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How to Scale Commercial Real Estate


Feb 3, 2022

Charles Carillo is Managing Partner of Harborside Partners, a real estate syndication firm, and has been actively investing in multifamily real estate since 2006. Charles also hosts the Global Investors Podcast where he interviews professionals about investing in US real estate.

If you are planning to invest in properties in the Sun Belt Areas, then tune in. Charles will give a sneak peek at how they have been successful in buying and adding value to their properties, the strategy of which you can apply even outside these areas.

[00:01 - 02:08] Opening Segment

  • Let’s get to know Charles Carillo
    • His real estate story
  • How they are buying larger multifamily complexes

[02:09 - 12:50] Investing in the Sun Belt Areas

  • We have an interesting conversation about labor shortage
  • The role of property managers according to Charles
  • Charles talks about his team’s experience investing properties in Sun Belt states

[12:51 - 17:40] Properties with Lowest Risks

  • The typical behavior of Americans when there’s a need for a lifestyle change
  • Can other real estate firms replicate what Charles and his team are doing?
    • Charles explains
  • The properties that Charles considers as lowest risks
    • The biggest expense in investing in properties

[17:41 - 20:31] Final Four Segment

  • A useful tool or resource that you cannot live without
    • Trello
  • A real estate mistake and how to avoid it
    • Not doing your homework about your target market
    • Invest in areas that are going to be expensive
  • Your way to make the world a better place
    • Monthly food banks
  • Reach out to Charles
    • See links below 
  • Final words

 

Tweetable Quotes

“If you want to be buying properties for five- or seven-year business plan, then you can get a touch more aggressive and start pushing that line of gentrification.” - Charles Carillo

“Turnover, as you know…that's the biggest expense in this whole business. So if you can minimize that, that's where you're printing money.” - Charles Carillo

“I would buy in better areas. Just make sure when you're buying, it's going to be more expensive. It's going to hurt you. It's going to kill you to do it, but buy in better areas.” - Charles Carillo



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Email charles@harborsidepartners.com to reach out to Charles or follow him on LinkedIn. Visit Harborside Partners to syndicate equity and partnerships for your real estate deals!

  • Are you a foreign investor who wants to enter the US real estate market? Listen to the Global Investors Podcast for tips and strategies you can apply right now!
  • Do you want to know more about Charles? Check out his online links and personal website.
  • Schedule a FREE 30-minute call with Charles here.



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Email me → sam@brickeninvestmentgroup.com

 

Want to read the complete show notes of today's episode? Read it below: 

 

Charles Carillo  00:00

Figure out what kind of property in the areas like so you have a market that you're looking at and then find the areas within it that you feel that are going to work for your business plan. If you want to be buying properties for five- or seven-year business plan, then you can get a touch more aggressive and start pushing that line of gentrification, you know that push that line a little bit more. If you're looking for shorter holds, you have to buy like when you're inside of it.

 

Intro  00:22

Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.

 

Sam Wilson  00:34

Charles Carrillo is Managing Partner of  Harborside Partners, a real estate syndication firm and has been actively investing in multifamily real estate since 2006. He also hosts the Global Investors Podcast and as an aside, he's visited 47 of the 50 United States and 40 countries. Charles, that's a lot of countries to go to, man. Welcome to the show.

 

Charles Carillo  00:54

Yeah, thank you so much for having me on, Sam. It's awesome to be here.

 

Sam Wilson  00:56

Hey, man, the pleasure is mine. I look forward to digging in a little bit more about that, you know, as we get into the episode here, but really, you know, there's three questions I asked every guest who comes on the show. Can you quickly tell us where did you start, where are you now, and how did you get there?

 

Charles Carillo  01:08

Started, just with small triplex multifamilies in ‘06. So after getting out of college a couple years after going to college or nausea, I graduated college actually. So as the year I got college, started buying triplex multifamilies, my dad had been investing in multifamily since 1984. So he kind of like really pushed it and motivated me to buy and ‘06 being a different, very interesting time. And then I bought again in ‘08. And that was a much different time. And then ‘09 was completely different. It was three really different years in real estate investing. And then so you know, had some small commercial properties there had some small multifamilies, I moved to Florida in 2012. And right now, what we're focusing on is buying larger multifamily complexes, and we syndicate it with passive, passive investors.

 

Sam Wilson  01:54

Man, that's fantastic. A lot of moving pieces there. When you say there was three very distinctive buying a real estate kind of windows, what are some things you think of when you say that? And you know, do you see anything that's kind of eerily similar now?

