How To Boost Your ROI On Real Estate Investments

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Today s Guest is Charles Bulthuis Charles Bulthuis is a CRE Broker and the President Founder of Reformation Asset Management A Veteran Certified Residential Specialist Accredited Buyers Representative and Honorary CCIM Charles has spent the 30 years refining his innovative insights ————————————————————– Changing Demographics 00 00 00 Condo Conversion Challenges 00 02 13 Workforce Housing 00 06 34 National Trend of Condo Conversions 00 09 05 Viability of Retail and Office Asset Classes 00 11 45 Aggressive Use of Buy Down Strategy 00 14 18 Condo Conversions 00 16 43 Scaling a Business 00 18 05 90-Day Trial Period for New Hires 00 19 04 ————————————————————– Connect with Charles Linkedin https www linkedin com in charles-bulthuis Web www reformationasset comBlog https reformationasset com our-blog Connect with Sam I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns Facebook https www facebook com HowtoscaleCRE LinkedIn https www linkedin com in samwilsonhowtoscalecre Email me sam brickeninvestmentgroup com SUBSCRIBE and LEAVE A RATING Listen to How To Scale Commercial Real Estate Investing with Sam Wilson Apple Podcasts https podcasts apple com us podcast how-to-scale-commercial-real-estate id1539979234 Spotify https open spotify com show 4m0NWYzSvznEIjRBFtCgEL si e10d8e039b99475f ————————————————————– Want to read the full show notes of the episode Check it out below Charles Bulthuis 00 00 00 – This is a national trend Okay Um and and there s other supporting factors Uh not only um household coordination trends household formation occurring later in life Um but the fastest growing population for divorce is people in the eight of 60 and above Sam Wilson 00 00 15 – Are you kidding me Charles Bulthuis 00 00 16 – Not kidding you So those people that have been in in you know 20 30 40 year marriages are now becoming divorcees and they re looking for a simpler lifestyle They want a condominium a one bedroom They don t want a giant house They have to go out and mow the lawn on Sundays Intro 00 00 31 – Welcome to the How to Scale Commercial Real Estate Show Whether you are an active or passive investor we ll teach you how to scale your real estate investing business into something big Sam Wilson 00 00 44 – Charles Bold Heights is a c r e broker and the president and founder of Reformation Asset Management Charles welcome to the show Charles Bulthuis 00 00 51 – Hi Thank you very much Sam Wilson 00 00 52 – Absolutely Charles Glad to have you here on the show today There are three questions I ask every guest who comes on the show in 90 seconds or less Can you tell me where did you start Where are you now and how did you get there Charles Bulthuis 00 01 02 – I started out as a residential broker in 1992 in San Diego California I am currently the uh president owner of a company that s a brokerage a property management uh construction company maintenance and lawn care So we have five divisions and 65 employees And I got here um basically I I have I have a philosophy on how to get rich quick even if it takes you 20 years Sam Wilson 00 01 29 – I like that I like that a lot You re a busy man You got a lot of things going on Uh the lawn care one is is that s uh I I wanna dig into that maybe before the show s over and just wonder how that bolt on business came came to But regardless let s talk about some things really that are going on here in the marketplace today You are uh I think the brokerage firm Is that is that probably the largest part of what you guys are working on right now Is that a fair assessment Uh Charles Bulthuis 00 01 55 – No actually the revenue that comes in for construction will be the largest source of the revenue Sam Wilson 00 02 00 – Interesting Okay Very very cool Well let s talk about that then because I mean you re in a market you re aware you re in Durham North Carolina Mm-hmm Yeah Cool What are you guys building right now Like what s the what s the big demand for you guys right now Charles Bulthuis 00 02 13 – Uh so what we re involved in right now is the condo conversion So we re taking apartments that have been um undervalued So what would you call a value add property Yeah But rather than turning it into a value add apartment we re turning them into value add condominiums and then offering them as a resale product to owner occupants So we helped one client acquire 108 units um in Durham and another uh group of investors acquired 96 units in Chapel Hill And uh those 204 units combined are what we re working on right now and it s just under 20 million in renovations Sam Wilson 00 02 52 – What are some challenges I mean that that it has to be the right I would imagine the right property in the right place with the right size of units the right number of beds and baths I mean what are some challenges that you run into in locating a property like