Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host, Charles Carillo. Today, we have Casey Stratton. He is a seasoned real estate investor with over a decade of expertise and has been a General Partner on over $200 million in deals. Casey was first introduced to real estate investing while seeking to build alternative income streams after being laid off from his tech job during the Great Recession. This experience motivated him to explore alternative ways to generate passive income and grow his net worth, avoiding dependence on a W-2 job. Today, Casey focuses on bringing passive real estate investment opportunities to high-earning professionals looking to build equity and passive cash flow. Thank you so much for being on the show!
Charles:
Hey, thanks for having me.
Charles:
So before getting into real estate, can you give us a little bit about your background, both a little bit professionally and also personally?
Charles:
Absolutely. so my journey really started I studied material science in undergrad at the behest of my, my dad. And during that, I realized I didn’t wanna be in a, in a lab all day doing experiments or you know, looking at CAD models. So I decided to get my MBA in finance pretty early on and went to University of Washington. And during that time you know, I, I’d always loved understanding how money worked just as a, as a hobby, but I started really getting into investments, investment theory, and that’s kinda my, my, that started my journey into the investment realm. Like I said in the intro, I graduated, started working in telecom, and this was in the wake at the great recession, and unfortunately got downsized and, you know, over in Seattle at that time, unemployment was high and it took six months for me to land on my feet.
Charles:
Again, back at telecom, I was in corporate finance at at T-Mobile. But that experience had really jaded me. I thought that, you know, there’s a, a bit more loyalty with employers and if you worked hard for them you’d, you know, be taken care of. And so, kind of just woke me up about, you know, I really want to be in control of my own financial de destiny here. And I was doing a little of research and came across the fire movement. I dunno if you’ve heard about that, but it’s the financially independent, retired early. And having that stability really appealed to me in a way that my wife and I started buckling down saving a lot, and we did, you know, maxed up the 401k index funds. And during my research and with my finance background, I came across real estate, which I didn’t know anybody in my life who’d ever done real estate investing. And so it was pretty foreign to me. But I was running some of the numbers, looking at the benefits from cashflow appreciation and, and tax and you know, convinced my wife that we should sell our house and, and buy a couple duplexes and live at one side of ’em. So we did that in 2015 and over time just got into bigger and bigger assets and started bringing in friends and family and it, you know, now we’re just raising capital and, and doing acquisitions.
Charles:
When, after going from that house hack into other properties, what were you, were they like small multifamily, like duplexes, quas, triplexes? Or were you going into like, almost smaller commercial family type properties?
Charles:
So I, after the duplexes got out of multifamily for a bit, actually during that time, my wife and I had moved back. So we moved outta Seattle to Eastern Washington where we grew up. We’re in the Tri-Cities market, and I reconnected with some college buddies who had started buying, well started, they had one dilapidated commercial property in our downtown districts. And, and they were more mission-driven investment of we wanna revitalize our downtown. And I thought that sounded really cool. So I jumped in, you know, wrote a $50,000 check with them, and we thought we’re gonna be remodeling this, this building, but it was built in the, you know, during World War ii, the footings we’re not up to code now, so no engineer would sign off on, on what we wanted to do. So then we were <laugh>, we accidentally got into development, and that was my first development project. And then we continued to grow buy more retail and office buildings. And, you know, it took me probably six years to get back into larger multifamily. So that was, yeah, right, right around 20, 20 19, 20 20.
Charles:
Yeah. Development is a whole, people try to lump it together with multifamily investing, but I feel it’s like a, it’s a whole different, like beast. It’s a whole different animal of what you’re working on. I mean, there’s so many different variables are going with it, and I think people kind of gloss over the amount of risk you have. I mean, there’s a lot of risk in taking on short-term debt financing something that if it goes, if it’s 0% or 99%, it’s still not worth anything per se. You know what I mean? Because it’s not generating any cash flow.
Charles:
It’s, it’s a whole different beast. I will say I think it was one of the most exciting professional or investment experiences watching this tractor come in with this big claw and start chomping away at the existing building. It was, I had my, my son there who was four at the time, and he was just, what are you doing <laugh>? So there’s, there’s a lot of fun excitement around it too. But I think that whether you’re looking at value add or development, you really gotta understand the different risk return profiles of that.
