Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host, Charles Carillo. Today, we have Paul Montelongo. He is a lifelong investor, entrepreneur, and business owner. Paul has built, owned, and operated eight multi-million-dollar businesses over his 45-year career in high-end construction and remodeling, casualty management, residential property flipping, sales, and mentoring. These companies have generated over $140 million in revenue and have employed hundreds of people. He invests in underperforming specialty properties in emerging markets, like marinas, resort properties, apartment units, event facilities, and self-storage, as well as residential properties. Currently, Paul has investments and dispositions in more than 1,400 units across multiple markets. So Paul, thank you so much for coming on the show today.
Paul:
Glad to be here, Charles. Glad to be here.
Charles:
So you have a very interesting background going from an entrepreneur into becoming a real estate entrepreneur. But before doing what you’re doing now buying at a whole plethora of different real estate assets, can you tell us kind of a little bit about yourself, both personally and professionally? Sure,
Paul:
Sure. Well, I, I bought my first piece of real estate when I was 17 years old. My father, who did not own real estate at the time, I don’t even know if he owned the, the home we lived in. He might have, but he said, you gotta buy real estate. So I, I believed him and I took the money that I made in the summer, you know, raking leaves and mowing grass and doing odd jobs. And I put $7,500 against a tract of land, a little residential lot, little cul-de-sac, residential lot. And I had these great aspirations that I was gonna build a spec house and sell it and make a ton of money. But, you know, I’m 17, I don’t know how to do that. So I hold, held onto it. And then two years later, I put a sign on a telephone pole that said lot for sale.
Paul:
And I had my parents’ home telephone number on it, and somebody responded and I sold it to them for $15,000. I doubled my money and I did the thing that every experienced real estate investor is supposed to do with a windfall profit like that. I bought a truck and a motorcycle <laugh>, and that set me on, of course, you know. Then couple years later, I bought a house and I flipped it, and then I bought one across the street and I flipped it. And then I just, so for close to 25 or 30 years, I, I did residential flips, single family. And while I was operating my construction business, my renovation business, I had a insurance restoration. Your house burned, we would fix it up. That gave me real estate leads as well. I learned. And, and then that you know, just set me on a course of, through, through my life, doing real estate in some form or fashion.
Paul:
I bought a little small piece of land, a little small real estate excuse me, a commercial real estate track. And, you know, these things just kind of added up through, through the span of my life. And then in 2012, someone asked me if I wanted to buy a marina and Charlotte, North Carolina. I was living in Las Vegas at the time, and they asked me if I wanted to go to Charlotte, North Carolina and buy a marina on the lake there. And I, I had no idea how to buy a marina, what to do with the marina. I’d never owned a boat. I still have never owned a boat. This marina had 115 boat slips. It had 24 RV spaces, and then it had some other, like, storage and things like that. And so the, the short of it is, is that I was able to go in with a couple of partners and purchase that as my first multi-unit commercial track of land.
Paul:
And we, we took the 24 RV spaces out. I made 36 or 38 pads, and I put 38 tiny homes. I had 38 tiny homes built. And so we became an Airbnb superhot, and it was a glamping resort, the first one on the, on the East coast. And at one point I had 13 streams of revenue. There was the marina and boat rental and event space, and the tiny homes and, and storage, and lot storage and a boat club. So all told, you know, we just built streams of revenue. And then I held onto that until 2018 and I sold. So yeah, it was quite an adventure. My only regret there is that I didn’t do a TV reality show <laugh>. ’cause It was a crazy adventure, you know, on the lake there.
Charles:
Oh, that’s crazy. Is that, that was very seasonal then. I imagine, so what, what happened in the off season with everything? I mean, people pull their boats out.
Paul:
A lot of people pull their boats out. A lot of people lifted their boats off the water covered them, winterized them. Yeah, it was seasonal se seasonal, although we did annual leases. We didn’t do seasonal leases because there was enough, enough demand on the lake there. It was only one of five marinas. And the lake was quite popular. Lake Wiley, Charlotte, North Carolina. And so the lake was quite popular. And so we did annual leases. So whether your boat was in the water in the docket, not, or not, you, you still, you still had an annual lease. And as it turned out, we had a nice waiting list. And yeah, so it was, it was good in the winter. People still came in for the Airbnb tiny homes. It’s really nice in North Carolina in the winter, aside from a few really chilly days. But yeah, we, we, we, we managed to have revenue year round. Nice.
