Latest / Financial Survival Network / The Do’s and Dont’s of Real Estate Investing: 2023 Edition - Charles Carillo #5784

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The Do’s and Dont’s of Real Estate Investing: 2023 Edition - Charles Carillo #5784 · Financial Survival Network

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Welcome you are listening to watching the Financial Survival Network. I'm your host,
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Carrie Letts. Well, just got interviewed by a very interesting person and I'm
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returning the favor. His name is Charles Carrillo and fellow Northeasterner led to Florida
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a number of years back, and he is the proprietor of Harborside Partners and
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you can go over to Harborside Partners dot com and get the latest info.
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Charles founder, managing part nerve for our harbors Side done a lot of real
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estate since two thousand and six, and you passively invest in many different asset
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classes. So we're thrilled to have you on. Tell us what is your
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philosophy about investing. I like investing in inflation resistance industries that are also tax
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efficient, and that's kind of one seeing that real estate really checks a lot
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of those boxes. So it's one thing that I've been involved with for many
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years. My father was involved with it for many years before. That kind
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of got me into it. But I got into much better properties than my
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dad was, much more in let's say, probably you may consider a slum
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wallard of my own. Yeah, well, both share that in common.
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Although my father built his places, but they turned into slums quickly because they
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weren't good neighborhoods. He ignored the principle the first rule, first three rules
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of real estate. Right location, location, location, exactly. Hey,
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what's the best investment you ever made? I bought an apartment complex completely vacant
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in December of two thousand and nine, and within ninety days I was able
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to get it fully rented out. But I paid twenty eight cents on the
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dollar from what it had sold two years before. You bought it distressed,
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Uh yeah, right from the bank. And I was able to go into
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the bank give them a thirty percent lower offer. And I've been sitting on
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the market for many months, things like one hundred and fifty days, one
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hundred and twenty days. Then I They're like, you know best and final,
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So I added a couple percent to that and I got the property amazing,
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amazing. Yeah, well, those deals are available on those multi families
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because a lot of times the developers are undercapitalized, or something happens, there's
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community opposition. They'll inspection something like that, and they wind up having to
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walk away from the property. And then the bank. Banks hate these are
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called the rio departments, right Mario. Real estate owned banks hate that because
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they're lousy real estate managers. They have enough problems just getting paid on their
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visa and MasterCard bills, and so they basically wind up dumping the property at
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a substantial discount. So how do you find those deals back in Well,
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back in two thousand and nine, you could find those just on the market.
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You just you can pull the Bama lescent and find them, you know
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what I mean. But um, it was you could go to commercial brokers
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and find them. I mean it was all over banks. Banks weren't lending
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at all, and it was it's you know, it's a catch twenty two
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because when I finished the property and I went back to refinance it, the
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bank literally would give me like a loan of value of ten percent. Not
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a different bank, but a local bank. I've been working with for many
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years, literally would give me a ten percent loan of value on it if
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I did it through them, because I had to buy with the cash,
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that's key, you know what I mean. But it was just something that
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I mean, not many people had money, and you can't get it from
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regular lenders, and that's when the prices, as we said, you know,
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go down seventy percent even more. So you really had an opportunity mindset
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because in two thousand and nine, many of us out there, many of
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you, thought the world was ending, that the economy was going to collapse,
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the dollar would collapse, and here we are fourteen years later, none
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of that's happened. Yeah, it's uh. I was twenty five at the
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time, so I wouldn't say I was very you know, it was just
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more of I didn't know what I didn't know, but I had this is
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my third property, and I had two of the properties a block or two
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away, and they're fully rented. People are fully paying for him and all
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this stuff, you know. And I bought again at the end, you
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know, previously before this, last time I bought was at October I think
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it was October first, two thousand and eight. So that's like two months
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after Lehman, two months before it made off. And I didn't I you
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know, I just didn't know what was happening. But the thing happened.
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That kind of helped me back as when price started going up in twenty eleven,
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I was like, oh, this is crazy, this is like insane.
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You start looking at properties because you're like, you know, I was
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just buying here, Like what's really changed? These lenders aren't even really opening
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up that much. And so it was a very weird time those couple of
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years. Hey, well, so the old saying where wise men fear to
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go, fools dare to enter, right, but you aren't the fool they
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were. And that goes back to Warren Buffett. He likes to invest when
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there's blood in the streets, right, yea, yeah, for sure,
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Old Rothschild should quote. Yeah, so where do you see your investments taking
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you? At present time? Where cap values even on the least desirable properties,
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who can imagine or basically through the floor, they're extremely low. We've
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had this unprecedented money printing boom where everybody has gotten into it. Who possibly
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could you're still looking for things? There are you're looking to be a seller.