 

Charles Carillo  02:09

Well, one thing that I saw when I talked to people is and so many people getting into real estate investing right now. And when I bought in ‘06, and interest rate, I think was 6.5%. I bought in ‘08, interest rate was 5.5. And it just now, you know, who knows, you know, it's all the way down into the tubes and or something. So thing though, is that how much it's changed since then. But also, when I bought in ‘08, people I've done I did business with buying, like my real estate agent, and ‘06 completely not even had his license anymore, completely out. And I realized that throughout the whole process that like it was my attorney, and I had this really rockstar mortgage broker, but most mortgage brokers were gone. But and you know, it was really just a certain license people like, you know, attorneys, kind of like that, like a three year college kind of thing. We're still in the business, obviously, they have so much invested in, but you're a lot of agents out, a lot of originators, mortgage originators were out of the business, lot of, appraisers were out of the business, I mean, you can negotiate anything you want. And in ‘09, I was having like some electrical work done on a property I bought, those completely vacant that I'm selling now actually in the end of ‘09. And I would just have, like contractors come over. And they would just give me like base bottom rates and be like, listen, like I need to work, you know, blah, blah, blah, I'll go to Home Depot and get a few, can it be okay, and I'll do it today. And completely different from today. So it's like you had so many trades people that were hit so hard. And any type of work you had, like I purchase put on there like listen, like whatever that guy said, just like take off like 5% or 10%. I don't care, I need to work. I have all these people that need to work. And he was just like completely different from today. But ‘06 was similar to that too. Because you have very difficult like today to get skilled labor to do jobs. You only mean to get people that actually know what they're doing, that actually showed up to even give you a quote today. I mean, you know what I mean, let alone actually do the work. So…

 

Sam Wilson  03:56

Yeah, that's the environment we're in right now is just, it's almost impossible, you know, to get anybody qualified to get anything done because they're just so stinking busy. You know, it's a great place to be if you're a contractor, right? I certainly remember those I was in the trades in that window of ‘06 to you know, 2012 actually when I got out of the trades, but yeah, I remember that we went from 30 guys down to one in it. Yeah, yeah. Just like where did work go, did dried up and disappeared. But you know, that's really interesting. When you think about, you know, just talking on the kind of the labor shortage that we're experiencing right now. How are you guys overcoming that today on your properties?

.

Charles Carillo  04:30

We're getting a lot of relying more and more on property managers to get worked on. And prices are just going up like it's I just see something like, seriously like is this am I stupid because this price is just like completely high. And then I always compare it to like, this is what I pay my attorney and this is what I'm paying, you know for this and it's completely just there's so many people that are in demand for doing these jobs, but relying on property managers to get a lot of referrals and using a lot more contacts years back. We used to do like a lot of our own searching for GCs and stuff. like this, and now it's turned into your property managers, and they're like, listen this person know, you don't. I mean, they have a personal relationship. And now you're like being brought in, like, hey, a friend of ours could do this for you or like, whatever it is, and you're like, “Okay, I mean, like, I need to have it done.” And you know, you pay through the roof or through the nose on it now of what's going on. But I mean, that's just what it is, you got to keep the properties maintained, and you have to keep them, you know, when there's issues, they have to get resolved. And you got to keep those tenants happy and tenants in there.

 

Sam Wilson  05:28

Right, absolutely. You guys are investing in, a really the Sun Belt states, and you've been doing it for a lot longer than really the sunbelt states were kind of the hot topic. How is that changed? And then how are you guys staying competitive?

 

