GI261: How to Buy an Apartment Complex with Nico Salgado

GI261: How to Buy an Apartment Complex with Nico Salgado

Nico Salgado began investing in real estate in 2012 with a single-family development project and has since transitioned into multifamily. He has gone full cycle on 194 units and is currently a general partner on 3 projects consisting of 70 units in Florida. Nico is also a Spanish teacher for the last 19 years.

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Transcript:

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host, Charles Carillo. Today, we have Nico Salgado. He began investing in real estate in 2012 with a single-family development project and has since transitioned into multifamily. He has gone full cycle on 194 units and is currently a general partner on 3 projects consisting of 70 units in Florida. Nico is also a Spanish teacher for the last 19 years. So thank you so much for coming on the show today.

Nico:
Hey, Charles, thanks for having me, man. I appreciate it.

Charles:
So, I was on your show earlier, which we’ll talk about at a little later in the episode. But before we get started, can you give us a little background on yourself, both personally and professionally prior to getting involved in, in real estate investing back in 2012?

Nico:
So, I always thought real estate investing was cool as a kid. Even as a little kid, I would, I would roll up a little wa of money and save my money saying I was gonna buy a house because I knew just from playing Monopoly and things like that, that owning real estate was prestigious. And also you know, you can, it was something that would help my family out. You know, I knew that if I owned something that it would be beneficial to my family. Obviously I didn’t know all the nuances and stuff like that, but I, I was literally saving money. You can ask my mom. I was wrapping up money in a little while to buy a house one day, and that’s really where it all started. And I, I, in college, I was gonna go the route to, so I, I went to school for business in early 2000, and I was going the route of gonna be like a fix and flipper just because of all the shows that were on.

Nico:
And I had a friend that was a, a contractor and one of my business teachers was like, he totally turned me off, man. He’s like, do you know what you’re doing? Why would you do this? And I, and I thought I had a master plan set up, and I ended up just not doing it. I did not do it in 2002 when I graduated, I ended up just traveling a little bit to kind of do some soul searching. I traveled for a year and then found myself wanting to be a teacher because I wanted that, that time freedom. Then 2012, i I, I, I always had the itch, itch though, to get into real estate. So 2012, I ended up buying a little piece of land down in Florida during, I’m sorry, down in Nicaragua during my world travels because I used to travel everywhere to go surfing.

Nico:
That was one, it’s one of my, my passions and one of the time freedoms is really important to me. So in 2012, I bought a piece of land in Nicaragua and subsequently built a house on it took me three years just to get the title cleared, imagine that. And and, and I ended up selling that property in 2020 for a profit. I, I was all in about six 65,000 and I sold it for a hundred thousand. So that was my first real go at, you know, go around with real estate or investment real estate. And in 2019 ish, 1819, I ran into some serious issues financially. I, I was it’s a kind of a long story, but I ended up, my taxes essentially doubled for it was, was, you know, something that happened in my town because a lot of the houses were demolished after Hurricane Sandy like mine.

Nico:
So I was not paying full amount of taxes for a certain amount of years. And when those taxes doubled, I was no longer able to pay my mortgage and, and meet the escrow. So I decided to pick up more work. I ended up working well it subs at the same exact time I was reading the Purple Bible and, and they talked about real estate and businesses. I ended up starting a business. I was working full-time as a teacher. I ended up taking on a business owning a wood shop and was selling things. So I was making furniture and cutting boards at night and selling them just to make ends meet. And I did it and it worked. But about a year into that, I realized I could not sustain this because I was literally, you know, just losing sleep and, and doing everything. And I was going kind of insane. And I said, I need to go back to this purple Bible and find something else. And it was passive income that I really you know, resonated with. And that’s when I started my real journey into the multifamily space.

Charles:
Yeah. So you’re on Long Island, is that correct? Yeah,

Nico:
Man. Yeah.