Charles:
So take us into kinda what you’re doing today. You you built some businesses. You’re in real estate, you’re buying a diff all different types of assets now I guess mainly apartments. But can you give us a little overview of really your current investment strategy and kind of your, your philosophy behind that?
Paul:
Sure. Mo mainly apartments right now. So after I purchased the marina and, and the, the two gentlemen that I was in business with, they were apartment buyers for the most part. And so they mentored me and they told me how to get into it and how to raise capital and how to go get funds and, and, and those kinds of things. And so then I started buying apartment complexes. At first. I had partners, you know, that would, that would be the majority owners. And then at through time, then it kind of switched over to where I, I became the KP and, and obtained the loan and so forth. And primarily we buy in south Texas. We have two assets in Kansas. We have we, we close a transaction in Alabama. I have another Alabama transaction that I’m working on, but it’s not an apartment.
Paul:
It’s a data center. I’ll tell you about that in a minute. South Texas is San Antonio Corpus Christi. And so we look in Texas, because Texas, like Florida, where you’re, where you are you know, there’s a lot of growth, a lot of population growth and business friendly and those sorts of things. So we, we look for apartment complexes, usually class C plus or class B minus something that we can do a light value add. I don’t wanna do a, a total reposition too much work, but if we can, if we can put some paint on what, what do they call lipstick on the pig? Yeah, we, we can do some cosmetic work and add value there, then that’s really our strategy. Nice.
Charles:
When you’re picking out these markets, obviously we talked about Texas Kansas, a couple other places, what would you look for in an emerging market to invest in? Is there any kind of specific metrics that you and your team kind of want to see before going into a market? We
Paul:
Do. First we look for landlord friendly states, landlord friendly areas with reasonable population growth and not just current population growth. Like what’s the, the, the trend. So do we see something over the last three years and do we project that there’s another three to five years beyond today that there’s gonna be steady population growth, two, three, 4% population growth. Growth. ’cause that correlates to job growth, which also correlates to rent growth, which also correlates to occupancy. And so just a whole economy, a whole ecosystem is stimulated by population growth. Whether is a, a kind of a side con consideration. We don’t have anything in the northern states. In Kansas when it snows, we have to do snow clearing, which is something we don’t do in Texas, <laugh>, you know, so you have to budget for that sort of thing. Those are the considerations that we look for. Can we get to the property? Can, can our asset management team get there in a reasonable amount of time if something needs to be taken care of? Yeah. Those are the things we consider.
Charles:
How do you guys handle asset management and property management? Is it all third parties for your property management over those different states and assets?
Paul:
Property management is third third party asset management, construction management, that’s in-house with partners that I have. So every Tuesday and sometimes in the middle of the day on Wednesday, that’s dedicated to asset management. So I just sit on zooms most of the day and listen to reports and see how properties are going and see how our team is handling the properties. I try not to say too much unless it’s, you know, unless I need to say something, but because the asset management team, I let them do their job with the property management team. Yeah. When
Charles:
You guys are hiring a third party property manager, what how have you been successful in number one, finding that property manager and how have you, what are some things that you’ve done to vet that property manager?
Paul:
Yeah, cool enough. We’ve had fairly good success with third property management companies. We wanna see a property management company that’s in a market that’s familiar with the, the market, familiar with the particular asset. So we’ll always get a third party property management company to help us underwrite the final stages, you know, the final stages of underwriting on, on an asset that we wanna purchase. We wanna see that they have a good business plan and that they’re familiar with, you know, how to work in the market. They’ve been in the market. So PR we’ve had pretty good success with property management companies, we stay really involved with them. We’re not a hands-off team. We, like I said, we meet every week with the, now some assets as they get older, or we have them a little bit longer. We meet once every two weeks. We have one asset in, in the San Antonio. We meet once a month, you know, but it’s, it’s on autopilot, it’s clipping along at 94, 90 5% occupancy. So, you know, we just, we just do updates on that one. So in the beginning of an asset, the purchase of an asset, there’s a lot of attention paid to it. And then hopefully if we’re doing our job right, then over time we just kind of do as needed on, on the asset and property management update calls.