Charles Carillo  05:41

It's crazy. I mean, we were selling like pretty much all of our holdings in Tampa right now that we've picked up over the last few years. And it's just what the numbers are, it's insane. But it's also one thing too, is that properties that were invested in to mainly in Tampa, which are liking the C plus area, they can't build anymore, right. So anything that's going in, that's new there, it needs to have a two in front of the rent, right, where we are in the low one, you know what I mean? So $1,100, is what we're renting a place for. And something that gets built new, needs to be you know, 2,000 to 2, 3, 2500. So there's a missing margin there of, you know, kind of a window for people that listen, if you don't want to pay 2,500, this is kind of like the other option that you have. And being in Tampa, it's like you can live in a place with a Tampa address, or you can kind of go out a little bit more and stuff like that. But we'll kind of see how everything goes. But I don't see to me, Tampa is one of the hottest rent markets, I was reading something yesterday was the highest rent growth, I think it was like 10 basis points behind New York. So second highest rent growth in the United States year over year. It's like over like 30.3% or something. And that's crazy. I mean, that's completely nuts. And I was living in St. Pete. Now my family and I are or my wife and I were back over in Palm Beach area. But I was living in St. Pete for four years. And you know, we were renting over there and the rent would just like, you know what I mean? It would just skyrocket 15% on every renewal. And you know, that's just kind of what's going on in that area. But Florida like I think a lot of other places in the Sun Belt area is there's a lacking of clean, like C-Plus, B-Minus housing. You've got stuff that's like C-Minus that's like dangerous walking to your car, people would think and then you've got like $2 million pool type place. That's a B plus, that's $3,000 a month, and there's like, you don't have anything for like, 1,500 right now? It's like, it's all that is a very, very hard window. And because that property's had to be built in the 80s, 70s, 90s. You know what I mean? When it's anything built in the 2000s. I mean, like I said, it's going to be it has to be $2,000 and above in rent for, especially if it's traded in the last few years, or they have any kind of halfway decent property manager. So it's very difficult for people to find clean, affordable housing in a lot of states in the southeast.

 

Sam Wilson  07:49

Are you filling that gap?

 

Charles Carillo  07:50

Yeah, ‘cause we're really focusing, my specialty really where I focus is like C-Plus, B-Minus and B, kind of right in that area. So you have stuff that you are, so you're finding properties that are, that need a little bit of work, right, that are a little bit aged, you know what I mean? They're not these really, really nice assets. But where you can do some work, the neighborhood's good, you're in an area that's gentrifying even more, right? So there's even more money coming into it. But like we have one property right now, it's a 68 units, part of another portfolio that we have in this area of Tampa, and we’ll literally get 80 people a month, that will stop into the office. And that's more units, that's more people coming in the meaning of units at the property. And so it just goes to show you that people are like, and it's just like drive by, these aren't people like, this is like traffic coming in, this isn't calls, and it's like completely nuts. So you're like, Well, we have 100% occupancy at this property, even every six months, just like hey, whatever we're offering we just up at $25, or whatever. Because property managers like this, you know, that's kind of how they do it. So you're like, you know, there's still demand for because there's this missing window for most people that are pay, I don't want to I can't afford 2,500, or that's like, more than half my income, right. And a lot of things down on the nicer properties I found in these places in Tampa. I remember the last apartment we lived in years back in St. Pete three years ago. So the thing was like, they didn't even check your income, you know, I mean, and it was like, wow, so you, you're like and this is like a $2,000 a month apartment in St. Pete and Tampa is more expensive. And you're like, wow, like you guys aren't even like verifying income, like so you're like, you know what I mean, kind of a thing. You're just like renting to anyone that has a halfway decent credit score. And that's something I found with some of these larger, newer complexes that we're having issues, I think, putting people in at these higher prices, but the stuff where we were, we're taking secure deposits on it, you know what I mean? We're going through three times income, the whole nine yards of how you're supposed to manage a property.

 

Sam Wilson  09:44

Sure. So you're saying that on the higher end properties, they were foregoing the, you know, the tenant screening process, just in order to keep those properties filled? Is that what I heard?

 

Charles Carillo  09:53

Yeah, and this was, I think, last time I saw that was 2019. So it was, yeah, three years ago. So thing is that, I just, when I saw that it was something that like, wow, like you guys are having like, this must be  an issue for having people move in. And there was no security deposit either. They were just like doing it. And I had really good credit. So I have no idea if that changed anything. But the thing, though, is that it's just, you know, usually you would take a lease of $300 security deposit from someone or something like this, but no secure deposit, no verification income, they just like, you know, made sure you can fog a mirror and that your credit was like halfway decent, I guess.

 

Sam Wilson  10:24

So I don't imagine times have changed with the demand, you know, for housing, especially where you guys are. I mean, I can't imagine that trend is continued?

 

Charles Carillo  10:31

I don't think so. But this is a company that owned, it was a large private equity firm out of Manhattan. And I mean, there was some reasoning for it. Maybe they did out their numbers, and they said, listen, most people don't screw us on the security deposit if they have these other things. So why are we going to do it, it makes it easier for us underwriting and sprinting. So I mean, they know better than we do, but the thing knows what works for them. But it's also something funny, because, you know, you can find a lot of these nicer apartments and a lot of places down in like Florida, and Georgia, it takes a lot more work to find something that's like an 80s vintage or 90s vintage, even if it's been updated, it's still an 80s or 90s vintage. And that's where we have a lacking of people that you can rent those properties from with, first of all that they're available. And number two is that they're actually in halfway decent shape. So that's where the value add there. Because no matter what they jack, the rents up to, people can build new inventory all day long. It just makes the people that are in that C-Plus, B-Minus, B area, right, that are dealing with 30-year-old properties or 20-year-old properties. You can't build any more of that especially not the prices that you know, you've seen price today as you being previously in the trades. I mean, how expensive stuff is to build now?