Charles:
Yeah. So I’m originally from Connecticut, so property taxes in Connecticut or high and then <laugh>, long Island. It’s a whole nother story of of what’s happening. So, I mean, that’s crazy, especially. Yeah, Sandy was right then too, huh? I mean, it was just Yeah,

Nico:
Yeah, yeah. 2012. And so then I ended up having to demolish my house because it, it fell off the foundation and I was living with my in-laws for three years trying to get that all sorted out while we rebuilt the house and had like we had a, a what’s it called? A, a lawsuit and we won and all this nonsense. But yeah, so after you know it that we were paying such low, in such low amount in taxes that after I moved back into my house a year or so later is when the taxes essentially doubled.

Charles:
Jesus. It’s crazy. I mean, it’s, it’s, it’s just, it’s insane. So it’s one thing that you were talking about, like how you had to go back to the rich Dad, poor Dad for the Purple Bible as you referred to it in it’s one thing that I remember reading this is many years ago, Kiyosaki one of his books, it wasn’t reached Step Ford anyway, he’s like, he’s lost one of his businesses and he needs to make money and he’s in a waiting room ready to go in for a job interview. And he like, literally like turns around and walks back out because he’s like, it’s not the way it’s gonna work. You know what I mean? And it seems like you had the same revelation. So fast forwarding to today, can you give us a little background kind of on your company now, and you know, what types of properties you target? I love how you guys are really niched into one area because that makes everything much easier especially with as we would call smaller multifamily properties, smaller commercial multifamily properties that you guys are really focusing on.

Nico:
Yeah, great question. So I am now exclusively focused on the central Florida market, more in particular Tampa or, you know, the greater Tampa MSA as I call it. And I look for 10 to 70 ish units. I typically look for C class, I would love to get into B class, I just don’t know if I’ve graduated to that yet. And I look for concrete block construction, anything seventies and newer. I would prefer, obviously the, you know, the more recent properties I look for pitched roofs, and I look for you know, growth areas as well as you know, median income of a minimum of about 45,000 family median family income.

Charles:
Yeah, that’s great. That’s, we’ve really narrowed it down there. ’cause That 45,000 then I mean, it just works out exactly what you can charge for rent, you know, when you divide that by three of what a annual rent is. So it makes it easier for knowing that people in the area can actually afford the rent of what you’re doing. But you said you just closed on a property, and we were talking about this for a few minutes beforehand. I was talking your ear off about it. Go into a little bit about this deal. It’s a, it’s an interesting deal and in Lakeland, if I remember correctly, and you obtained seller financing with it. So if you go a little bit into that, because I think with higher interest rates now, this might be a way that some people selling could get the price they want and people buying could actually pay more for the property because of working on some sort of creative financing.

Nico:
So yeah, thanks Charles. I love this method and I’ve never, so I was always kind of intimidated by it. You know, you never, if you don’t understand everything or me personally, if I don’t understand something a hundred percent, I kind of get a little intimidated by it. And I tend to kind of like back off. However, I was all in on this because it just seemed like, like a no brainer back. This, this property was actually listed as a seller finance, potential seller finance deal back in August of 2023. And I saw it and I underwrote it, and I did not like it. I didn’t think it was gonna work at the, the, at asking price. And I told the broker where I was shaking out, and he was like, Nope. So I ended up just putting that on the burner, and then a friend of mine got it under contract, and I was following along closely because I always follow deals.

Nico:
Like I’m, I’m kind of a, a, a nerd where I’m just hounding these brokers, hounding the people that are, that are in the deals. I’m always checking in because these deals do fall through. And that’s what happened here. It was locked up and under contract for a few months. And I, and I you know, I just waited and I was patient, but I checked in every once in a while and his, and, and the way that I got word that it was not going through was from my insurance agent, who I’m very close with. I’ve, I’ve, you know, I hang out with him a lot. Every time I go down to Florida, we hang out, he’s actually taken me flying on in a plane on his boat and really good guy. And I said, and I’m the one who connected him with this buyer that was, that had it on the contract.