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So last year in the beginning of twenty twenty two, sold one two.
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I sold that property I just just talked about. I sold three other
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and four other properties. Sold five properties last year, two which had and
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had investors with and three other ones were owned by myself. And so it
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was just a lot of selling going on the beginning of twenty twenty two.
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And kind of saw it, I mean, what was happening. We were
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going through a weird point in twenty twenty two and a lot of you know,
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a lot of these properties where they were all CE class properties, so
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a C classes properties where you have people that are, you know, working
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people, but it is a they might not have the most stable of income
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in jobs. And there was still a lot of COVID money being sent to
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these tenants, and we kind of saw the writing on the wall where this
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was not going to end well. And the last two quarters really of twenty
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twenty two, a lot of that money dried up and it just ended.
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And I guess tennants had forgotten that they used to pay their rent right to
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March twenty twenty. So it was something that we had we experienced a little
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bit on one of our properties that we're selling actually right now, but it
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was just for sure anybody that was undercapitalized, as you mentioned earlier, was
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just like one of the huge things that people don't think of when they're buying
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property. They say, oh, it properties a million dollars, I need,
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you know, two hundred thousan dollars to put down on it, and
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that's it. Well, there's so much more you really need, like four
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hundred thousan if you're gonna do any work to it and have a reserve and
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all this stuff. And people don't like that it cuts into the returns and
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but it's just something that it's really the tried and true way of being successful
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in the business is really a long term debt, long term fixed debt if
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you want to you know, on your first property, if you're to be
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safe and then have your reserves, and you know, buying landlord friendly areas.
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It's very important because my first properties were in Connecticut, uh, not
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landlord friendly at all, and it was you know down here. When I
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moved to Florida twenty twelve. You know, people will paid rent on the
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first because that's when late fees started in Connecticut. Leap fees don't start until
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the eleventh of the month, So instead of picking up rent in the first
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you're trying to pick it up on the tenth, and it just makes it
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much more, much harder, and then evictions drag on for many months.
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I mean, you're from New York, you must know landlords that went through
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this fun I remember my father and Linden, New Jersey, almost got to
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butt in jail for contempt in an eviction proceeding because the judge said, mister
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Lutz, it's Christmas and we can't put them out on the street. And
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my father said, who's going to pay the right? Your honor? Are
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you? That almost landed him in jail. So I know exactly what you're
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talking about. Florida, Arkansas, like you could put somebody inside all we're
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not paying rent. Places like Mississippi and Alabama and Texas. All these are
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landlord late jurisdictions. Oklahoma, right, a lot of them. But stay
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away from the communist areas of the country for sure. And the landlord friendly
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thing is just it doesn't mean that the landlords have a leg up. It
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means that it levels a playing field for the landlords. I mean that means
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that if you're having issues with something in your apartment, your landlords should be
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taking care of that. They should be fixing it. They should be communicating
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with you. It's a legitimate meat injury bust, not like you just want
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new stuff in your apartment that's not broken. It should be, you know
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it should They should go there and they should work with you to get a
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fixed. But it's also something where I would tell tenants it's a two way
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road. You know what I mean. You know you're gonna pay rent on
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this time. I'm going to fix what's going on. I'm gonna fix problems.
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You're gonna pay rent here. If one person doesn't do that, or
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one party ceases to do that, then we have to part our ways.
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But the problem is when you're up north in these states, tenant friendly states,
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it doesn't go that way. Well look, look, if you file
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a warranty of habitability claim in Florida or one of the landlord friendly jurisdictions,
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say okay, you don't have to pay your rent, but you've got to
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pay it into court and you're not getting a free ride. Just to do
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that would go a long way to getting rid of many many landlord tenant disputes
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and warranty of habitability is the places flooding, the refrigerator doesn't work or whatever,
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there's a major problem leading to a constructive eviction. You can't inhabit the
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This is the financial survival network. The information you need to throw now more
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than ever or for some of our properties, because what we focus on now,
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what we've been doing for the last few years is just buying in your
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B minus and involved properties. So these are people that are a little bit
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more well well off, with a little bit better jobs, that people that
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care about their credit and keep people that are cleaning and buying a house at
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some point in the near future that's what their plan is. So you're getting
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much more professional tenants that kind of know exactly you know they're they're treating it
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like it's their own house. When we were in COVID, we had a
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lot of C class properties and for the most part it wasn't that bad.