Charles:
Yeah. And I, it’s just one of the things that kind of made me cringe a bit during, when we went through this last few years, which were still going through it, and you had a lot of operators that weren’t able to make numbers work anymore on you know, on value add deals, and they were pushing development without having any experience and successfully raising money for it. And it’s just, you know, it’s a whole different thing. And, you know, you people don’t really have, you know, you gotta work with someone that has a, that has experience in what you’re investing into. And it’s kind of difficult where they know how to deal with it after it’s built. But like we got three years until it’s built.
Charles:
I, I think it’s very healthy for investors and operators to understand where their blind spots are and to try and find partnerships that can, can fill that in. I mean, it’s, it’s funny you you mentioned that because we’re actually working on two development projects right now. And yes, I’ve done commercial development once, but I don’t consider myself the expert in that we’re I wouldn’t want to go without a partner. So we’re partnering with a a general contractor here who has done lots of development projects and has generally used his own money to do them. And we’re looking at bringing in additional capital to increase liquidity and, and that, so I think that’s a, a pretty good way to approach development. Yeah,
Charles:
You really minimize your your downside risk when you’re bringing on experienced partners like that. Before you’re getting into larger multifamily. One thing that I would hear you know, online, and they would always talk about with multifamily, especially smaller multifamily properties, like the 1% rule, and I never got this to really pencil for myself with deals I really want to buy. I mean, when you were doing it, how was, like, how was that? Because now it’s not really a 1% rule anymore if you’re buying properties outside of war zones as I see it, you know what I mean? But how did you see it when you’re starting and if that information was cemented onto you as well?
Charles:
Well, yeah, I mean, when I was starting, they were talking about the 2% rule. And so that, I mean, I bought the duplexes in in 2014, and we were able to yeah, pretty much hit that 1%. And I, I was so cautious on those first deals. I mean, I didn’t know how good it was to have, I mean, we were looking at positive leverage of like 300 basis points. So our our, our cap rate coming in without any improvements was 3% higher than our cost of capital. We’re looking at seven, eight caps on, you know, these small properties on I think four and a quarter debt. So it was pretty easy. I mean, I didn’t know how to underwrite very well at that time. I was kind of, you know, BiggerPockets reading some books, but I didn’t, I had low confidence in my pro forma number, right? And so having that, that safety in there at 1% was very beneficial. We, it’s, you can’t find that now. It’s, you gotta value add into the 1%.
Charles:
Yeah. And I’m always a little cautious if I see people talk about that. I mean, referencing it, obviously, it’s a rule of thumb that you can utilize like a lot of different tools we have of filtering out deals to some extent. But the thing though is that I think you, you also, it doesn’t take into any consideration about like where that property’s located. ’cause You can probably find those still. But like, do you really wanna be buying, I mean, we’re looking for, as I say, like a mix of cashflow and appreciation in our deals. And maybe you’ll get, you’re gonna get cash flow. Are you really gonna get appreciation? And do you really wanna, how are you gonna manage those properties if they’re in those areas that aren’t as desirable? Let’s just say
Charles:
We’ve been fortunate in avoiding any war zones. I’ve had friends who had great cap rates or the, you know, 1.3% going in and you know, the theft of copper in the walls and high vacancy and headaches. It’s just, I don’t know, not something I’d ever wanna, wanna go after.
Charles:
Yeah, my dad was a d class investor when I grew up, and it was, it was a mess. I mean, it was just like, it was something I’d never want to do. And then he just kind of put upon me to buy better property. So I started with like c class properties, but it was something that, man, it is it, it takes, it takes a quite, you know, that’s why you can’t really find property management companies assets, self manage it, because no management company in their right mind would take on a property in that class. So very, very difficult. We,
Charles:
We have a mantra that guides our investment. If I wouldn’t wanna live there with my wife during college we’re not gonna buy it. So when we look at a property, we walk it, look at the curb appeal, look at the vehicles around there, look at the surrounding properties, obviously look at crime reports, but then also if we go tour it on a Tuesday morning during the work week, how many people are at home versus at their jobs? All these things kind of factor in. So, you know, you can get a feel for, is this a a B or a a c, or, you know, but it’s a good, if you’re not comfortable there, then your intuition’s telling you something.