 

Sam Wilson  11:35

Absolutely. Yeah. So what I'm hearing is you guys can really focus on that 30 to 40 year old asset class, you can make it a decent place to live, and then still hit your numbers way below, maybe what some of the newer stuff coming online is and really fill a void in the market.

 

Charles Carillo  11:48

Yeah. And then the other thing, too, is just one last thing is that I had a mentor one time tell me, he goes, Listen, when people get hit, they get like, they get punched, you know what I mean? So like, it's not like you have a family that has a house, they're making 120 a year, and they lose a job. And they like oh, we'll just get rid of some like wine subscriptions we have like, they like move down in house like dramatically. When there's a loss of income. I was renting to Connecticut to one of our properties. And this was like a small attic to one or something. And remember, this is like in ‘09. And I had this family from Cape Coral, Florida, which is like over by Fort Myers on the West Coast, and they had owned a $400,000 house and they relocated back to Connecticut, they are paying like 690 a month for me for this apartment, right? And I'm like, they must been paying like $3,000 a month for this mortgage down in Florida, especially with six and a half percent interest rates and afford all this kind of stuff. And they probably didn't put much down on it. So you're like you went from like you are you're like getting rid of 80% of what you're paying in living costs, or something like the 70% whatever it is, and you're like, that's a major change in your life. So that's one thing too, it's like people go there in an A, they'll go on the B, well, no, like they go down to anywhere where it's still safe. You know what I mean? So that they can get back on their feet make sense to me, I probably would do the same thing if it happened to me.

 

Sam Wilson  13:01

Yeah, there's nothing wrong with pivoting. But it's also kind of the American way where we tend to spend more than we have. We are and then oh crap, we didn't plan and now look, we're out of money. So looks like we're not the lifestyle change. Like that's yeah, unfortunately, you know, financial literacy is not something that we've been taught.

 

Charles Carillo  13:17

No, it's kind of it's really sad too.

 

Sam Wilson  13:19

Yeah, man, that's intriguing. That's very, very intriguing. So, I mean, it seems like everybody be looking, you know, there's such a high demand for the product you guys have, it seems like the competition for that would just be astronomical.

 

Charles Carillo  13:31

Oh, it is. I mean, we have I mean, we're selling, pretty much all of our assets in Tampa are now for sale, or buying another property like in we're it's just January 22. We're buying one in January 22 right now in outside of Atlanta. So I mean, we've just been selling a lot of stuff. It's just we've hit our targets already in three years, four years that we thought was gonna take five to seven, especially when we were buying during COVID as well. So you're like, you know, you tell your investors, you're like, yeah, we'll be fine. Seven years. I mean, this is the plan. But I mean, I can't I don't know if it's gonna be three years. And then everything just went nuts, right midway through 2020, COVID lasted for like 45 days or 90 days or something, then feel like, alright, let's buy everything in stock. And let's buy more even that. And it just kind of went crazy.

 

Sam Wilson  14:11

Right. Man, that's absolutely fantastic. If somebody wanted to kind of replicate what you guys are doing somewhere else and find similar opportunity, what would you tell them to do?

 