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At the government shot down a lot of industries, but we had a lot
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of essential workers that worked in our property. So it was really very interesting
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because it was a different mindset than going through two thousand and eight with people
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that weren't paying. Number one, that you had the government come out say
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you couldn't have victeal that weren't paying, But I still had to make payments
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to the bank for the mortgages. But we still had collections in most cases
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very eighty five percent plus. We did really well in our collections. A
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couple units I had in Connecticut, Funny enough, I had some tenants that
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went out one year without paying rent, and the only way we were able
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to get him out was that well number one, I had dent on those
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properties that wasn't government guaranteed, so the government could not enforce their Hey,
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we're financing this for you. You have to go buy a rules and I
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had to get letter from my bank to bring to my attorney. I sent
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to my attorney, so we went to court he could show it. And
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then one of our tenants, another one of those tenants, you know,
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he wasn't inhabiting more. He actually was getting so cocky. After a year
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of not paying rent, he stopped paying electricity, turned it off and had
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to go back to me. So I was paying electricity as well. And
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when we showed the electric bills, or my attorney showed those electric bills to
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the judge, then they said you don't even live there anymore. And that
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was done. And the only way he would agree after all that, the
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only way he agreed to leave is that if I didn't go after him for
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damages, which is like blood from a stone, it's just a waste.
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But sure, no, they understand, I understand. So looking forward,
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do you think we're going to get to the point where there'll be these empty
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developments that you can just walk into for a song and really turn around.
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I mean, I think you know, it's just gonna be a very interesting
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year because we have a lot off there's a lot of floating rate debt that
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is coming to you in commercial real estate, and when you have it a
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year and a half ago or so, that libor was literally nine basis points
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and now it's over five. That's changing. When those rate caps come up,
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if anybody has them, they're going to have to be some heavy negotiating
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between lenders and borrowers, and there's gonna be some really, some really strong
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conversations because you're gonna have to see what they're going to do. Are they
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going to take a bath on that those lenders? Are they going to put
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them into more of a fixed, longer term debt at similar rates, maybe
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their margins a little bit more narrowed. I mean, is it just depends
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on what's going to happen. But at that point, we'll really see what
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lenders do if they start foreclosing on them and they've already done that. Ice
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was reading an article last last week about four complexes worth almost quarterbillion dollars in
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Houston that we're taking over by a large lender out of Boston. So it's
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you know, some are taking it back and they're not going to work with
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the with the borrowers on there. But it really depends on that because that
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really changes the whole dynamic. And then with all the bank failures we have
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now a lot of regional banks are not going to be opening up. And
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regional banks are huge lenders for real estate. It's not most real estate investors
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aren't going to Wells Fargo for money. You know, maybe if you have
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this huge development somewhere or something like this, you're good. You know,
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you're gonna go and get money from them. But for most investors, it's
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you're going to be going to your regional, your local credit union, your
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local bank in your area with a small team of three people on the credit
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committee that make that decision. And if they're kind of if they're you know,
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if they're tightening their standards their credit, it just makes it harder for
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everyone involved with that because prices will go down. It's going to come back
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to the same thing that people have money in these times, So that's interesting.
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The regional banks definitely there's a scare. The money's shifting to the money
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center banks and then they're giving it to the regional banks to stabilize them.
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Right, So it's a big good daisy chain, and I guess they're getting
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they're getting some profit there as a result of it as well. So we're
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going to have a mess shortly, especially commercial. Would you touch a commercial
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property at this point, in office building anything like that? No, I
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just you know where you're seeing the vacancies going. I've never invested into into
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office space. I had one property those a mixed use with one small office
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slash store, and the you know it was it was less than five percent
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of square footage of the building. So I wouldn't really consider that an office
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building. But I would never touch an office building. And I think,
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you know, it's just a very difficult it's very of difficult time because you
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have to repurpose all of those properties, and the price they're gonna have to
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come way down for them to be repurposed. And this justin doesn't small investors
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that are getting at that are getting caught up in this read increase. You
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have lots of reats and lots of large, large investors that are getting caught
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up in it and giving keys back to properties. Yeah, I've read about
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that in the shopping centers or a disaster. I think about the only thing
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you could use them for is potentially future Tesla assembly plants. Yeah, hopefully
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they Yeah, they repurpose into that. That's about the only thing. What
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do you do with an old mall? Basically you knock it down, you
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know, yeah, no, there's not much You leave it and then the
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trees. They have those pictures of ghost walls, like in Ohio and the
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Midwest, and they like they just closed the door as the trees were there
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everything, They didn't do anything, and the trees like rw all over and
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then they died while the indoor landscaping. It's quite depressing them. So what
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about the concept of buying single family homes or investment, whether it's rental,
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airbnb, whatever you will a proponent of that, I don't. I've never
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done a short term rental myself personally, so it's not something that I will
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invest into um at this point, especially with other people's money. It's something
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that you know there's there's higher returns, but also you have a lot more
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we've we're in a shorting. We're in a housing shorting shortage here in the
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United States. So you're not going to have people coming into your apartment complex
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I was built twenty or thirty years ago, you know, the government coming
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in and telling you, Nope, you can't, can't rent anymore because they
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need all that housing. Okay, the probably short term rentals is that it
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can go on a whim with your local government and they can say we're going
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to limit it. We're gonna limit how many there's not gonna be permits.