Charles:
Yeah, I think like Tuesday morning, but also like Tuesday night or also, you know, 10 o’clock, 11 o’clock at night, seeing what kind of activities there. And then we did that really specifically on our first indication deal a few years back in Tampa. And just like, it was like really quiet and we were lucky, you know what I mean? But like, these are things that you start looking at when you don’t really know the neighborhood as well. Since, I mean, real estate is a hyper, hyper-local type investment, and it can change by blocks. And everybody’s been doing that drive before, we’re like, whoa, what? Just what, just what just happened here over the, you know what I mean?
Charles:
Yep, yep. So you
Charles:
Talked about partnering with doing some development deals, but like, when you’re getting started in syndication, and obviously most people get started in syndication, the scale and to, you know, they run outta their own money, which is kind of what happened with me. And I imagine what happened with you, but how did partnering with more experienced syndicators kinda accelerate your syndication business?
Charles:
Our, our business is a funny one in that so much of it is relationship based. And you look at the number of partners you need to get a deal done. Obviously you need brokers that you can work with and trust. They bring you good deals. You need access to lenders or a debt broker insurance, property management, all of that is relationship based. And being able to leverage someone else’s experience and relationships really starts helping you get get to know who you wanna work with. And you know, deal flow is probably one of the more important things out there where you look at the motivations of the brokers. They want to work with someone that they have a high confidence that can pull off the deal, right? That means they can bring in the equity to close. That means that they have a balance sheet and experience that the banks are gonna lend on.
Charles:
They know how to underwrite and navigate the thorny issues that are inevitably gonna come up. I mean, we have never had an acquisition that we haven’t uncovered. Something where we had to have a lot of hard conversations with the brokers and sellers. How do we remedy this where everyone can, can, can work with it and pursue, you know keep working through the deal. And that takes a lot of trust with the brokers. And then when they have that trust and that that track record, they, they bring you the first look at deals and you’re able to either do off market or, you know, not have a lot of competition at the, at the bidding line.
Charles:
Yeah. Yeah. It makes sense because obviously they have a legal representation of the property that they’re bringing to you, and they wanna make sure that you know, that they’re, they’re acting in that seller’s best interest of finding someone that’s actually gonna close. And I mean, they get paid on that too, but it’s also, they keep their names on it, and if they’re gonna build their business, they have to make sure that the people they’re connecting are actually gonna do business and actually close. So yeah, it’s, it’s, it’s definitely a very important thing, especially as larger. You get into, into multifamily properties,
Charles:
So Casey kind of talking about what you guys are doing now, I mean, what is your firm’s current like investment strategy and investment criteria deals you’re looking at?
Charles:
Well, I think like most other GPS in the, in the industry we saw a slowdown with the interest rate hike. I was pretty fortunate that I had exited my previous fund in 2023, and so we were starting fresh with new assets in the new environment. And so we, you know, we did not have much of a cap rate expansion hangover, like I know a lot of people were working on that. Also, you know, there’s been a lot of operators you need to recapitalize or save you know, legacy projects that were required in before 2022. So we, we’ve been fortunate in that. But with the interest rate hike, we’re just now seeing cap rates start to catch up where you’re gonna have neutral or maybe slightly positive leverage. And those are generally only happening on, on value add deals. So our acquisitions have been a bit slower in the past year but we’re seeing things wake up and right now we got a a value add deal in Tri-Cities that we’re, we’re working on closing on this calendar year, and we believe that multifamily development has a very strong investment thesis here. So that’s why we’re looking to start bringing that to our, to our investor base.
