. It’s funny because my father-in-law is, he lived for like in like the sixties or early seventies or something in West Roxbury. And then I had a friend that lived there like 30, 40 years later and I was like, is this the same this? He’s like, I going to get the bagels or something. The car got stolen right?
Christopher:
West Roxbury really nice now. Yeah,
Charles:
<Laugh> and I live with a buddy. He lived in like a dumpster kind of three family, and they’re like, oh, they’re selling this thing for like a million bucks after I moved out or something. And <laugh>,
Christopher:
Well, there’s just not a lot of supply in Boston, so the rents are very high, even in like not great areas, the rents
Charles:
Are high. And then getting in the Southie, people used to say, that’s it. And then I, I’d go down there and it’s like it was, it’s like they’re Brooklyn, you know what I mean? All these, it’s like the hip, the hipsters going down there. I see people that are at the Cape Shoreline that we before that are now living in South and you’re like, okay, this is completely, completely different from like Murphy’s Law from 20 years ago. You know what I mean? Yeah.
Christopher:
Murphy’s law is still there, though. I think it might be coming down, but it’s still there.
Charles:
No, but that’s like your quintessential southie establishment, I would say. But anyway as I digress, but so when you did that first property that you were working on, that first three family, which is, I started in three families as well in, in central Connecticut. So it’s obviously something that is a lot of supply and easy way of dipping your toe into the water of investing, you know what I mean? What did you, what did you really learn from that, that that investment?
Christopher:
I learned a lot of things. I sort of learned, you know, what it’s like, so, ’cause I did everything right. I, I funded the deal, I bought it, I managed it myself. So I, I started learning about like what dealing with renters is like, you know, what kind of excuses you get, what kind of relationships are positive, what are negative what I was always relatively handy, so just what sort of repairs and maintenance you have to do and, and what that costs and, you know, interfacing with vendors and, and so I think I learned a lot of things that, that were valuable and were sort of grunt work at the time, but now that I have a much bigger portfolio, I think those are valuable because I can just, I can call on that experience and I just know, you know, how things work and what, what it would take to replace it and what rough costs are. I mean, I, you know, there’s been inflation, but when someone’s like, oh yeah, it was $3,500 to replace the water heater. Like, that doesn’t make any sense to me. <Laugh>,
Charles:
Even in Boston. Yeah,
Christopher:
Right. Like, what’s going on? You know? And then, yeah, and then the tendon experience just interfacing with, with the residents and, and understanding, you know, the value of keeping someone in place versus raising rents to the max and, you know, turnover and just kind of all the, all the nuts and bolts of property management and asset management kind of rolled together.
Charles:
That’s true. You’ve got, that’s right. You have like the tenant management, which is like a whole different thing. When I did it and I was house hacking you, it’s, you have the tenant management portion of it, and then also on it you have that property management, like actually, like the physical property management of like repairing stuff and dealing with contractors and all that kind of, or all the fun that goes in with that. But yeah, you, you do learn a lot and I, I started like in C class, which it sounds like how you start it, and it was just one of those things where it’s like, yep, it’s a, it’s a different way of working with tenants. You’re just not getting like a straight check right on the first, you know what I mean? It’s, it’s a different experience of working with people, but it’s priceless, I feel. I mean, from those first two properties, I self-managed some properties for like the first six years or something. And it was like, it was priceless. I mean, the amount of knowledge you learned about information about contracting, dealing with tenants, everything like that. And it helps you being just a better active investor, but also a better passive investor. Because when you hear people that have never self-managed properties, it always makes me like a little nervous because I think that’s like the nuts and bolts of real estate investing.
Christopher:
I mean, I think there’s a balance, right, of, of getting the experts to do the stuff that they’re expert at. But I also think there’s a value in understanding at a certain level what those things are. Right? Like, I’m not a fan of just handing a contract to my lawyer. I’m being like, just do this. Like, I read it, I, I get the gist, I sort of know what I think about it, and then I rely on their expertise. And I think property management’s similar, right? That just saying like, oh, you handle all of this, I don’t need to know about it. I’ll just look at the, the financial statement at the end of the month. I think there’s a risk to that, right? You’re putting a lot of trust without understanding it. I think I also learned to deal with, with people that are not necessarily honest, right?