a condo conversion e or even saying Hey this is possible as a condo conversion Right Charles Bulthuis 00 03 11 – So the first step is actually not looking for what the market needs The first step is identifying what the market needs So once you ve identified what the market needs then you find a product that you can turn into what the market wants right So I didn t have to go out and find the two bedroom two bath 1000 square foot I found the two bedroom one and a half bath 1000 square foot and converted it into a two two Hmm Sam Wilson 00 03 33 – I see I see Yeah that s really really cool I love I love the the the the spin on what value add is why is an end buyer what is appealing to them about a was apartment complex now Is a condo like what s what s the what s the value there for the end I guess The end Yeah the end buyer Charles Bulthuis 00 03 54 – So we we we re doing this both ways In one instance we are buying condominiums um that and and that that we re buying apartments and converting them into condominiums Yeah And so for that individual investor I helped him acquire six buildings that made up the community that is the 108 units And then as we divest him of each building they ll be their own separate 10 31 tax to put exchange So he may pay taxes on one building he may exchange another building And so for him it was the the net proceeds potential where he was basically spending 20 million for purchase and rehab and then selling the product as condos for 30 million So it s a 10 million game for him And that s quite an incentive uh for the other parties where they re buying condos and they re actually converting them into rentals This is near the University of North Carolina which has a very strong uh or uh student population And the rents for those types of properties are rather high They rent by the bedroom So we could take a property that in that neighborhood was completely undervalued renting at 900 a month and dilapidated 50 year old complex revamp the entire complex raise the rents to the market value of 1900 And the value add to my owners is is dramatic but then they have the ability to turn that whole product over as one uh rental property to an institutional investor that s looking for a 30 million buy that is student housing Sam Wilson 00 05 21 – No that s really really cool I wanna circle back to the uh let s let s call it the the the person that buys the condo conversion The was apartment now is a condo who s living there Why do people want that product in the market Charles Bulthuis 00 05 35 – Um first of all we we have a market that completely misunderstood the buying needs of the the product of of of the buyers Today for 30 plus years the market was now producing one bedroom apartments Think about that You never saw one bedroom apartments being built or at least you know not not as the majority Very few were right But that is the source of workforce housing really So if you have a city that s growing rapidly and you re not providing workforce housing that is affordable you re gonna run into a situation where your employers are gonna have to pay their employees dramatically more money to import them from outlying areas uh to avoid that 20 sandwich and copy you know it says you have to have workforce housing And as a result I was picking these one bedroom apartments as something that we could convert from apartments into condos And now the price to rent in this location is 1650 a month but you can buy the same condo and own for 1650 P I t I h o a Sam Wilson 00 06 34 – Right Right So why not Why not If you re gonna if you re gonna end up paying the same amount of money on a monthly basis own don t rent I mean that Exactly That just seems to make a lot of sense I m really intrigued by the or interested in the idea that the one bedroom that that kind of flies in the face of what I would ve clearly wrongly assumed that one bedroom for what are what people are wanting Charles Bulthuis 00 06 59 – Household formation right now in the triangle which Research Triangle Park is the area for Raleigh Durham chapel Hill and several other outlined communities But those three big ones the average household size right now is 1 8 people per household huh Sam Wilson 00 07 15 – Right right That s really that s a lot smaller than I would assume Would ve assumed Charles Bulthuis 00 07 20 – Yes Demographics have shifted dramatically Sam Wilson 00 07 23 – Yeah absolutely How does that how does this work inside of the housing shortage I know that s something that is kind of near and dear to your heart that you guys are trying to figure out a way to solve what what of it you can So how how does this play into that kind of uh housing shortage Charles Bulthuis 00 07 41 – So it it plays in the the city is actually following suit with the product that I m recommending Hmm Um I I sat on the uh mayor s uh affordable uh housing round table for the last three mayors that