Charles:
What, what are some of the market drivers your company focuses on before venturing into a new market or choosing to, I mean, developments, I mean, if you’re buying anything, I mean, obviously there’s so much, there’s, there’s five, seven years that you have to, you’re holding its asset for most likely in this type of market, but development, I mean, we have to, it might go even longer than that possibly, if you’re gonna refinance and hold a property because you have to develop it. So what, what are you really looking for in a market that’s gonna make your firm decide to invest there? Mm-Hmm
Charles:
<Affirmative>. On the development side. So we, on value add, we’re looking at a number of markets in eastern Washington Spokane and Tri-Cities. We own in Pullman, Washington, which is home of WSU go Cougs. And we’ll do value add in all those markets because they have the right fundamentals for us. But in terms of dipping our toes into development, we’re only looking at Tri-Cities market for a number of reasons. One is we have our GC partner that we know, like, and trust and has a great track record. Two, the, the macro outlook on demographics and job creation are quite excellent in Tri-Cities where we joke that it’s the fastest growing MSA that no one’s ever heard of. And what’s driving that is we have a unique combination of, well, lemme back up. So if you haven’t heard Tri-Cities, we were actually one of the sites, one of the cities that built the plutonium for the Manhattan Project back in World War ii.
Charles:
And so that drew in a large population with a lot of education. And then with that the Pacific Northwest National Lab was started in Tri-Cities back in the sixties. And so we have a lot of human capital we have really the Pacific Northwest only nuclear power plant that operates. So we have cheap nuclear and hydroelectric power and we have the Columbia River, which is a huge shipping asset as well as rail and interstate intersections. So when you look at, we have a lot of factors that are extremely attractive to national employers. And we just crossed, we’re, I think about 320,000 population currently. So once you cross that 300,000 population mark, you reach a new threshold of size where national employers look at locating their, their operations. So that’s created a boom. And with the data centers and warehousing abundant power and, and you know, reasonably priced land, we’re seeing tech moving here as well. And so all of these are driving the right amount of job creation where development becomes very attractive for us. So in a nutshell, we’re developing our own backyard. We can keep close eyes on it, and we have a partner there. We trust and strong outlook on, on economic growth. How do you
Charles:
Guys you know, effectively navigate the regulatory guidelines and for properties when investing in like a tenant friendly state? Myself, coming from Connecticut, you being Washington State, if I understand that there’s some sort of, you guys have rent increased caps there, which might not affect you in all parts of the market, but at some parts, I mean, it’s one more thing that you have to abide by when running your business.
Charles:
It’s been an interesting, we’ve had a lot of conversations around if we want to <laugh> continue investing in blue states with the cur. So with where the CURT regulatory environment is, we’re actually pretty comfortable with it. You have both statewide regulatory guide guidances you have to follow as well as local ordinances. And what’s interesting is while we’re a a blue state, Eastern Washington is, is solidly red. And so we don’t have much hostility from local councils or counties. But we do have the, the rent increase that the state legislation passed. And so there we can only increase it by 7% plus the consumer price index. So we budget about nine 10% annual increase max. And it’s not too difficult to, it’s very manageable if you know this while you’re underwriting for the acquisition. Historically before this, you know, we would just, when leases come up for renewal, mark up to market rates, and if they stay cool, if they move out, we renovate. Now we have to model out more of steady progression of trying to raise current re rents up to market rate. And that might take a few iterations of lease renewals, but we can model that out and factor for it. But the main impact there is that we are taking a little bit longer to fully stabilize the property. But it creates a little bit more predictability, predictability in our, our revenue forecast.
Charles:
So when you’re doing that, are you, do you change the renovation, the level of renovation per turn? Is that how kind of you do it or you’re just doing
Charles:
How
Charles:
Does that kind of work? Or is just really adding your renewals with current tenants?
Charles:
Yeah, we, we have a consistent improvement package we put in. And so we don’t change the scope of the, the renewal because we know what the market rate is and we’ll know we’ll get there eventually. And what’s nice is, I mean, once the property’s vacant and we do the renovation, we can market it at market rents immediately, right? It’s more of if we’re 30% below, if, if a tenant is 30% below the market rate and we can only maximum increase it 10% a year, well rationally, unless they have a different life event that causes ’em to move, they’re gonna stay there until their rent gets up to market rate and then they might move, right? So it’ll take us maybe three iterations to get up there.
