Apr 20, 2022
Is your corporate job burning you out?
Now is the time to move to real estate.
Listen in as my guest Chad Sutton takes us on a journey of self-discovery and practical knowledge. He shares his story of how he transitioned from working for money to becoming a successful multifamily real estate, and he offers valuable advice on achieving financial goals while living life to the fullest.
Chad is the Director of Acquisitions for Quattro Capital. He and his team are focused on creating impact over income for their investors and for themselves.
[00:01 - 08:52] How to Stop Trading Time for Money
- How Chad escaped corporate burnout and got into real estate
- Chad talks about Quattro Capital and their team's shared philosophy
[08:53 - 16:17] Finding Liquidity in Unconventional Places
- Liquidity is not always cash
- Here’s how you can convert assets you own into money
- Chad discusses different schools of thought on liquidity
- Why you should use the bank’s money to make money
[16:18 - 19:00] The Acquisition Environment We’re In
- You don’t need to care about cap rates
- This is why Chad thinks so
[19:01 - 19:49] Closing Segment
- Reach out to Chad!
- Links Below
- Final Words
Tweetable Quotes
“We just want our thing. You know, we want our investors to always be able to pick up the phone and call Chad, call Maurice, call Erin, call Tammy, and have a one-on-one conversation. We don't want that multi-level organization that we all left before.
“Liquidity doesn't always mean cash. It means things you can convert into cash.” - Chad Sutton
“If you're gonna take on debt, go do it for an appreciating asset, something that will make your money and it will increase in value over time.” - Chad Sutton
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Connect with Chad Sutton at chadsutton.info and visit Quattro Capital’s website if you want to know about impact investing.
Connect with me:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
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Email me → sam@brickeninvestmentgroup.com
Want to read the full show notes of the episode? Check it out below:
Chad Sutton 00:00
People say that the real estate market's overheated. I don't think it is. What I think is there is a huge weight of capital that is sitting on top of the cap rate causing it to be low, causing cap rate goes down, prices go up. So there's a weight of money on our shoulders causing these asset prices to be just waited, waited, waited, right? And so sure we'll see that go up and down over time. How are we finding deals today, right? We're value add players. We don't buy assets and just watch them appreciate. We buy assets we can do something to to make it worth more money.
Intro 00:29
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 00:41
Chad Sutton is one of five managing partners of Quattro Capital. He's the leader of acquisitions team and the host of the Real Estate Runway Podcast. According to chat, he is a recovering engineer who spent most of his profession in corporate America, and spaceflight with NASA, and aircraft with GE before following his passion as a real estate investor. Chad, welcome to the show.
Chad Sutton 01:00
How's it going? Good to be here. And yes, you described me just right. I'm a recovering engineer, a resident numbers nerd and that's who I am. So here we are, unapologetically.
Sam Wilson 01:08
Man, I love it. Absolutely love it. 90 seconds or less. Tell me where did you start? Where are you now? How did you get there
Chad Sutton 01:14
Started off as your typical working-class American kid,. You know, I had good parents, not a lot of money, went to school. I was good at building Legos, was told I should be an engineer, went and became an engineer built a lot of really cool things, from rockets to aircraft and everything like that in between, realized I'm just a highly paid slave at that point. Diversified got into some consulting-related work with GE when the stock price tanked, led to an executive role, realized I really don't want to be in corporate America anymore, because I'm working for somebody else making them a lot of money. Right before the pandemic, finally pulled the plug, exited and focused on growing my real estate career. And here I am. So plenty to talk about there.
Sam Wilson 01:49
Man. That's awesome. I love it. That sounds like a childhood dream come true, right? You're an engineer, you get to go work on aircraft and on, you know, rockets, and you can tie NASA to it. That's like every little kid, especially if you're a kid from the 80s like...
Chad Sutton 02:03
Oh, yeah.
Sam Wilson 02:04
You know, wow, you know, we just landed on the moon less than 20 years before. So you got burned out and said, that's the end of it?