Christopher:
Like in, in the engineering world, all your stuff has to work. At the end of the day, there’s gonna be a test, there’s gonna be a, a launch, whatever your, whatever it is. So you tend to get a lot of literal people who are very direct and honest. And then you know, I had some terrible tenants, <laugh> my first couple years that, you know, were paying me like 40 bucks a day, like from their waitering tips. And I was like, how did I get into this? Like, how do, how do I get out of this? How do I believe them? You know, really convincing stories about why they’re where they are. It was just a whole new way to interface that I had to learn. Yeah,
Charles:
The stories, when the stories start, that’s when you know, you’re, you’re in trouble. Yep. Yeah.
Christopher:
And they’re good. They’re convincing <laugh>, especially face to face, you know?
Charles:
Yeah. They’ve been doing ’em. That’s, you know, you’re like, ah, maybe I should have checked those references. No, but I, that’s, that’s one of the things that I’ve never called the reference in my life. I don’t think I ever will. I just, I feel like that’s an easy way of just defrauding the whole system, you know what I mean? I just, it’s like you can’t have put someone’s name on here and just call it, I don’t know, but whole different thing. I digress. But anyway, the the whole thing is about you know, you went full-time, you know, I think you said, did you say 2017 you went full-time through real estate?
Christopher:
2017 was like where the, you know, I was in the transition, but 2018 was when I, I I quit my job and went
Charles:
Full-Time. What were some of those challenges you had to overcome? I mean, that’s a big thing. You had a child, you you know, you people were relying on you and you’re making that transition from job W2 to real estate full-time. I mean, what were the challenges you had to overcome, you know, with yourself, with your business and like, I mean, obviously with people that were relying on you?
Christopher:
Yeah, no, certainly it felt like a big risk, but at the same time there was a very solid backup plan, right? Like, I had a good reputation in my industry. I didn’t burn any bridges. People were quite shocked that I was leaving. Like, it wasn’t like I was going to a competitor, you know, I had like, oh, would would a raise help or what? I’m like, I’m looking for something different, you know? So I could always have gone back. I, I still probably could. So it was a risk, but it had really only like an ego downside, right? Like, if I had to go back after a year, it would’ve, it would’ve hurt personally, but it, it wouldn’t have been the end of the world. So that was one kind of realizing that, ’cause it felt like I was jumping off a bridge, but in reality I wasn’t.
Christopher:
And then, you know, I had some investments in multiple cash flow properties, and I had some a fair amount of assets, and I gave myself sort of a runway, like, this is what has to happen in, in a year for me to feel comfortable that this is gonna work. And, and, and, and really just wrapping my head around that there wasn’t gonna be a check coming in every two weeks, and that it was gonna be lumpy and it was gonna take a while to, to pan out. And just kind of having confidence in myself, keep educating myself. I joined a coaching program almost right away to keep some kind of structure in my day. I mean, I still, you know, got up, took a shower, went to work at, you know, eight 30 in the morning. I, I kind of treat it like a, like a nine to five job just because I was so used to that. And that helped a lot. But it was a mental transition, certainly.
Charles:
Yeah. yeah, I would imagine so. I imagine that was a big one, but, so let’s, let’s kind of like, it turns out right now to what you’re doing. Like what is your current investment strategy and criteria for investing at EM capital? What are you guys looking at and like, kind of the markets you guys are focusing on? So
Christopher:
We almost exclusively focus on the southeast, so North Carolina, down to northern Florida and the major markets. So we want to be in a 200,000 plus person population center. So those are the Raleighs, the Charlottes, Atlanta. We have a couple properties in Columbia, South Carolina. And, and the reason for that is that’s where a lot of population’s growing. So, you know, a lot of people are moving from the northeast, from the Midwest down to the southeast. You know, they’re also moving to Texas. They’re also moving to Arizona. I’m in Boston. I think there’s enough population density east of the Mississippi, keeps it in my time zone. I can get down to all my properties and back in a day if I have to. And I think there’s a value in focusing, right? Like anybody who tells you they’re looking at every market, in my opinion, is not looking at any market because how, how do you know those markets?
Christopher:
How much time are you wasting learning a new market every single time you have to underwrite something? So, you know, we’re really just focused on, on right now, Atlanta, Charlotte, Raleigh, and Columbia. You know, we feel we know those markets. We have relationships in those markets and the population’s growing significantly, which, which can really solve a lot of problems. I mean, I think you can find a good deal in any market, but when the population’s growing, it’s sort of like the tide’s coming in and, you know, oversupply gets absorbed. So that, that’s really where we like to focus. And then as far as our investment thesis, you know, we’re looking for mid eighties and newer. The trend is definitely towards newer newer properties. I mean, equity is looking for newer properties to invest in. Lenders give you a lot better terms on newer properties. But we’re, we want a value add component. We want some way where we’re, we’re improving the value of the property in a tangible way. Now that being said, good deals do come along that really are stabilized, and you can just get ’em at a good price for a various variety of reasons. And we’re open to those as well, but the focus is, is really on value add. So which is tough right now, you know, the value add market is, is changing.