Charles:
Okay. All right. Yeah, so that makes sense. I mean, if you had to change the renovation and like spend two turns on renovating a property to hit it, I mean, that would be a kind of a mess in the whole operations. But if you’re able to do that once it’s vacant, you can set that market rent. So that makes sense. And you just have to, it’s just kind of working with your current residents to increase as you can, but it becomes a little bit of a hurdle, I guess, when you’re going into, like you said, a property that’s 30% under under market and now you’re little by little, you have to kind of work
Charles:
Towards,
Charles:
Towards getting it up there.
Charles:
We, we got bit by it on one unit, on one property. We bought this apartment and the seller had one, a family friend living in one of the studio apartments, and he did work on the property in exchange for like $200 a month in rent. And his lease came up for renewal a month after this legislation passed. And we kept asking, you know, what his plan was, but he dragged his feet until legislation passed and we couldn’t. So I think market rates 700 or $800, so it’ll take us, I think, I think we forecasted that it’ll take us like 15 years to catch up to market or something crazy like that. So that’s the only one that really bit us.
Charles:
Yeah. Yeah. That’s one of the things of having like superintendents at your property let’s just say loosely because I’ve always found that being an issue. I don’t know if you’ve ever utilized them maybe with smaller deals or something like that, where, but I’ve never found that it worked. It’s easier just to hire someone, third party to come in and take care of it. I know it’s gonna be taken care of. I think there’s more responsibility on having that done than a tenant doing it. I’ve kind of always tried try to keep those separate. Even all the times when I self-manage for many years, people trying to bring these deals or situations to me where this would work out great for everyone, they would say,
Charles:
I, I think that’s a real healthy viewpoint of it. Don’t mix the, the different size of the business. And if you have a contractor who’s not doing good work, you can fire ’em, right? If you have a tenant who’s not doing good work, you just get up in a bind. Definitely.
Charles:
Definitely. So kind of like over the last couple of years, like you were talking about you know, a lot of operators kind of have found themselves underwater and possibly in a situation where property has fallen into disrepair because if they’re not paying their, you know, they’re not paying their debt, they might not be paying for what they should be paying and doing what they’re supposed to do at a property. I mean, have you purchased any properties from any distressed sellers where maybe you had to structure anything creatively or you had to change around maybe the initial kind of points of a deal to make it work with what the condition of the property was?
Charles:
So let me answer that in two parts. One is for the past couple years everyone’s been expecting for this wave of distressed sellers to hit the market. We haven’t seen that. And I talk to lenders, they all claim to have pretty clean balance sheets which I, you know, don’t believe everyone has perfect balance sheets, but I think that the anticipation of the rate drops has kind of helped everyone justify, extend and pretend. I think also that it’s just kind of slowly been, been working through. So we haven’t seen much of that. We did have one of our more recent acquisitions, it was late last year it was a seller. And, and these are, these are the gyms. These are the ones that you just, you dream of these types of deals. But the owner was a a doctor out of, lived in California and he had 102 units in Pullman Washington.
Charles:
Ironically, I, my wife and I actually lived in one of those apartments during undergrad. But, and then his property managers were outta Seattle and didn’t keep eyes on this. So, you know, deferred maintenance poor management, they had some vacancies and on the vacant units, they would just turn the heat off. Well, we had a, a, a deep freeze come through and a number of the units were vacant, had the external walls their piping freeze. And this guy, I mean, we budgeted after he found that out 1.3 million in total improvements to go through on that. And he didn’t have that money. So these guy have actually been sitting vacant for a couple years. So we came in, we got huge seller concessions. My partner Max is currently in the middle of running crews up there to go through all this. And but that’s where you have to get really creative because we had to work with a lender on that where we, we got 850,000 in seller credits on a 6 million purchase price, and we needed that money to go in and, and invest it into improving these units, whereas the lender wants to de-leverage the loan with that, right? And so we had to get quite creative in there to be able to get that cash, hit our bank account and put it to use and not get it tied up in de-leveraging. Wow.
Charles:
That’s, that’s quite the deal. That’s, that’s one thing. When was that property built, do you know?