Chad Sutton 02:10
We'll here's the deal. It was fun. I mean, when you boil it down to the engineering side of things, I created some really cool things. I built things that went boom, you know, I mean, I shot rockets, I shot missiles, I built aircraft engines, it was a lot of fun. I got to play in some really cool stuff. But the further you get into it, you realize, wow, the first time was really cool. And then the second project, they give you less money, and less time, and less headcount. And so now you're working harder. And the third one is even more than that, because now they know, you know, what you can do and so you get less money, less headcount, you work harder. And you realize, wow, you're just a necessary evil to the product development line. If the company could come up with this new thing without hiring a bunch of engineers to do it. They do in heartbeat, right? We're just a necessary evil. I didn't like the lifestyle anymore, because I was never getting more efficient. I was inheriting more work, right. I get better, they give me more. I get better, they give me more. The life was tough. It was no longer fun. So yeah, you're right. I got burnout.
Sam Wilson 03:01
Absolutely understood how'd you get into real estate?
Chad Sutton 03:07
You know, I'm a third generation investor. Unbeknownst to me until I was about 25 years old. My grandparents owned a bunch of single-family real estate in the state of Texas still owned a bunch of it today. When my patriarch of the family grandfather passed away I started getting curious and I realized around that time, this is when I was realizing I don't want to work for money for the rest of my life, you know, trading time for money. I started to read that little purple book called Rich Dad Poor Dad and every book like it on the shelf. I've got a big bookshelf over here that you can't see, that has all those on there. And I realized I need to find a way to diversify time or divorced time from money, you know, so where I'm making money even when I'm not working and buying things that makes money perpetually til Kingdom com. And so started getting curious on the family real estate business, tried to replicate it, failed because in Nashville, Tennessee, the single-family rental pricing did not really make sense with where things would actually rent so, surprise. And started looking at how to scale the existing family portfolio, stumbled upon multifamily real estate after doing a bunch of research on lots of asset classes, got educated, went to every boot, camp every mentorship program, every collegiate course I could get my hands on, eventually built a business bought a couple of properties ourselves and took off.
Sam Wilson 04:18
That is awesome. You're currently part of Quattro Capital capital which you guys have the really well-known names in the industry. They're on your team. How did you guys build that team?
Chad Sutton 04:28
You know it wound up being a lot of "right place, right time" type of thing. So I mentioned we went through a lot of training and a lot of courses. The five of us kind of organically came together. We met at multiple different venues and eventually started seeing each other's names a lot and it finally came time to do this and say okay well before we start working with private equity and becoming fiduciary responsible for investor equity, let's go buy a few properties, right? We're talking like, not big things, little 35 unit apartment building size, you know. Bought one then we bought four then we bought six together. And we finally looked down and said, "Wow, this is a really good team." You know, we have the numerical side, we have the project management side, we have the equity side, we have the operations management. And so we just kind of all fell into our niche, we decided to build a company around it. And that's when Quattro Capital was officially born in about 2019. We have a saying here in Nashville, Sam, that it takes 10 years to become an overnight success. Nobody sees the 10 years, I just see the overnight success where you wrote a hit and became a one-hit wonder, right? Well, that's kind of the story of Quattro, we all have a lot of professional and real estate experience behind the scenes, but we kind of became known in 2019, and have been exploding ever since. So these days, you mentioned we have some big names in the industry, we've all been on multiple stages across the country, and really trying to get our knowledge out there. We control a little over 100 million in assets under management right now, that is growing rapidly. But we're also not the type of group that is really wanting to become an institution, right? We don't want to run and become like the next Covenant Capital or something like that, you know. We want to have a nice, maybe quarter of a billion dollars in assets, help our investors, help ourselves, and enjoy life a little bit.
Sam Wilson 06:07
Right. That's interesting. I appreciate your honesty there and saying, Hey, look, you know, we're not going for the massive corporation. Why is that?
Chad Sutton 06:15
You know, we're not building another job here, right? I mean, we all set out to do this to help our families, build generational wealth. I won't even say passive income was we work for this a little bit, right, but you want income that your time is not tied to, right. And we figured out, we can do that a lot better when we bring people along with us, being our investor partners and our private equity partners. And so there will come a time where we're saying, you know, enough is enough, our investors are happy, we're happy, maybe we'll buy one and sell one every year or something like that. And we'll just kind of maintain the portfolio. But in the times that we're in today, it really makes sense to get our hands on everything that we can, that is of a certain vantage, a certain size and in a certain area. And you know, we're going to continue to do that. While it makes sense. After that, like I mentioned, we have no intention, no desire to become a publicly-traded company, or a company that gets acquired by a large investment firm or something of that sort. We just want our thing. You know, we want our investors to always be able to pick up the phone and call Chad, call Maurice, call Erin, call Tammy, and have a one-on-one conversation. We don't want that multi-level organization that we all left before.