we ve had in Durham And uh one of the things that we discussed was workforce housing and household formation relative to the population growth in our area And of the 2 500 or so affordable housing units the city is planned to build 2200 of them are one bedroom homes Sam Wilson 00 08 10 – Wow Charles Bulthuis 00 08 11 – Wow It s that severe how important that workforce housing is Now when we re talking about a downtown region this is where your restaurants your bars all of your nightlife activity your offices these places need people that come in and work those types of service industry jobs Um but at the same time if we build three bedrooms and four bedrooms we re we re that that s more of a family oriented housing structure And and then you have to build new schools if you have to have school buses and you have to build the infrastructure for children So this is more for a dense population or for the intention of a higher increasing dense population Sam Wilson 00 08 49 – No I like that I like that a lot That make that makes a lot of sense That s that s a really yeah That that s just a uh an an insight I d not not really had before is on And I and that s then this maybe do you think this is particular to where you are or do you kind of see this as a national Charles Bulthuis 00 09 05 – This is a national trend Okay Um and and there s other supporting factors Uh not only um household coordination trends household probation occurring later in life um but the fastest growing population for divorce is people in the eight of 60 and above Sam Wilson 00 09 21 – Are you kidding me Charles Bulthuis 00 09 22 – Not kidding you So those people that have been in in you know 20 30 40 year marriages are now becoming divorcees and they re looking for a simpler lifestyle They want a condominium a one bedroom they don t want a giant house They have to go out and mow the lawn on Sundays Sam Wilson 00 09 37 – Man you re you uh I I m not I not not in that uh in that 60 and above divorced category but I ll tell you e e even I would say on on the millennial side like even even they want kind of that smaller product type I mean gosh Yeah Less Charles Bulthuis 00 09 51 – Commitment Sam Wilson 00 09 52 – Yeah Man Like I ll even say it like yeah I own a house right now and I ve you know it s great for the kids playing in the backyard and all that but we could probably get those same amenities maybe with less work home ownership is uh well it s a lot like work I mean you got a lot of stuff to keep up So yeah there Charles Bulthuis 00 10 08 – There s a trade out there that s for sure When you re buying a house you have to envision that there will be constant will be yours but there also ties in with the fact that eventually the property will be yours Right Sam Wilson 00 10 17 – Right Undoubtedly or at least Charles Bulthuis 00 10 18 – The equity Sam Wilson 00 10 19 – Right It goes both ways But but yeah if you you could sell me very quickly on the idea of not spending Saturday which I don t spend Saturday mow the yard anyway but if you still end up maintaining stuff one way or another but I digress This is not why we came here on the show to talk about what my preferences are I do want to talk about what market perceptions are in some kind of um asset classes that people traditionally not traditionally but even right now are saying you know these things are dead Those two being retail and office Gimme your insights on those two particular asset classes in particular Charles Bulthuis 00 10 53 – So the pandemic um had a had a major impact on the work from home and and and the the work from office discussion And if you if you were to watch the news and you only paid attention to the largest markets in the country Chicago New York LA Miami um you re you re gonna uh Houston you re gonna get the perception that um commercial real estate is a is a it is a spiral right But here locally the commercial real estate market for retail and for office is is very brisk Um I ve missed out on three properties that I personally wanted to buy in the last six months because I just didn t get my offer accepted I wasn t high enough et cetera Um and understand please if you re not familiar with c R e that most loans for commercial vehicle estate are gonna be tied to a 20 year amortization schedule and that s not tied to the 10 year bond Charles Bulthuis 00 11 45 – So the rates for the commercial property they re in the fives right now They re not in the sixes And and and they were down in the fours just you know a few months ago So that market still has viability And yes there s a lot of loans that are gonna have to be refinanced in the near future but we don t have a liquidity issue in the banking system We have a few banks that you know misunderstood the value of investing in treasuries versus having some money on hand to give your depositors if they ask for it back Sam Wilson 00 12 13 – Right Yeah you