Nico:
And I kept checking in. I was like, bill, man, is, is this thing going through? He is like, no, it’s not happening. At one point he is like, I don’t think it’s, I don’t think they’re gonna be able to close on it. I think they’re having trouble finding the cash. I said, okay. So I reached out to the broker and he was like, it’s available. I don’t wanna deal with these people anymore. They fell outta contract, let’s go. And the sellers at that point as well, were also fed up. So I got it at a discounted price, and I was able to negotiate as well the terms that I liked for this type of deal. So it ended up being 16 units. All rents were averaging about 700. However, we have properties two other properties in the same area where we know we can get at least 1150. And Section eight was offering 1113. So we’re essentially gonna be pushing rents 500 bucks. So I ended up negotiating about 25% down with a 4.5% interest rate interest only fixed for five years.

Charles:
Yeah, that’s, that’s pretty amazing.

Nico:
Yeah. And we nailed this one and it was a 30 day close. They were like, fine, you want this. They, they like, their fight was that you could tell that they just wanted it closed. So they were not fighting back on the purchase price as much as they were fighting back on the timeframe to get this thing closed because they had just been through the ringer with somebody who couldn’t close. So that’s something that’s really important for people is if they can, if you can close this deal, you have some power, right? So you have negotiating power. So you

Charles:
Spoke about how the relationship you have with your broker, which is super important, and I think I, when I speak to new investors you know, one thing they usually struggle with is showing credibility, especially with brokers and before having any deals under their belt. So how did you overcome this initially when you were starting out?

Nico:
I love this question, and this is something that, so I I, I’m still connected with a lot of communities and a lot of people that are just beginning and I kind of coach people and help people as well in their initial stages. And it’s something that I ran into as well. So I began looking at deals down in Tampa or the Greater Tampa MSA at the end of 2019. I did not close my first deal until almost exactly three years later. It was November of 2022. So what that, what I, I’ve done other deals as well as a co-sponsor. However, it was my deal that I finally got under contract. I finally got a broker to agree to, right? So step one was, I flew down there and I met with some brokers. Obviously I messed up those conversations and obviously I looked like a newbie, right?

Nico:
But I kept at it. Every single deal that they put out, I would underwrite and every single deal that I underwrote, I would provide guidance or, or feedback to the broker on. And they really appreciated that. So they knew how I underwrote deals and they knew where I was coming from. I also created a one pager, which I share with people for free if they want it, just kind of explaining to the broker who you are, why you feel you can close this deal, who you’re connected with, et cetera. And I would consistently say to brokers, you know, I’m connected with X amount of groups, I have x amount of KPS in the groups. I can close these sort sorts of deals. And it just so happened that we had just gone full cycle on one of the, the co-sponsor deals that I did. And I said, Hey, I I, we just sold this property. I’m ready for a property. So all of these little things, little hits and consistency are where the broker finally decided to take me seriously. It took three years though, to be honest with you.

Charles:
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Charles:
When you were what kind of debt did you use on this first deal? So you said you had KPS in the deal. I mean, are you using bank financing for these properties? Are you using an agency financing? You’re saying these are C-Class properties? So

Nico:
Yeah, I went with local banks for everything we’ve done except for the recent one where we did the seller financing, which was phenomenal and I would totally recommend that if, if you could swing it. But back to that seller finance, before I answer the other debt questions it’s not something that you’re supposed to go out and say, Hey, can I, can you sell or finance this? Right? First of all, the, the, the owner has to own the property outright, otherwise you’re gonna do a master lease option instead. If that’s even on the table and the owner has to be savvy enough to understand what it is, and they have to be willing to do that right and hold the note for you, not every owner is willing to do that. Not every wi owner is capable of doing that. So this was kind of like, you know, they’re, they’re hit, they’re, they’re, they’re few and far between, but if you can get one, it can be, it can work out really well for us as buyers.