Charles:
Yeah. As that business plan is being really integrated, you can kind of step back a little bit from those really regular calls. So that’s, that’s great to have and knowing that your plan’s actually actually rolling out correctly.
Paul:
Yeah. And it’s my job to go out and find more deals mm-hmm <affirmative>. And to negotiate those deals and to deal with attorneys and deal with CPAs and deal with you know, challenges that come along on the job, the, the project that we need. So the less I can get into how are we gonna collect that delinquency, the better
Charles:
<Laugh>? Yeah, yeah, definitely. For sure. Do you have money sitting in the stock market and you’re worried about it? Or worse, you have money sitting at the bank, not keeping up with inflation? My name is Charles Carillo, founder and managing partner of Harborside Partners. And since 2006, I’ve been investing my money and my family’s money into income producing properties. These are real assets, real properties with real addresses that produce real cash flow. At Harborside Partners, we provide passive investors who love real estate with a turnkey investing solution. If you, you want to put your money to work in real estate, but can’t find deals, don’t have the time to get funding, and the last thing that productive people want to do is manage real estate. We find the deals, we fund the deals, and we manage the tenants, the termites and the properties. Partner with us@investwithharborside.com.
Charles:
That’s invest with harborside.com. Go to invest with harborside.com. If you love real estate, you like the idea of passive income and believe that income producing properties will appreciate over time, go to invest with harborside.com. That’s invest with harborside.com. Talking about delinquencies talking more about what you guys are investing into class-wise. So I guess we’d say over the last 36 months we’ve seen, and it’s slowing down now an onset of new deliveries, especially in apartments coming online. And it really affects, I would say, obviously your A and your B but I think it also trickles down into your C class a little bit as well. What would you, as focusing on your C plus B minus, which is I would consider like your core workforce housing type properties. Right. what would you say how have your properties been affected by that? Those new deliveries that have come on over the last couple years?
Paul:
We haven’t seen a dramatic impact, and I think it’s a price point consideration. So your, your workforce housing has a certain price point because it’s tied to, number one, the, the amenities on the asset, the, the age of the asset, you know, just the asset itself. And then number two, the demographic. So you, you know, your B plus, your A minus, your A properties, they have a different demographic. And so they attract a certain, you know, they a certain tenant and we attract a certain tenant. So we haven’t really seen a big impact from saturation or deliverables in the market. It’s been fairly steady. Mm-Hmm <affirmative>. You know, all of our properties are, I mean, we have one, one right now that’s, that’s, we had to clear out a ton of people because they were just bad te tenants, but most of our properties are operating at north of 90% occupancy. So that, that would tell me that the deliverables is, doesn’t give us, it doesn’t have a huge impact on, on our properties.
Charles:
Yeah, no, for sure. It’s I think when people start tightening their belts or going through any type of economic uncertainty, that’s when people forget about amenities. And no matter what a class property comes on, or b class, really concessions are coming on. If you have a solid C plus property, you’re probably not gonna lose tenants. It’s it’s a little bit more insulated than having a nicer property where you’re trying to get extra a hundred dollars because of some, you know, barbecue pits or whatever it might be per month. And people that are not really too worried about that. So
Paul:
I think the national, you probably know this statistic better than me, but the National Apartment Association, they had a statistic that I read a couple years ago, and that’s like 95% of people that tour want a swimming pool as an amenity. But after they lease, like 5% of them use it <laugh>. So, so it’s the perception, you know, but I think a lot of times people really get back to the reality, am I gonna use that pool? Am I gonna use that barbecue pit, like you said?