Charles:
1997. Really?
Charles:
So
Charles:
Reasonably new. Yeah,
Charles:
It’s, it’s interesting because in the northeast we’d find that with older properties, with water, you know what I mean, running up the exterior walls, there’s something that they change really to more interior, you know what I mean? Kinda like running those pipes in there. So that’s an interesting thing. You’d usually see that in something that was like sixties or before built from where I started
Charles:
Investing. Yeah. I was surprised that they designed the units for exterior plumbing. I mean, that, that seems like a quite a big risk. It’s
Charles:
Also risky to turn off your <laugh>, turn off your heat anywhere. I mean, that’s just like, it’s you don’t have to keep it on hot, but man, like it’s, I mean, we’ve had that before with radiators. We’ve had that. I mean, it’s just it’s it’s something that, it’s, it’s, it’s when you don’t have present management that’s not seeing that, you know what I mean? And it’s just, it becomes a mess.
Charles:
Yeah, you save 10 bucks on electricity, but costs thousands of dollars in damage, so Yeah.
Charles:
Yeah. I remember, I remember years back when I had smaller multi-families up in Connecticut, and we would do, like, I would’ve, I’d text some of the tenants and be like, Hey, you know, like, let your thing, let your like faucet drip and like leave this open, you know, all this stuff just to, because when you have that, when it happens, I mean, it becomes like basements flooded. You gotta call like water. I mean, it’s, it’s just can be a, a mess for anybody that’s had it done. So it’s something that you’d always be like diligently checking weather and seeing what was going on with it. If you had any vacant units, and in small multis, even if you don’t have vacancies, there’s not a lot of water that’s used, so there’s not much monitor that’s moving, you know what I mean? Versus if you had a 20 unit where someone’s flushing the toilet every half hour, you know what I mean? So it’s not really a problem per se. It
Charles:
It, if I could digress and tell a story here. And I think, I think the, the lesson of this story is Casey, don’t be an idiot and hire people who are better at doing things than you are <laugh>. But it, it was my first year or two into owning the duplexes and you know, I was so scared of losing money that I was trying to do everything myself from some of the repairs to managing the property. And it was December and my tenant had just moved out and the furnace had just broken down. And so I couldn’t get a guy, this is on Friday night, I couldn’t get a guy out there till Monday. And we had a blizzard come through and it’s like 15 degrees out and I’m just like, crap, what am I gonna do here? Like, I don’t want pipes to burst.
Charles:
And so in bed and it’s 2:30 AM and I’m just like, oh, turn on the sssts to let ’em drip. You idiot. And so I’m like, well, I can’t go back to sleep now I’m envisioning like all these pipes freezing. And so two 30 I get in my car, there’s a foot of brand new snow, it’s snowing. It was actually very free. There’s no one out. And so I go and I walk into the, the, the unit and the carryover key from the other side. It’s like a balmy 55 degrees in there. I’m like, oh, okay, well that was a pointless trip, but you know, you can’t go back to bed thinking that you’re flooding your <laugh> your own property.
Charles:
Geez. Yeah. Isn’t it like the heat from a different unit as well? It can come in and like heat up. I found it like before people are telling me that it could heat the pipes on your side. I mean, it’s just like, it’s a whole mess. You have to keep the units kind of heated and it’s one of the things that man, that’s, that’s a mess. But first is, and I mean, think about if you got tenant there, I mean, my god, I mean, what you would be doing it, it’d be like, it, it’s a mess. So, but so how does your firm handle your property management now? Are you using third party where you go? Do you guys self-manage any of ’em or do you have your own in-house property management for any part of your portfolio?
Charles:
Yeah, we, we’ve had a lot of conversation around this. You know, right now with rebuilding the portfolio starting in 2023 we use third party management. We’ve talked about if we want to move into vertically integrate and bring that in-house, I think we’re gonna be hesitant to do that because we wanna focus on our core competencies. And as long as we’re finding property managers that we like working with and that keep their eye on the ball, the only reason we’d wanna bring it in-house is if we think that we can optimize the performance more than what a third party manager does. And as of now, I don’t think that’s the case and we’re not interested in trying to get new revenue streams or profit centers just to do that. So yeah. What about, what about you,
Charles:
<Laugh>? No, I agree with that. When we use third party management as well, I mean, I self-manage myself on some small properties many, many years back, like for, for six years, just a dozen or so units that I had myself before, we were given a third party, and I was able to grow it much faster by doing that. And the second thing also is just like when people say profit center, I just, it’s a really tight, it’s a tough business. Everybody knows this, but it is a tight margin business. It’s not like some other, i I just, people jump into it and I always think twice, or I think about it to myself really, like, this is what you go into, you’re gonna bring on like this whole new staff, right? You know what I mean? You’re gonna like five x your whole team by bringing these people on that you have to keep on, keep ’em happy, and you have to find more people for them.