said it you said it So for where you guys are right now what you re what you re telling me is that retail and office aren t just not dead but they re doing very well in certain markets Charles Bulthuis 00 12 24 – Very well And even in the major markets where they re not doing that well as a percentage of the overall portfolio they re less than 5 Right You know if you took all the commercial real estate in New York Los Angeles Chicago Houston Miami you grouped it all up it would still be less than 5 of the nation s commercial real estate It s just not gonna tip the scale Sam Wilson 00 12 45 – Right Undoubtedly it even so I mean gosh I had someone on the show here recently that their their whole strategy right now and they re they re in in New York is buying office space which is not doing very well in World and they re imagine that Charles Bulthuis 00 13 00 – Buy low sell high Sam Wilson 00 13 01 – Uh right right He was he was telling me that you know two years ago or not two years ago three years ago I ve been pre pandemic gosh three and a half years ago then you know they were trading eight 900 bucks a square foot He s like dude we re picking stuff up right now Three 400 bucks a square farm Charles Bulthuis 00 13 14 – Yeah yeah He Sam Wilson 00 13 15 – Goes it s yeah it s now is the time to buy Like this is New Charles Bulthuis 00 13 18 – York s not gonna disappear Sam Wilson 00 13 20 – It s not It s not And Charles Bulthuis 00 13 21 – And as a reality all it s going to happen is you re gonna have a lot of these companies reenvisioning how to monetize their office space to lower the workforce back Sam Wilson 00 13 28 – Right right That s exactly right That s exactly right That s really really cool Are there strategies or things that people or any of your clients really you see them doing right now that would just be good food for thought if somebody s looking at these asset classes Charles Bulthuis 00 13 42 – Yeah Don t don t let yourself get uh rolled over by the noise That is the the the the the pundits the know-it-alls You know one of the best things you can do is go against the crowd Right Sam Wilson 00 13 55 – Right I like that a lot I like that a lot Yeah absolutely If you re if your main source of information is from the pundits we re probably not friends cuz it uh it s just a lot of noise So that s uh that s really really great there Let s talk about the uh interplay between interest rates the residential market I know that affects uh a lot of things What do you see on that front Charles Bulthuis 00 14 18 – So what um what this uh market has quickly returned to was strategies from the early nineties And I started in 1992 and we had an accelerating interest rate market from that period as well that led us from a uh recession into in San Diego into a horrible recession in San Diego Uh we we had um Boeing which was one of the largest employers in San Diego leave and go to Washington State Right Caused a massive drop in valuations And then boom we hit the 92 recession and now we ve got interest rates going up toward the eights as well Um and and one of the best tools that we had in our basket back then or our toolbox was the buy down And so we are aggressively using the buy down to position buyers into our product with rates that are artificially reduced for the next couple of years because we believe that in the next couple of years they ll be able to refinance into lower rates Sam Wilson 00 15 14 – Can you can you explain that strategy Uh I guess more uh more in depth Sure Charles Bulthuis 00 15 20 – Um what about that is is if interest rates sit there at six and a half and I spend points I can go through my lender and buy the interest rate down to a four and a half percent interest rate And so the buyer still has to qualify at the rate of six and a half mm-hmm but for their payment purposes they ll be pa making payments the first year at four and a half percent interest the second year at five and a half And then that third year it ll normalize at whatever the rate was at the time that they took the loan at today s six and a half Right But if at any time during that period the rates were to drop they can refinance their loan into a lower standard interest rate and even use the money that s still available in the two one buy down for future rate reduction for the cost of the refinance And because of the inversion of the yield curve right now it it is the long-term money that is priced low and the short-term money that s priced high which is indicative of rates coming down in the next 24 months Sam Wilson 00 16 19 – Interesting So I in in effect it s it s it s not just buying an option for refinance it it s sort of like that but you also get the short-term benefit of maybe potentially paying less in interest on the front end is that oh Charles Bulthuis 00 16 32 – You re absolutely paying less on the front end and the best part is the seller is paying