Charles:
Yeah, it’s one of those things. But I started in c class properties, and it’s just one of those things that when anytime we went through any type of little bit of a pullback, we never had issues. We were really, like you were saying, 90, 95% over, you know occupancy never have an issue. And I think it’s just something, and you would have people, I remember I was renting apartments right after the GFC, and I had people that were coming, I was up in Connecticut at the time, people were coming from South Florida that had lost like a half million dollar house back then that were now renting an apartment, I think like 6 95 a month from me. I mean, it’s amazing. You know, it just, it’s so, there’s, it’s, it’s where people, you know, when people get hit, they really get hit hard financially, especially in any of these real pullbacks, and they’re not going a and b’s completely out of it. They’re going to a, a CPL a C property, you know what I mean? So, yeah. And
Paul:
If you, if if you’ve got your homework right on the market, then there’s gonna be organic population growth. Okay. Now then you add some kind of, you know, financial condition in the market, and that only supplements your, your demographic going in as potential renters. So that’s, that’s a win-win from, from an owner’s perspective, you know?
Charles:
Yeah, no, for sure. For sure. So we, we’ve you know, you talked about some different asset classes. You brought up data centers, which would be kind of, I guess on any type of interview here, it’s kind of illegal not to talk about ai. So it’s one of those things. Let’s talk about what you got going on with data centers. I mean, there’s a lot of talk around it. I kind of just kind of go over it myself, and I’m reading articles because it’s not something that I know too much about. But tell us about kind of the economics behind it and how I mean, how’s your firm connected with it?
Paul:
I, I’ll, I’ll try to hold the reins a little bit. ’cause This is, I’m really excited about this asset class, but first of all, you should know that this is not really me. This is my AI clone talking to you, <laugh>. It’s a joke, Charles, let’s go <laugh>. But you know, during, during the pandemic I was, I was seeing all these properties get abandoned commercial properties and even hospitals and, you know what do you call urgent care centers? And a lot of properties that were getting abandoned ’cause people were going back home to go to work. So I asked myself the question, what’s gonna happen to all those properties? And I was just like, took a hammer to my head. I couldn’t figure out what to do with those properties. And then about a year and a half ago, someone said, well, have you ever heard of micro data centers?
Paul:
And I’m like, no, what’s a micro data center? And it’s just what it says. So you had the, you got this huge mega data centers that AWS and, and, and Google and meta and all those are building that are, you know, half a trillion dollars. But then you have the smaller knockdown version of it that are 20, 30, 40, 50 megawatts of power and mid-size companies are occupying those, and they are what they call edge compute. So they’re on the edge of, of, of metropolitan areas where there’s a lot of demand and a lot of usage, and they’re retrofitted buildings. So now, here was the answer to the pandemic questions. Buildings with power, as long as they have the power, they can be retrofitted to accommodate a data center in all of the rack storage space that is required for a data center as long as they have the power.
Paul:
The challenge that we see right now in the country, and actually in the world is a, is a lack of ample power to sustain all of the data centers that are being built. So the answer for us is we go find properties that have existing power already allocated to it from the grid. In other words, we’re not drawing any additional power from the grid. We’re not taking it from the citizens. We’re not taking it from new development. We’re not taking it from places that didn’t already belong to the property. We’re just using the property. So what does that mean? Manufacturing plants a commercial industrial or commercial office space. A, a hospital a, a foundry where they might have done brass or silver or any of those kinds of, you know, high, high equipment type of products. And so then now all you have is a remodel job, right?
Paul:
If you, as long as you have the power allocated from the utility company, now you have a remodeling project and, and you, and you create the space with air conditioning and backup supply to accommodate rack space. And so we’ve invested in, in a facility in Alabama, and it currently has about $20 million worth of storage a computer storage space in it. We’re putting another 25 million into it. I’m evaluating attractive land in Texas outside of Austin. That would be probably about $500 million worth of equipment. Now, that’s not equipment that we would fund. We would just do the, the, the infrastructure and then another company would come in and put their equipment in it and their storage. So that gives, that gives us the answer. And, and, and the, the real answer that I was looking for along the way was, how do I get, how do I get into the data storage cashflow business and have a part of the underlying asset we call real estate since I’m a real estate guy, so how do I, how can I participate in both? And this seems to become, be an answer that, that we like and that is working. So, I mean, we’re still, these are brand new fresh investments. The performers look really nice. Talk to me again in two years and we’ll see <laugh>, we’ll see how it goes.