Charles:
And I mean, finding handyman alone is like such a dis difficult job that like show up and do stuff, let alone now you have to put ’em on your payroll, make sure for all these different units and the margin’s very thin. I mean, I just, I think it’s like a, you know, I don’t know, there’s a lot of other things I would take on my plate, like maybe purchase like an HVAC company or maybe a plumbing company first because they see those checks that we stroke out for those, and you’re like, whoa, is that my attorney? Nope, that’s my plumber. And then it’s just like, it’s one of those things where you’re like, I’d rather buy like a plumbing company with like three plumbers and then versus buying just a property management company where the margins are razor razor thin. Yeah.
Charles:
You have the HR issues, you gotta develop a whole new set of, I mean, every businesses their own processes and protocols and yeah, I, I’m not very motivated to get into that space, especially
Charles:
If you’re going into a new market. Just one last thing is what I found is going into new markets, you’re paying for not only people. I think new investors are like, oh, this guy’s just picking up the phone and then he is just like calling like a contractor. And if you have a, you know, my first property manager was like seasoned, like 30 plus years in one market. And I mean, the connections that he had and who could call, I could never have those, you know what I mean? And that was because of decades and decades of being there and everybody knowing his name and the respect he got. And that’s why I was, I found him as a referral through another landlord. But it’s one of those things where that’s what you’re paying for too. You’re paying for a little bit more of that, of like knowing it and then also knowing the market about stuff that you’re purchasing much easier than going out and getting like 10 bids where you’re like, this guy gonna do it. Right? That’s a very fair price. You should have him do the roof. It’s much easier that way than, you know what I mean? And makes it easier to be an asset manager. A also, you know, slash owner when you have that good ban. Jarris, I found
Charles:
Gonna agree more.
Charles:
So getting into multifamily, what are some of the mistakes you’ve seen over this decade plus journey you’ve had from house hacking, small multifamily to getting into larger syndications and developments? So
Charles:
The question was what, what mistakes I’ve seen? Yeah,
Charles:
I would say common mistakes that you see multifamily investors make. And it could be anything you have here. It could be for active investors, it could be for passive investors. You could mix ’em together. Anything goes,
Charles:
Oh, it’s a long list. <Laugh>,
Charles:
<Laugh>.
Charles:
I, I think let’s, let’s steer away from maybe other, other operators and gps, but you know, people wanting like just your general investors who might have a hundred k or, you know, wanna kind of pool their money with some, some partners and get into a larger or mid-size multifamily, not understanding the amount of time relationships that it takes to get into this. And you’ll see, you’ll see two types of investors when they’re coming into it or evaluating a syndication, right? It’s either I don’t got time for that. Casey knows best, I’m just gonna work with Casey on his next deal. Or there’s either they think it’s sexy to get into or they, they say, I don’t wanna pay a syndication overhead fee. I want all the profit for myself, someone’s gonna do it myself. And that just gets into a whole can of worms there of, you know, we get the best look at deals because of our experience within relationships. You know, I think people are often better focused or better served by focusing their time on either proving their own career and income or spent with family rather than, you know, dealing with the, the burst pipes and the furnace issues that we talked about. You know, that makes
Charles:
Perfect sense. Yeah. Yeah. yeah, we could also, also you go on, well, I said
Charles:
We could also, I mean, it’s, it’s been harped on probably quite a bit with other guests on your show, but I mean, people getting into the frenzy in 20 20, 20 21, early 2022 FOMO of missing on a deal, overpaying risky debt structures, bridge loans. I mean, that’s all coming back to buy people. You know, we were fortunate of an didn’t get too exposed on that, but yeah, I don’t know what you’ve seen. I mean, you sold your portfolio in 2022, like early I believe you said that’s remarkable timing <laugh>.