for that option on your behalf Sam Wilson 00 16 38 – Ah So that s something you negotiate into the deal Charles Bulthuis 00 16 41 – Right Sam Wilson 00 16 43 – Very cool I love that That s an that s certainly an advanced strategy Um thank you for taking the time to really share share with us your thoughts on that front So so far we have talked about the perceptions inside of retail and office We have talked about the uh interest rates and the residential market We ve talked about condo conversions we ve covered a lot of territory here The one thing I really haven t uh gotten into with you you talked about maintenance in a lawn care business I mean when did you tack that side of your business on and why Charles Bulthuis 00 17 13 – So I created the property management company because no property managers wanted to deal with what I was doing Let me buy you the property let me push everybody out of the property remodel the property then re-rent the property And then in two years 10 30 wanted into another property Right No So I had to create a property management company Well now I have a property management company I have to manage the properties I need maintenance I need lawn care Well as I realized that I kept falling to the you know I wasn t the top person on everybody s list Yeah Well I wanna be the top person on the list So I had to create the company so that the company takes care of me because I m an insulting client Sam Wilson 00 17 48 – there you go I love it I love it What s it been like let me ask you this question Scaling all of these different businesses how do how do you meaning what s what s been like maybe one thing you ve done that has really helped you scale each of these in their own unique way Charles Bulthuis 00 18 05 – Hiring people that can head each of these companies that are creating or each of these divisions within my company Um I am in my opinion you know and others a very good real estate broker Okay Um but I am not a general contractor and I haven t cut along since I was in my a teenager So I need to hire people that could run these other businesses or head up these other divisions without my constant interaction Hmm And and and that s the key to building any business is hiring the right employees getting the right staff behind you building a team Sam Wilson 00 18 40 – Yeah And that s the hardest part I mean I think so many times especially you know the thrust of this show is how to scale commercial real estate And when you re in that scaling period especially in the early days the mistakes of a miss or a bad hire uh can be expensive but also just they they can be time consuming Are there any any any strategies you employ on that front now Making sure you re bringing the right team members on the first time Charles Bulthuis 00 19 04 – 90 days I need to know within the first 90 days if these people are gonna be able to take that ball and run with it on their own Or if they still need need me to sit sit on their shoulder Um in North Carolina you can fire anybody for any reason or no reason within the first 90 days Got it So if I know in 90 days that I think that they re they re just not getting it I I wanna start over Sam Wilson 00 19 27 – Okay Okay And that s hard man That s hard I mean it s I m sure that s that s a a a muscle that you ve had to exercise over time I know for me uh I I I m getting better at it but it s also one of those things that gosh I hate letting people go It s just it s always it s always hard Charles Bulthuis 00 19 45 – My management experience was garnered in the US Army so I m a little bit better at that Sam Wilson 00 19 49 – good I like it I like it I I need to I need to tear a page outta your book and uh and read it probably more often So this has been fantastic Charles I have enjoyed today s show You ve given us a wealth of information things here to think about If our listeners wanna get in touch with you or learn more about you what is the best way to do that Charles Bulthuis 00 20 08 – Uh please go through my website reformation Asset Management Um or if you would like I mean call me directly I I m very accessible My number is 9 1 9 4 5 2 4 8 3 3 Sam Wilson 00 20 20 – Fantastic And we ll make sure we put that there also in the show notes Charles thank you for taking the time to come on the show today I certainly appreciate it Thank Charles Bulthuis 00 20 27 – You very much It was a great show Sam Wilson 00 20 29 – Hey thanks for listening to the How to Scale Commercial Real Estate podcast If you can do me a favor and subscribe and leave us a review on Apple Podcast Spotify Google Podcast whatever platform it is you use to listen If you can do that for us that would be a fantastic help to the show It helps us both attract new listeners as well as rank higher on those directories So appreciate you listening Thanks so much and hope to catch you on the next episode Click here to visit this podcast episode