Charles:
Let’s talk about those leases then when you’re leasing that out to a a company that’s coming in utilizing it for storage, number one. So you’re saying you made a reference to this. So the ti the tenant improvements, it sounds like it’s almost kinda like a warehouse that you’re providing that has the infrastructure, but they’re coming in with their own ti tenant improvements. They’re building it out. How long is that? How it is and how long is are these leases for that usually? They usually sign up for,
Paul:
Yeah, there’s no ti we do the, we do the build out. Okay. In other words, we do the, we do the aircon it, and, and basically it’s just a big mm-hmm <affirmative>. A big room <laugh>, and there’s a lot of security in it. There’s cameras and there’s okay, plenty of air conditioning, plenty of backup generator generator backup for redundancy and that sort of thing. So essentially they come in and they bring their equipment and they plug it in. It literally takes just a few days. If the equipment is prepared, once it hits the dock, then to plug it in, it just takes a couple of days and then they’re up and running. Interesting. And so these companies come in and they have either they are end users or they have end users you know, in their, in their stable. And so they either rent the racks to the end users, or they themselves are the end users.
Paul:
So there’s, there’s two models. We also can fund a group of racks and then do what’s called a colo. So colocation. So in other words, a bunch of companies can come in and rent and, and rent those racks, and you can rent ’em by the rack. They’re about the size of a pizza box, by the way. You can rent a pizza box, you can rent a group of pizza boxes, you can rent a room full of, full of racks. So there’s all kinds of variations depend on your need. We find that a large part of who the end users are. By the way, we don’t always know who the end users are for security reasons. Okay. Like, like the name, because it goes through a third party and, and they hold the name confidential. But we find that, that a lot of end users are end users that have video storage needs.
Paul:
So police departments with body cams, the toll system that takes pictures of your license plates any kind of, any kind of church or municipality that has video recording of their premises. So video storage takes up a lot. Video files take up a lot of storage, and they need to be preserved for liability for a long time. The, the contracts themselves, they could be one year, two year, three year, four year, five year, any, you know, much, much like apartments. But typically you’ll see a three to five year lease agreement with a very strong switching fee, what’s called a switching fee. In other words, to remove your equipment from the facility, it’s almost cost prohibitive. And you might, you know, you might think, well, that’s maybe not a good business practice, but in reality, these companies, once they park their information on a server, they’re pretty much dedicated to leaving it there anyway.
Paul:
It’s too much of a hassle, too much of an expense, too much logistics too, too, too many logistics to actually move that data from a facility to another facility. So the switching fee is just, it’s, it’s cost of business anyway. And it, but it prohibits just, you know, people from coming and going in, in and out, right? But the, but three to five years, the equipment itself, depending on the equipment that, that you buy it can last up to 10 years. Now. It’s not the latest, newest model. Like, you know, you go out and you buy a 2026 vehicle. Right now, it’s just a little bit better than 2025, but 2025 is a really nice ride. So it’s the same thing with these racks. You know, the 2025 version hums along great, has lots of storage, but the 2026 version, little bit faster, a little bit more storage, and it doesn’t make these others obsolete, is just an improvement. So companies will keep their data that doesn’t need to be com, what we call compute, right? So there’s compute and there’s storage. So active computation takes more storage, more more power. But once a project is done and there’s data that just sits there, it sits on these older servers.
Charles:
Interesting. And by
Paul:
Older, I mean like one, two years, three years, you
Charles:
Know? Oh, that’s very, that’s very interesting. Yeah,
Paul:
There are servers out there in the market right now that are holding information and the servers were put in place in 19 90, 19 92. So, you know, they have a, a, a decent lifespan.
Charles:
Very interesting. What a, what a unique asset class. I think it’s something that it gets a lot of play now data centers because around ai, but really, I mean, they’re need it for everything. You, you know, you, you have a website, whatever it is. I mean, you’re using storage for it, obviously with video video’s not going anywhere and ever, as everything gets more high daf, let’s just say, as the quality gets better, the files get bigger. You know what I mean? And like you said, now it’s something where so many different places are bringing this online as a security feature, perfect for, like you said, body cams, the police departments, that’s something that’s being rolled out if not rolled out to most places of the United States. So these are just adding more and more requirements for companies to start using, like using this and renting it.