Charles:
Yeah. It’s getting a lot more expensive to renovate apartments. I think it’s going like, I think two x or three x what we used to, you know what I mean, to do like a platinum unit and like C class, we sold our last C class of 2023. And like you getting into newer assets and again, 1985 is turning out to be old for us, you know what I mean? That’s like our oldest one now. But now it’s like, all right, like let’s try to get that up to the nineties because you’ve got those bone, two people listening, the bones of the properties, all this stuff that has to be done. And then we find that there was like a lot of shoddy construction in the seventies and eighties. There just was, and then you deal old lead and all this other stuff, but like, you know, galvanized piping, aluminum wiring, these different things that you just, I just don’t want any part of. And with insurance going up like insane everywhere it’s something that you don’t want to give your insurance company another reason to ding you again or just not write the policy Right. Or renew it. Right.
Christopher:
And I also find that pre like you’re saying, like mid eighties just the layouts weren’t what people want today. True.
Charles:
Yeah.
Christopher:
So like in the late eighties, you could find two bedroom, two bath apartments, so you could renovate those and make them nice, two bedroom, two bath apartments. But in the late seventies, a lot of those two bedrooms are one bath. And there’s really nothing you can do about that. You can make it as nice as you want, but when two roommates are looking for that apartment, they’re like, oh, we gotta share a bathroom like across the street, I can have my own bathroom. And that’s, that’s a big difference that, that’s hard to overcome with amenities or, you know, granite countertops.
Charles:
Yeah. That functional obsolescence, it goes from being inside the apartment with like low ceilings, like you said, weird doors, weird rooms, which was like, which was all I did when it was like older, a hundred year old three family properties. Right. You know what I mean? When they changed all these, these used to be wealthy homes and in the sixties they made in the three families, and they’re obviously just three ones, right? Or two ones, whatever they were. But it’s like parking these different things you don’t even think about with, you know, properties that you have this issue with before. Everybody’s got two cars now. Every bedroom needs to, you know what I mean? You know what I mean? Then it’s like, it’s not just one car per unit. It’s like, we need one car per bedroom, pretty much, you know what I mean? Because it’s like, of how this works.
Charles:
And those things, you just can’t change. It might not even be able to change at all. Or if you can, they’re extremely cost prohibitive. So it’s again, yeah, it’s not, doesn’t, it doesn’t pencil and that’s you then get a discount on the property, but then you’re passing that discount along when you sell it, but also you’re passing along to your tenants when you’re renting it. And at the end of the day, as my dad would say, you don’t buy, we wouldn’t buy properties without parking because you get a less, an ideal tenant, let’s just say. And that’s kind of how I learned about it too. And that’s why I kind of see, you know what I mean? If they don’t have a car and you’re all the way out here, it’s a different thing for buying in the center of the city, you know what I mean? But in most places in America, 99% of the places you need to have a car to get around in.
Christopher:
Absolutely. Yeah. That’s what’s nice about the southeast. I mean, the southeast was built around the car, right? So every, every complex has big parking lots and you know, that’s, that’s rarely an issue.
Speaker 3:
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Charles:
Tell us about Chris, how like, you, you differentiate your firm from other operators buying the same target markets. ’cause Obviously, like you said, you’re might have to as I’ve seen from different value add operators, they’re changing towards more of like a management kind of a value add type thing. Finding out where there’s mismanagement, right? Versus just putting in dollars, raising rent kind of a thing. You know, really going in there and seeing if there’s inefficiencies. How are you guys out there? Different sale from other people that are looking for the same deals or similar deals that are in your same buy box in those markets?
Christopher:
I think we really differentiate ourself on our track record of executing. You know, we’ve, we’ve pushed through some very difficult deals in very difficult times in the market and we’ve executed we haven’t bailed. We have a reputation of, you know, alright, hurdle one gets thrown up, let’s get creative, how can we get through it? Now we get another one, like, and these things happen and, and sometimes if it’s very easy to say, you know what, we’re, we’re out. We don’t wanna risk this hard money, or we don’t wanna deal with this issue. And we have a group that really looks for creative solutions and tries to work to get things closed and, and to not waste people’s time. And I think that helps. You know, when, when it’s down to a couple different groups and they’re looking to say, all right, maybe they don’t have quite the highest price, but they close this tough deal and yet this high price, we don’t know them.