Sam Wilson 07:19
That's a unique life philosophy for one person. How did you really get that across all five of you to say, "Hey, you know what we want to build enough to provide for us, to buy our time back, and to enjoy the time that we have right now, as opposed to shooting for the moon." How did you guys come to that consensus across five people.
Chad Sutton 07:39
I think we were pretty close to the same mindset on that in the beginning. And you know, I will say certain members of our group, being Maurice Philogene, for example, is probably one of the premier experts on lifestyle design in this world today. So if you haven't spoken with him, just look for Maurice Philogene on any podcast, and you'll hear him talk about financial freedom and the five freedoms that he lives by. But you know, we start talking with people like him, and we all kind of come together. and we figure out this sounds like the way we want to go. And we kind of ebbed and flowed a little bit on where we wanted this company to go at one point. We thought bigger at one point, we thought smaller, and we kind of Goldilocks and found just right. We're building the right size, to be able to manage within the current scope of the team, you know, and we hire the right people on a contract basis to manage assets. And then we're really able to get what everyone wants out of this. It didn't happen organically, we kind of were all in the same direction already. But we further aligned, the more we started building this company, and everyone kind of got on board. So that doesn't always happen. Sometimes you decide, you know, two of you want to go one way, three want to go the other. And you know, that may happen in the future. But right now, we are all aligned in what we want out of life, out of business, and out of real estate. So that's good.
Sam Wilson 08:53
One of the things that you and I talked about before kicking this off was finding liquidity and unconventional places. Talk to us about that.
Chad Sutton 09:01
So this is something that I'm happy to talk to anyone about. It's one of my favorite topics. Maybe you're trying to scale your personal investment portfolio, maybe you're trying to invest in syndicators like me, maybe you're trying to figure out a way to build supplemental income streams so that maybe you enjoy being an engineer today. But you may not tomorrow, maybe you don't want to have to work for money. Or maybe you want to work because you want to and not because you need the income, right? Well, the first place you look is your checking account. And you realize, well, surprise, I probably don't have $200,000 sitting in my checking account to go start investing and do that over and over again. Well, you got to start playing the shell game and looking around and figuring out where can I find liquidity. A liquidity doesn't always mean cash. It means things you can convert into cash, right? If you look at everything on your balance sheet, and for those who haven't made a balance sheet, just make a list of all your assets. You know, I mean, Kiyosaki is going to hit me but your home will be on that side. You guys can laugh at me on that later. Any sort of thing you own that makes you money goes on the asset side. Anything that you own that takes money from your pocket goes on the liability side. So you can decide where you put your home on what books you read. But you know, your cars, your bills, everything like that, figure out your cash flow situation, and your assets, and liabilities. And what you're going to find is okay, maybe I have a home, this is my favorite one, by the way, maybe I bought that home 10 years ago, maybe I bought it in a good market like Nashville, Tennessee, maybe that market has risen tremendously in home value. And I've just been chugging away at my mortgage ever since, right? Most people don't know, you can actually go to your local bank, I'm gonna throw out a website, replace your mortgage.com, a guy named Michael Lush, I learned this technique from, I've been doing it for years works very well. He's a recovering mortgage broker, so that's why he's revealing these secrets. What you can do is go put a first position home equity line of credit on your home, that is a first position home equity line of credit. Those are usually behind the mortgage. So I get it, you're like, "Wait, that's a second mortgage." No, no. Banks will actually put a first-position line of credit and replace your mortgage. The first thing to do is pay off that mortgage. And all of a sudden, you can get up to 85% loan to value give or take on your home with that line of credit. This is nothing more than a another checking account now, right? You basically have 3% money, right? It's gonna be a variable rate, but you don't pay principal and interest. There's no amortization. It only charges you in interest-only payment on what you have about for how many days that month. So example of how you use this. Let's say all of a sudden, you have a home that is worth $500,000. You go put a line of credit on there for $400,000, 80%, right? Let's say you had a $150,000 mortgage already been paying on for 10 