Paul:
Ev every new car has multiple cameras on it. You know, we, we, my wife bought a new Volvo, and I think it has like 10 cameras on it, those little bitty pieces of glass that look like a size of a nickel, just all the way around. So you know, that, that, that process has to come from somewhere in data centers is where they hold all
Charles:
That. Paul, very interesting. As we’re kind of wrapping up here, I had a couple questions here because we’ll get some investors that come on the show that are in you’ve, you know, that are successfully in multiple asset classes like yourself, and it’s not something that I actively do. So what would you say is really the key to success for people that are investing across multiple asset classes? Obviously you’re very knowledgeable in everything that you’re investing in, but putting a team below you to handle, like you said, the, as the management calls working with the property managers, whatever it might be how do you successfully do that?
Paul:
Well, I’m fortunate that I’ve had a career where I’ve built a number of businesses. And so yes, I’m a real estate investor, but I think more importantly, I’m a, I’m an entrepreneur, I’m a businessman. So you could probably put any kind of business in front of me and I could probably figure out how to operate it and how to put a team together that could operate it and make it, make it drive down the highway successfully. So to me, real estate, if I go buy an apartment complex, let’s just say I didn’t really, yeah, I bought the real estate and I bought the doors and I bought the roof, and I bought the parking lot, but I bought a business, you know, I bought, I bought a hundred customers, their tenants, I bought their great Google reviews. I bought their crappy Google reviews. You know, I bought their unpainted walls.
Paul:
I bought, I bought <laugh>, I bought their newly renovated swimming pool. So I bought all the market, I bought everything about the business. So it’s our job then to go in and refine that business, that business model, make it profitable, make it attractive, add value so that we can either refinance it, pull cash out of it, or sell it at market value. So just like any other business that you, you would do, you build the value, you build the the NOI, the net operating income, you put a multiple on it, you sell it. So I think it’s a mindset that, that I’m a business person and put something in front of me and if it interests me, I’ll figure out a way to get it done. Interesting.
Charles:
Yeah. So as we’re wrapping up here, what would you say are some of the common mistakes you see real estate investors make? It can be with apartments, it can be in any asset class, or it can just be real estate as a whole.
Paul:
I’ll use myself as an example. How about that? <Laugh>, I wish somebody would’ve taught me a long time ago how to raise capital. I didn’t start raising capital until 2013, 14. All of my businesses prior to that, throughout my entire career were self-funded. Either my money or, you know, a, a bank loan that I guaranteed, and I did not really realize the, the, the power of, of raising capital and doing syndication. So I’m thankful that I was taught that, and that we’ve been able to refine that, that process pretty nicely. So I would say new investors or investors, it doesn’t matter how long you’ve been in it, if you, if you haven’t mastered capital raising, do that. And that requires also networking, building a database having a group of people in your Rolodex that like, you know, you trust, you track, you see what you do, and that just takes time.
Paul:
And so it’s, it’s a long road and you just get on the road and just, you just start going. So I would say first of all, capital raising. Okay. secondly, I would say that, that the power of having people with you and letting people do their jobs, and that’s tough sometimes for an entrepreneur because by definition we want to manage everything, control everything. You know, we’re, we’re kind of mustangs in that, in that, in that sense, we wanna be out there leading the, leading the charge. So if, if you can get past that, or if you can manage that, manage yourself to bring along other people to help you manage, you’ll see more growth, you’ll see more pro productivity in, you know, your life and your business life will just improve. Those are the two main things.
Charles:
Okay. A lot of great information there. Paul. Thank you so much for coming on. How can our listeners learn more about you and your businesses? Yeah,
Paul:
Sure. Anything Paul Montelongo and social media? Paul Montelongo, everywhere. Okay. That’s, I, I, I’m, I got that name. It’s unique enough that I all the, all the social channels have that also@montelongocapital.com is our portfolio and how you can get in touch with us. All of our social media tags are there, links are there. So monte longo capital.com, we publish a newsletter and but it’ll take you all through our social media. And we’re quite active on social media. My wife and I, and we, you know, publish education, we publish things about our, we, our deals, our family, we, we try to be very transparent on social, so we find that that works for us. But anything social media, Paul Montelongo and or Montelongo Capital.
Charles:
Okay. Well, Paul, thank you so much for coming on today. We will put all those links down to the show notes and looking forward to connecting with you here in the near future.
Paul:
Glad to be with you.