Christopher:
We don’t know them, we haven’t seen them before. So I think reputation of, of execution, you know, differentiates us on the, on the seller side. And then you know, I think just execution, like my personal focus is asset management and, and operations. And, and I bring a lot of that to kind of my investors and what I talk about. And you know, there’s a lot of different aspects of multifamily investing and I think the core of it is operations and then, you know, obviously you gotta find them and you have to fi finance them, but really what’s making the money for this whole machine is, is the operation.
Charles:
Yeah. That’s for sure. Yeah. When you’re getting down to that property management, it makes or breaks a deal and it’s, it’s totally true. You know what I mean? Yeah. It’s but yeah, it’s, it’s, it’s, it’s difficult. Like you were saying to raise money these days. I was talking to a, a partner of mine a day or two ago, and he is telling me that he had two deals working with partners and they, they both fell out because they could not they couldn’t raise the money for it, you know what I mean? They had some of their partners that were coming on to help ’em raise money, fell through and they weren’t able to do it. So it’s, you know, it, it’s your broker. You have to make sure when you’re bringing this to your, your seller, to your client, hey, they can actually close on this deal.
Charles:
I mean, it’s a, it’s a super important thing to keep their face because if they can’t, you know, they suggest someone and they don’t close, I mean, they’re not gonna get the next listing from that person. Right, right. So you mentioned, I believe four markets in the southeast that you’re interested or your work guys are working in actively. How important is it for syndicators to kind of spread out into new markets? And I mean, focus on a handful of markets, however you guys do it. You know, why not just focus on one market or two markets? What have you guys found over the years?
Christopher:
Yeah, I mean, if a market’s big enough, you can probably just focus on it. You know, maybe like in Atlanta or like if you’re New York metro kind of thing. But what you end up finding is that there’s only so many properties in your buy box trading in a given market. And if that volume is, is not enough to kind of keep you underwriting and looking at deals and making transactions, you have to spread out. You know, you have to be able to look at a hundred deals to make five offers to get one, hopefully a under contract. So if there’s not a hundred deals a year in your market, well then you’re unlikely to even get one. So some of it’s just, just a numbers game. And then, like I said, too many markets, you know, you have to know the market.
Christopher:
You have to have a a and, and also establishing a network in the market. A you know, knowing the property managers, knowing the vendors, you know, we are working on our, we just got our third property in Atlanta metro area, kind of a similar region under contract. And there’s already benefits of having these, these two existing properties and then adding this third, you know, we can have a roving maintenance kind of support guy that can, that can go to all these properties. We have the same lawn company across the portfolio. There’s just a value in having that network and knowing who to reach out to when there’s an issue. So you know that that really matters. So you
Charles:
Guys are operating in four different markets. Can you tell us kind of how you’ve successfully asset managed properties of state and in multiple different states and markets?
Christopher:
Yeah, so where possible, we like to use the same property management company. So for three of our assets in the southeast, we’ve used one kind of big regional company that is very valuable because we can kind of have the same re same VPs that we deal with similar processes and procedures kind of leverage across. But then where we, you know, not, they don’t cover every market we’re in, so, you know, then we have o other property management companies that, that handle our other assets. And I would say, you know, get a good relationship with the property management company triangulate to try to find other resources in the area that you can get to, to kind of check on the property when you’re not down there. So whether it’s a contractor relationship that you’ve established or a broker like, Hey, drive by this property once a month and just check on it.