years, right? Well, gee, now you have that line of credit of 400, they're gonna immediately pay off your 150, you've got 250,000 and liquidity you just created. Guess what you can do with that? Whatever the heck you want to don't go buy cars, don't go buy toys. Take that money out and go put it in a couple of syndications. Or go buy a couple of properties, you're gonna flip, or go buy an Amazon business. Whatever asset you're gonna go buy, that will make you money, right. Borrow that money at 3%, go put it in that asset that's going to make you 20 to 30% or more. And then when you get the capital event back out of that, go put the money back and do it again. So you have this money, you can lather, rinse, and repeat. Think like that, folks. You can do that with life insurance policies, that's a whole nother strategy. You can do that with a number of other things. You can even leverage your cryptocurrency portfolio if you have some of that. So think about assets you own, and figure out how to turn it into cash using other people's money, ie the bank's money, right? And figure out how to put that money to work for you, making much many times over the interest rate that you're going to make. Now, disclaimer, make sure you can cover any interest payment you take out. Don't put yourself into negative cash flow situation for this, guys. But you know, that's the point, think about where you can find money to further your goals.
Sam Wilson 12:56
I love that. Like you said, there's so many different schools of thought on this, right? There's the guy from your neck of the woods that you know, would say, "Hey, pay off your home,
Chad Sutton 13:04
Dave Ramsey.
Sam Wilson 13:06
Correct.
Chad Sutton 13:07
Great guy, you know.
Sam Wilson 13:08
For sure. And for the right person, you know, that approach makes sense. There are a lot of people that heeding that advice would do them a lot of good in life.
Chad Sutton 13:15
And let's talk about that. You're kind of talking about Dave Ramsey versus or Robert Kiyosaki or something like that, right? Schools of thought, guys. Dave Ramsey's not wrong. But you have to think about this. Dave Ramsey is talking to people to whom credit has been a drug, like you give them a credit card, they will max it out. They're credit-a-holics. Those people don't need credit. Like if you can't handle a beer, don't drink beer. You know, if you can't handle a credit card, don't take credit. So what he's really saying is, don't take on consumer debt. Don't go take on debt to buy a TV, don't take on debt to buy a car. Yes, not even a car. That's a depreciating asset. If you're gonna take on debt, go do it for an appreciating asset, something that will make your money and it will increase in value over time. He has a nice building that he bought for his company. I'm gonna assume he bought it. Maybe he's leasing it. I don't know. But let's assume he bought this nice office building off I-65 in Nashville. I'm gonna bet you a nickel. He didn't pay cash for it. But that's an income-producing asset, right? It is benefiting his net worth. But his cars he bought outright in cash. So think about who they're talking to. But yeah, plenty of schools of thought on this, right, Sam?
Sam Wilson 14:19
There sure are. I certainly appreciate your creativity and finding liquidity and unconventional places. And I have this conversation. And I've talked about this on the show before. But you know, especially some older investors or older people like, "Why would want to go out and pay my mortgage down?" Like you have 30 years fixed at 2.75%. Why are you doing that again? Why? Like put that somewhere else. We'll make more money on that.
Chad Sutton 14:43
Right? If you can reallocate any of that money. I mean, I was just talking to a woman this morning about it. And this is just one strategy, right? This whole HELOC strategy, right. You know, the woman is about to go and get a credit line for about $400,000 on her home that she's almost got paid off. She's currently paying a 15-year amortized The mortgage on just kind of done are good. And she has about 120 left for her current payments, like 900 bucks, she could take an interest-only loan at 400 and pay 300 bucks. So she's gonna pay less, just an interest charges for more money, and oh, by the way, put it to work at 30% a year or something like that. Start to think about it that way. That's how banks think, by the way, grout banks are not using their money, right? Go read anything about how banks really work. Basically, you are putting your money into a depositor account, let's say $100,000, right. They're gonna pay you point oh, 1% interest. So what is that? $100 a year right like that? Well, they're gonna turn around and lend that money back to you or your neighbor or someone down the street in your community who wants to buy a car. Let's say 3%. Fine, 3%. Okay, that's going to cost that person $3,000 annually versus the 100 you're being paid to put your money in the bank. Their profit margin is ridiculous, but they're making money on other people's money. That's how you got to think about it, make money on the bank's money, not your own.