Nico:
Now, back to the other debt questions. So the first property we bought was a 44 unit property. It was, it was a portfolio of two properties within a mile of each other. And we did two different banks for each one. The first, and this was exactly when the, the rates started kind of going up fast. So we had to close quip to kind of lock something in. So the first one was a 16 unit. We closed in October of 2022 with a 4.98% interest rate. It was also fixed for five years. This is why I like banks local banks they are negotiable on a lot of different points as well as you can have it fixed for a certain amount of years with lower prepayment or you can even re you know, negotiate no prepayment penalties. And then the other one was, we closed in December.

Nico:
It was the same portfolio, but it took us a while to clo close this one because that first bank didn’t want to touch it <laugh>, it was in a, it was right across the street from mobile homes. So we ended up going with a different bank US Century, who’s also a local lender down in Florida. And they gave us, by the time we closed that one, the rates were 5.7, no, 5.85%. So it went up almost a point in a few months, which was crazy. Times were crazy back then, but they did give us a higher leverage. So the first deal, the 16 unit was 65% levered and then the, the 28 unit was 70% at five and a half, 5.85%. Both of them are fixed for five years. Both of them had interest only for about a year. One was 18 months and 30 year amortizations on both.

Charles:
Yeah, yeah, you’re usually getting 20 or 25 years on the Amort Nation. So going 30 is great. The other thing too is that with the prepayment penalties, that the fixed portion is great about going with community banks. And what I’ve found with working with community banks, as you said, is it’s all negotiable. And I like it too where you have, especially if you’re working with local banks and credit unions, the credit committee is typically local. So they know the area, they know the pro, they know where they know where they’re investing. Comparing, talking to someone that’s outta state that has no idea, you might be talking to someone that has a branch down the street and they pass by it. You know what I mean? So I love that part about about it. The other thing with the prepay and penalties, which can get pretty onerous when you are with any type of agency debt, you know what I mean?

Charles:
It’s what I’ve found with when doing bank loans is that it’s a simple step down and you know, like I’ve had the 3, 2, 1, so like the first year is 3%, second year is two 2%, third year is 1%. Or if you’re gonna, you know, five years, it might be like 5, 4, 3, 2, 1. You know what I mean? So you have an idea, you don’t have to guess where interest rates are gonna be, you know what I mean, with these more sophisticated pre-PIP penalties because then you have to figure out with all yield payments, all this stuff. So knowing exactly when you’re refinancing what you’re doing gives you an idea of where you’re gonna stand no matter how many years the project is. Yet, if you, if you agree with what I’m saying there,

Nico:
Absolutely Charles, great guidance there. And I feel the same way I’ve, I have yet to do an agency loan. I’m not counting it out, but I will at some point. I’m just not there yet.

Charles:
Can you talk a little bit about working and starting with smaller properties? ’cause Like when I started investing in multifamily, you know, my first three years I was sparring with small multifamily properties, so like three units and stuff like this. And then I went into a little, you know, some larger into small commercial multi-family and stuff. And I think like you see a lot of gurus online and they’re pushing, getting into large, you know, large complexes, 50, 7500 plus units on your first deal. For people that have never invested in real estate or never invested in a multi-family property, can you tell us a little bit about, you are thinking on this when you are coaching students that might not have be ready to kind of push the risk that far. And is it okay to start with smaller properties and kind of like, you know, what are your thoughts on this?

Nico:
Yeah, what a good question, Charles. I, I, I really think that people need to begin, well, you should begin small. I don’t wanna say that you should or you have to, but you should begin small if you’re going to be working alone. Okay? and you should never really be working alone. So if, and, and if it’s you and your partner or a couple partners and you have the same amount of limited experience, I would absolutely recommend staying in the smaller multifamily realm. Why? Well, because I mean, there’s just less to lose, less, less risk involved because the, the higher you go, the higher you go purchase price, the higher you down payment, everything’s gonna be a little bit more you know, conse, the consequences are gonna be higher if you mess up and it’s okay to mess up and I mess up all the time and I make little mistakes as long as you’ve learned how to course correct and, and move on or even get advice from gurus and people out there who’ve done it before.