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There's now we don't do this anymore, or you know, they can do
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whatever they want. And it's not going through a federal level. It's going
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through literally some part time aldermen are making the decision that who, you know,
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who's going to get these permits or how they're going to do it,
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because they're getting backlash from some of the residents that can't buy houses. So
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for me, that's not something I know a lot of people that make a
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lot of money doing it. But and I've just got somebody just asked me
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to invest into their short term rental fund that they're putting together to buy four
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hundred of them. And you know, I plightfully decline to invest into it.
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First of all, it's on something one hundred percent understand, and I
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don't like all the government intervention with it. It is nice on the other
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side, though, that you can sell them one by one and it's pretty
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pretty liquid. However, most people I talk to in the airbnb scene,
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they don't get deals on their houses there because are getting a higher return supposedly
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when they're renting it right versus a twelve month lease, which is what we
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do. They're getting, you know, a one week lease or a two
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day lease, and so it is they will overpay for the properties and they
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won't cash flow on the twelve months. If I found something that cash flowed
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on twelve month and he did it as a short term rental, that's a
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different story. But it's a very hot asset class. You have a lot
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of people that are overpaying to get good properties that they can rent out.
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All right, And hey, I think answered that question pretty well. So
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is there any class that you're looking for that is not obvious to the general
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real estate investor that you think we should be aware of? Um I would
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suggest when you know, if anybody's looking to get into real estate, investing.
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One of the mistakes I made, and I think a lot of other
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people, like my father and your father, sounds like buying better places,
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buying better areas. You're going to overpay for them. It's going to be
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difficult. You're not going to see when're doing that, your numbers and you're
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can see these huge return that brokers are showing you for buying someplace in like
20:02
a d R C minus area. However, the management's easier. These properties
20:07
will not only cash flow, they're going to appreciate. So whatever you're buying,
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you can make money in all different types of asset classes within real estate,
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single family and everything, larger apartment complex which is we focus on because
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of more of the scale, and with the scale, it allows you to
20:21
get your pricing and your costs down. If you're looking to get into single
20:25
family houses and buy multiple or buy smaller multi family and complexes. What I
20:30
did when I started buying is I bought them all very close to each other,
20:33
literally four tenths of a mile, and so it was very simple to
20:37
manage. And when I brought a third party manager into that, they took
20:40
it over. They gave me a good rate on it because the guy wasn't
20:42
driving fifteen minutes this way, fifteen minutes this way. It's all contained.
20:48
And so just to be strategic if that's your goal is buying smaller rentals to
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rent out and build extra income and wealth and everything else that we like about
20:56
real estate. But you just have to be strategic when you're doing that,
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and you have to think long term is this area going to appreciate? And
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also, you know, you want to be buying places that logistically you can
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get people to mandage handyman that you're paying hourly to do stuff that they can
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go back between them easily. Yeah, you get that economy as scale exactly.
21:17
Well, I know you take on accredited investors. How's that work?
21:21
So we work with a credit and also non a credit investors that we have
21:25
a relationship with, so people that have reached out to us that we've spoken
21:26
to, but with the credit investors, if you are interested in passively investing
21:30
into real estate, we focus on multi family complexes one hundred plus units,
21:34
and we're buying throughout the Southeast right now. We've holdings Florida, Tampa,
21:40
Atlanta, Dallas, these areas that are growing throughout the Southeast that we really
21:45
like. We don't buy properties that are older than the mid eighties, and
21:49
when we work with them, we are able to get on a call with
21:52
myself or one of my partners and we'll keep you in the loop on deals
21:56
that we're working on. And we also have a free guide on passing best
22:00
thing. If you're interested, All right, excellent, Well, we appreciate
22:03
you coming on. If you've got a question for Charles or question for myself,
22:08
shoot me an email k l at Kerry Lutz dot com and there's a
22:14
link to in the show notes to Charles's company, Barberside, and just click
22:22
it and that'll take you right over to a site and I should say it's
22:27
Harborside Partners dot com. And hey, while you're at the site, sign
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up for your free newsletter at Charles. Been a pleasure. Look forward to
22:36
having you back on again. Thanks a lot, Harry, thanks for listening
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to carry Lutz's Financial Survival Network, your solution to today's trying times. For
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