Sam Wilson 15:59
Yeah, because your deposits are nothing more than debt to the bank.
Chad Sutton 16:02
Right.
Sam Wilson 16:03
I mean, on a bank's balance sheet, your deposits are a liability, which is really interesting, I guess, whichever way you want to look at that. But yeah.
Chad Sutton 16:09
Exactly.
Sam Wilson 16:10
... their debt to the bank there.
Chad Sutton 16:11
Anyway, I can go rabbit hole here. We're gonna put that one where it is. And if you want to reach out to me and talk about this in detail, I love to talk to people about this.
Sam Wilson 16:17
Absolutely. Love it. Chad, let's talk about the acquisition environment that we're in. It'd be the last thing we have time here to chat about. I want to talk about that and how you guys are finding ways to uniquely find opportunities.
Chad Sutton 16:29
Yeah, so it's no secret. You know, people say the real estate market is overheated. I don't think it is. What I think is there is a huge weight of capital that is sitting on top of the cap rate causing it to be low, causing cap rate goes down, prices go up. So there's a weight of money on our shoulders causing these asset prices to be just waited, waited, waited, right? And so sure we'll see that go up and down over time. How are we finding deals today, right? We're value-add players. We don't buy assets and just watch them appreciate. We buy assets we can do something to make it worth more money, okay? Used to be you go buy yourself a dumpy property that someone hadn't been running really well for 30,000 a unit, go inject 30 more thousand unit to put it back together and all of a sudden, you can sell it for 90 or 100,000 units. Great. You know, that doesn't really work right now. You know, because of what you're having to pay for deals like that. We are flocking to quality, we are spending more of our time buying assets that are built newer than 1980, preferably 1990. We want to find a mixture of blue and white collar resident base that's a little more stable from an employment perspective should some sort of a recession hit at any given time. And we don't want to be the industry leaders. And we don't want to be the slumlord, right? So we're focusing on, we'll call it that B class asset, you know, properties rated from A to D, we're going to find something that's a stable 80s B class asset. And we're going to go put a bunch of money into it. And we're going to make to the tune of, make it almost luxury, almost an A class asset. And so by doing that, what you're able to do is actually, you'll yield rent increases close to 350 $400. But you call me crazy, but you're really competing with a whole nother asset class and you're putting so much money into it. I don't care if the cap rate goes back 200 basis points the other way, you're still going to make money because you've increased the revenue on that building and the quality of it by so much. Right. It's almost a redevelopment play right now, is how we're doing deals we're starting to look at, do we just want to put some money in some older new properties, right, and just kind of sit on it and see how that goes. So you know, that's how we're finding deals today, you stumble upon the really good deals that are direct to seller or coming out of a lawsuit or an estate or something like that. You just got to be in the game to find, those don't come around every day. We've found a few of those. But you know, we do still buy market-rate deals and the name of the game is, like, who cares what the cap rate is. Everyone's sort of worried about cap rate. Buy the deal where it makes sense. If you can justify buying at too high of a price, but then decompressing the cap rate over time with whatever value you're gonna add to it, you're gonna do just fine.
Sam Wilson 19:01
Love it. Chad, thanks for your time today. Thank you for coming on, certainly enjoyed our conversation. If our listeners want to get in touch with you what is the best way to do that?
Chad Sutton 19:08
Very simple. Go to chadsutton.info and that's C-H-A-D-S-U-T-T-O-N dot I-N-F-O. You'll find my contact, you'll find a Calendly link, you'll find a website you can look at. Very easy chadsutton.info folks.
Sam Wilson 19:21
Chad, thanks so much. Have a great day. Thanks, Sam.
Chad Sutton 19:23
Take care. Bye.
Sam Wilson 19:24
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 Podcasts, Spotify, Google Podcasts, 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.