Nico:
However, if you’re going to do a larger property, you can, but you have to understand that your role is gonna be limited because you are not gonna run that thing. You’re not gonna be the main GP on that, and you should not be. And I really feel that and, and believe that you should not be the main GP of a midsize or large multifamily property until you have done this for years. Just like any business, you need to have experience and how do you get experience? You gotta cut your teeth, you gotta do smaller ones and or sit alongside somebody doing a bigger deal, but you’re not taking that main lead role there. Yeah,

Charles:
I totally agree. That’s one thing I always stress is that you have to do a deal or at least one deal by yourself before you start raising money and stuff like that. I mean, it’s just, you gotta have the proof of a concept and

Nico:
Yeah. Yeah. Well, so this man, it’s crazy now raising money these days. So I, and I know, and I’m connected with people that have, have not done it properly where they’re going out there and essentially lying to people and getting money to, to invest in something that they think or, or that they’re portraying as a great investment when they don’t really know. It takes experience to know what a great investment is. And I am shooting for, for home. I’m not shooting for home runs, I’m shooting for base hits at this point. And, and I’m, I’m very clear about that when I’m doing my investor pitch and I’m clear about my experience and my track record and what I’ve done and what I haven’t done and what I’ve seen and what I have not seen. Raising money is is a whole nother nother ball game.

Nico:
However, on my first deal that I did, it was only one year into my journey. I had one year of experience of education and I did a deal, but I did it alongside people that knew what they were doing. So I was comfortable bringing my investors in because they had the track record and I utilized their track record and I was really just a fly on the wall on all the asset management calls, and I was the guy who was relaying information to my investors for that team. But I didn’t run that deal at all. And thankfully, yeah,

Charles:
No, that’s great information there. So in your, in your kind of over these years of working with other people doing deals yourself, what are common mistakes you see real estate investors make or maybe ones that you’ve made yourself during this career?

Nico:
A lot. So, debt you mentioned earlier is extremely important. You have to understand the debt that you’re, you’re getting. And this is actually becoming evident today and, and will become evident as we were talking earlier in the coming months where if you don’t understand the debt that you’re utilizing or getting into, you could run into issues where your debt service is now doubled, right? So, and then you, you, you’re liable for a capital call or the bank coming in and taking over the property. We don’t want that to happen. You have to understand your debt and your business plan moving forward. If you’re saying you’re going to, to hold a property for five years, you should make sure that the, the debt matches that. You don’t want to have a, a balloon in three years unless your, your business plan is to refinance in three years.

Nico:
And that should be another factor is understanding your business plan. Are you gonna go in there right away and, and renovate all the units? Are you gonna wait until they’re till till they’re, they’re vacant? Are you going to do, what type of renovations are you gonna do? There’s so many little nuances with running and managing the property from a business perspective that needs to be sorted out prior. And obviously you’re gonna change course correct and, and do that kind of stuff down the road, but you should have some, a general guideline of where you want the property to. Education also is huge. And if you are not educated yourself, you need to connect with somebody who can educate you. And it could be a mentor, it could be a forum, it could be books, it could be all of the above, you know, but constantly being involved in the, you know, what’s going on in the market, in the, in, in the economy and what other operators are doing. And always, always be on point, educating yourself.

Charles:
It’s a lot of great information. I think the course correct is something that it’s super important because, you know, market market conditions change and how much you’re able to raise and the deals and stuff like that that are coming up really change the, the trajectory of what your business is. So that’s a lot of great information there. Thanks Charles. Nico. So you have a, you know, how would you successfully balance a full-time job while investing in real estate? Because, you know, you’re traveling to Florida not buying stuff in New York, luckily. And I mean, how you’ve done that, I mean, it’s it’s your long-term landlord. How have you structured your business where you’re able to do that?