Charles:
It, it was I had a property manager change at the end of 21, and that was just on my personal ones, our syndication ones, we didn’t, we sold, maybe we sold one in 2022, a syndicate property, one in 2023, and we have a few more now that we’re working through and we just refinanced one, so that are doing fine. But that was a personal one and that was just, that was just lucky timing. I’m not gonna, I’m not gonna lie about that. It was just
Charles:
Hey, take it
Charles:
<Laugh>. Yeah, I’ll take ’em where I can. But I mean, it’s, it’s it’s, it’s a difficult, it’s difficult finding when you’re working with people or talking to people, especially new potential investors and they keep on getting into the fees and stuff like that. Not so much I’ve had recently, but like years back when we started raising money from investors and they would really like spend like half the call on the fees and you’re like, I just, you don’t wanna be like mean, but you’re like, you just like know to yourself like, this isn’t gonna like fly because like all the different deals that you have to look at and like, the amount of work and everything goes into it. I mean, we’re just trying to keep the lights on and then we sell and we can split that with you, you know what I mean? Kind of like with you taking the majority of it.
Charles:
I think we’ve all had those same conversations. Yeah, I mean we also have personal risk guarantees on the debt. I I, I often pose a question to my investors of, you know, I, I hope that you’d want us to be one getting paid enough to stick around because you don’t want us to go outta business while we’re in the process of managing an investment. And then alignment of, of incentives is really where the, the promote comes in, you know? Yeah.
Charles:
And that’s where they’re gonna go what we’ve done it before where we’ve like dipped into our funds to, you know, to cover between getting lender funds, stuff like this. And like, you wanna make sure that they’re willing to do that ’cause they see the payoff at the end too, you know what I mean? To have that incentive. And I think if you really just like take away a lot of the fees that like, keep kind of the lights on, for lack of a better word in the beginning it’s gonna be more difficult for, you know, if I think for that GP to like see that, you know, going through. But what would you say over the years have been kind of some of the factors that contributed to your success?
Charles:
Building partnerships where there’s a lot of trust. I mean, I, I have my skill sets and bringing in partners. Like, for example, my partner Max who handles the asset management you know, he came in with less experience in the tamarack, but I know he had a solid operational background and he is committed himself to, to learning. We got him in a mastermind group to learn best practices on asset management. And now, I mean, the amount of time I’m, we’re doing a new acquisition, I’m like, max, what do you think about, you know, these costs or this strategy or what is lease? You know, I mean and then, you know, outside partnerships too, like brokers and, and lenders that you can trust and rely on and you have a rapport and a tracker record with is, I mean, when I first started in this, I started my first syndication it was actually a little fun.
Charles:
It was in 2020. I, I was a CFO of a law firm and I gave my boss my, my notice in February of 2020. And of course then the pandemic hit and I helped them transition through with like, people remember the PPP loans and disaster recovery loans. You know, we got all that worked on just getting the entire office and team transitioned to remote. But then, you know, I transitioned out in July of 2020 and talk about feeling the complete lack of partnerships and not knowing how to develop relationships when we’re all sitting at home. It was a really, it was a really stressful and lonely time in there. So over the past five years, then building out the relationships has really just, I mean, with your, with your investors, it doesn’t happen without a team. Casey,
Charles:
Thank you so much for coming on. How can our listeners learn more about you and and your business?
Charles:
Yeah, we’re, we’re we’re Tamarack capital. Our website is tamarack, RE i.com. I’m on LinkedIn, just search for Casey Stratton. She’ll be able to find me. We have a, a newsletter to kind of talk about what we’re seeing on the market, how deals are going, and then new investment opportunities. So I feel interested, listeners are interested in that. Go to our website and sign up on it and I’m always happy to jump on a call and, and chat investments. And you know, one of my favorite parts about this, this job with me being the investor relations focus guy, is talking with people from so many different backgrounds, hearing what their financial goals are and seeing if we’re a fit for that. It’s just, that’s really enjoyable.
Charles:
Casey, thank you so much for coming on today. We’ll put those links into the show notes and looking forward to connecting with you here in the near future.
Charles:
Thank you so much for having me. This was fun.