Christopher:
‘Cause You know, they wanna keep that relationship with you as well. So, so they’re happy to do that. And then a lot of communication. So we like to know, you know, the names and ideally get the cell phone numbers of the maintenance techs and the onsite property manager for all the properties and kind of establish a rapport with them. You know, we talk to them once a week through a video call where we go through our financials for every property, but then even off cycle, just call ’em, see how it’s going. Kinda get them on a call where their regional’s not on the call and say, Hey, anything going on that I should know about? ’cause There’s, you know, if you have three people on a call in addition to you, maybe they’re reluctant to tell you something that’s concerning them, but if you can establish a personal relationship with like the maintenance lead and say, Hey, what, you know, if you had a thousand bucks to spend on a tool, could you save any money? They’re like, oh, I wanted an auger for years that I could clear the main drains wish. And I don’t know why we keep paying these guys 700 bucks to come and do it. They’re like, oh, we can do that. We can a hundred percent buy you auger, you know, or a power washer, whatever. But they just don’t maybe convey that to the person that you speak to once a week and it doesn’t get funneled up. So, so trying to get a personal connection with with, you know, the onsite
Charles:
Staff. That makes sense. When I had a small portfolio in Connecticut, so before I sold it in 2022, and you’d talk to I would have the handyman would have my number, one of the ones, and he would just text me afterwards. He goes, I was told fix this. There’s like two other things here. Like, do you want me to go back and ask about this? Or you can do, I’m like, no, no, no, just go and fix it. You know? ’cause They wanna keep expenses down over here in the office, but they don’t see the property over here. And you’re like, I, I, I, I understand everything. I appreciate everybody doing their job, but it’s like, listen, if you’re down there and like, one of the steps in the basement isn’t right, fix it. You know what I mean? If there’s an issue, like if there’s a lot, go fix it. You know what I mean? Like it’s, this should be like common, but I understand like people, you know, you know what I mean? They’re trying to keep everything down and, you know, everything’s penciled. So, but yeah. So, so coming forward, I mean, after so many years decades of investing and being involved with multifamily real estate, what are some of the common mistakes you see you know, real estate investors make, maybe they’re new or experienced?
Christopher:
I think being over aggressive on assumptions and underwriting, like your underwriting has to work. Like, that’s it, right? Like once you buy it, there’s only so much you could do to, to execute your business plan if your business plan was not correct to start with. So it’s so easy to, to be like, well, maybe the exit cap rate is a little bit lower, and that’s like a big lever, right? Like, you, you move that number and your whole deal looks better. You know, maybe we can squeeze out a little more rent growth and, you know, and there’s a balance, right? If you’re overly conservative, you’ll never close a deal. But if you’re, you know, overly aggressive, you’ll never have a, an investor that invested with you a second time because the deals aren’t gonna work unless you’re lucky, right? So I think that that really understanding all the assumptions that go into underwriting and, and convincing yourself that they’re the right level, you know, not too aggressive, but not too conservative, and knowing where you’re just like, Hey, I can’t, I can’t move this, and we’ll move on to the next deal. Chris,
Charles:
What would, what advice would you have for, you know, offer to new investors saying that they, they want to dip their tone, get started they have a W2 kind of like similar how you got started with that First Tree family. What would you suggest to them if they were in a similar position years beyond years before
Christopher:
You? I would say think about how involved they wanna be, right? Like, you know, I’m a syndicator. I’d love to say invest with a syndicator and learn something. That’s one way to do it. If you wanna be very passive, you know, and we can put you on the calls, but you’re gonna learn as much as you sort of wanna learn. If you actually want to like, be eventually an active, I would say just go buy something. Like go figure out what you’re comfortable with. If it’s a single family, if it’s a condo, if it’s a two family, ideally like kind of near you and, and do something, you know, like put some offers in figure out or just be active and maybe, you know, you’re working with a couple brokers and you, you know, you talk to some lenders and you’re like, you know what?
Christopher:
I don’t really like this is too much. At least you, you know, you’ve learned that. And if you’re like, Hey, I, I kind of like this, how this is working, then, then, you know, buy, buy a small property and, and and run it. Get, get some kind of hands-on experience. And if that’s not the kind of person you are, then start looking at reputable syndicators or, or maybe people that need just an equity partner. So maybe not a syndication, but a smaller say like three family where someone needs equity and you can, you know, have a vote and be more actively involved, but they’re the knowledgeable one kind of running a show.
Charles:
Yeah. I get people that want passive income and then they actively buy a proper and like, hold on, hold <laugh>. Right? It’s
Christopher:
Different. It’s very different.
Charles:
This is not what it, yeah. This is not what owning
Christopher:
A multifamily is not a passive investment.
Charles:
It’s a small business. Yeah, that’s right. Yeah.
Christopher:
It’s a small business, right?
Charles:
Yeah. So Chris, thank you so much for coming on today. How can listeners know more about you and your corporation?
Christopher:
You can find my company information at emcapitalgroup.com and I’m very active on LinkedIn. Shoot me a, a message, we can set up a call and I can, you know, tell you more about, about the company and what we’re, what we’re working on. We’ve got two big opportunities right now, so yeah, things has been busy. Well, that’s
Charles:
Great to hear. Well, Chris, thank you so much for coming on today and looking forward to connecting you with you here in the near future. Yeah,
Christopher:
I appreciate it. Thanks.