Nico:
So it’s not, honestly, it’s not easy and I don’t recommend it for people. If you are serious about being a multifamily investor, you need to put a lot of time and effort and energy into it. And if you’re working a full-time job and if you have a family and if you have other jobs like I do, you gotta really be ready for this. And I’ve seen so many people just burn out and not do it and not continue and just flop. So you have to be prepared to work a lot, right? Unless you wanna be a passive investor, and I highly recommend that if you have capital, if you have money, invest as a passive investor if you are busy. So my day is like, I, I get up super early, I do a workout to get my, my let me backtrack a little bit.

Nico:
I don’t drink. I eat healthy. I make sure I get eight hours hours of sleep and I take care of myself. That being said, I get up early, I out and then I’m working. I work prior to my day job. I work during my day job on my real estate and I work after my day job on my real estate. I have also limited the extracurricular activities that I used to do. And I’ve also limited the other jobs that I used to have. I used to have a lot of other like part-time jobs, which I’ve eliminated essentially. So it’s really just a combination of understanding from the beginning that you’re gonna be working around the clock seven days a week, and you have to be motivated to do that year, year after year. You can’t, it’s not something that you can just kind of give up on because your business will suffer.

Charles:
So tell us about your podcast, the small X podcast. I mean, what do you talk about and why’d you choose that name for it?

Nico:
So I typically get people on, like you investors to talk about their journey and how they have you know, how they have been successful. Kind of give us some tips and some, some inspirational stories to get people motivated as well as teaching my listeners and my audience some things about the multifamily space. And I start, I thought of the name the Small Acts podcast because it was initially the small acts wood shop. And my idea was the, it, it comes from from two sources. The first is Bob Marley’s small ax. If you are the Big Tree, all you need is a small axe to chop it down. As long as you keep that ax sharp, which is the second source that it comes from, which is Abraham Lincoln, if you give him four hours to chop down a tree, he’ll spend, you know, the first hour or whatever it is, sharpening the ax.

Nico:
Because as long as you have a sharp ax, you can take down the biggest tree. So it’s important to educate yourself, to sharpen your ax and to sharpen whatever tool you may be working with. I truly believe that everybody has the ability to make it and be successful in the multifamily space given whatever tools they have, what resources they have, whether that be financial resources or educational resources or the gusto right to get out there and be boots on the ground. So there’s a way to get involved as long as you have those tools you need to sharpen them.

Charles:
That’s great. Thank you so much Nico. So how can alert learners learn more about you, your business, your podcast?

Nico:
Yeah, if you can go to my website, you’ll find everything. So it’s small acts communities.com, and that’s small acts a XE communities.com.

Charles:
Well, that’s great. Thanks so much for coming on today, Nico, looking forward to connecting you with you here in the near future.

Nico:
You’re the man, Charles, thank you so much.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

Links and Contact Information Mentioned In The Episode:

About Nico Salgado

Nico has a BS in Business Marketing and Management and a minor in Economics. He also holds a Master’s degree in Spanish Language Education and spent the past 19 years as a Spanish teacher while investing in real estate.

Apart from teaching and investing in real estate, Nico is an entrepreneur, coach, mentor, and leader. He is an avid surfer, woodworker, traveler, and incredibly proud father.

Nico began investing in real estate in 2012 with a single-family development project and has since transitioned into multifamily. He went full cycle on 194 units to date and is currently a GP on 3 projects consisting of 70 units in the same zip code in Florida.

He hosts a biweekly meet-up group called the Multifamily Investors Network NY. Nico also hosts the Small Axe podcast, where he interviews industry leaders in multifamily. He believes “it only takes a small axe to build a lasting empire.”

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