Charles Carillo  14:20

Number one is like figure out what kind of property in the areas like so you have a market that you're looking at, and then find the areas within it that you feel that are going to work for your business plan. If you want to be buying properties for five or seven year business plan, then you can get a touch more aggressive and start pushing that line of gentrification, you know, that, push that line a little bit more. If you're looking for shorter holds, you have to buy like when you're inside of it, and you're gonna pay a little bit more for that. But it's also you feel like oh, we're buying gentrification, well, that's good if it's like five or seven years, very difficult to make money there very quickly. I mean, now it's very different and this is not how it's gonna be. You know, this is not how it usually is in real estate. So now it's you buy anything and you sell it, you'll make money. But wherever it is, doesn't matter where it is. And but normally you have to be buying in the area where there's, you want to be driving through neighborhood and be like this has been renovated. This looks terrible. And there's dumpsters everywhere and on this property, so you're like, Okay, so there's like, this is like, I'm in the wave now. But that's not, it doesn't, you know, that doesn't just go in one month or something, it takes years. So if you make sure that these neighborhoods are picking up, you know, there's going to be future there. I just think it's very, I think some of the lowest risk is when you're buying somewhere between C-Plus and b properties. And because, number one, it's very difficult for these people to leave and buy a house, especially in these housing markets. If I'm buying a unit, which he, we used to buy units for 65 $70,000, a unit in Tampa, and now the average home is like 250 to $8,300, whatever it is, in Tampa, I mean, it's very difficult from going from 70 to 280. Right? If you're renting, but if I have a B-Plus property, we were talking before, I'm paying $2,500 a month, much easier for me now to go 1,100 square foot apartment, 1,100 square foot house, similar payment, I even if I'm overpaying for it, I'm done. You know what I mean? So they have more of an exit strategy, you're gonna have more people, they're gonna be stickier where you are. I mean, I have one tenant, and one of the properties in Connecticut that we're selling now. And I was self-managing from ‘06 to 2012. And I rent it to them in 2011. And they just renewed again. So it's like, in this with rent increases every year. So things like you have people that if you can get them right, you know, you find the units in a market that are the ones that are really hot, like Tampa, two bedrooms, super hot, one bedrooms, not as much. So just like, find what, where you can have least turnover, markets in Connecticut, if I have three bedrooms. They're there for 10 years. You don't, I mean, so thing, though, is that if you can find what's best that market where people have where you have the less turnover, because turnover, as you know, I mean, that's the biggest expense in this whole business. So if you can minimize that, that's where you're printing money.

 

Sam Wilson  16:48

Yeah, absolutely. When we were flipping houses, we always said we want to sell on the web, there's a largest pool of buyers, right? There's a certain band, depending on what your city is, as where the median home price sale, it is your home sale prices. And so the same thing for you guys. It's like, okay, what's the median rent? What's the what is it the largest pool of renters can afford? And as long as you're providing that inventory, then you're probably gonna have you know, consistent and very sticky tenants.

 

Charles Carillo  17:11

Yeah, probably the same thing for you if I brought you a house. So you're flipping that's a 2,1, 900 square feet house, you probably wouldn't want to do this, but I probably have 1,500 square foot, three, two, you'd be like, you know, great. Let's do this.

 

Sam Wilson  17:23

Yeah, long time since I flipped a house. But yes, it certainly done my share of it in the back of the day. But yeah, that absolutely right. I have no idea what to do to two, one, it will be worthless to me. So that's fascinating. Charles, I really enjoyed this conversation learned a lot about what you guys are doing and how you're doing it. Thanks for taking the time to break that down. Certainly appreciate it. Questions for you, final four questions. Here we go: What is one tool or resource, think software, that you can't live without?

 

Charles Carillo  17:55

Trello.

 

Sam Wilson  17:56

Trello. Tell us what that does.

 

Charles Carillo  17:57

Trello is like it little drum down, I guess you would say Asana, and it's just a, you can put it, it goes on, it can be on your web browser, on your computer, it can be on your phone, and an app. And I just have different boards and you can move stuff between it. So it's I keep my to do list is on that. I can keep goals on so anywhere. If I have a question or if I have anything I've got to do I forget something, I can put it right in there for what I gotta do. And my wife used to make fun of me for years. And then I peered over her shoulder about a year ago. And I saw her using it. And of course it was her idea for me to start using in the beginning. So it's all set.

 

Sam Wilson  18:29

Right, oh, that's funny. That's awesome. If you could help our listeners avoid one mistake in real estate, what would it be and how would you avoid it?

 

Charles Carillo  18:35

I would buy in better areas. Just make sure when you're buying, it's going to be more expensive. It's going to hurt you. It's going to kill you to do it, but buy in better areas. My dad bought in crappy areas. And at the end of his career, he was buying better areas and he wouldn't let me buy in any terrible areas when I bought and he was like “No won't even look at it won't even look at it.” When I was looking to buy property because you want to buy cheap, you think you're gonna get a better return. Don't do that. You can just skip over like 10 years of most real estate investors like hell on earth, and then just go and buy better property.

 

Sam Wilson  19:03

Right? You said it man, if you're listening to this show, pay attention. That's golden advice right there. Charles, when it comes to investing in the world, what's one thing you're doing right now to make the world a better place?

 

Charles Carillo  19:13

So when we're going into an area, I always like to where we have properties in area, we're always giving back, we actually, monthly food banks in that area. So that's something big that I've started, I'm kind of fine tuning how I'm going to do it even better and make a little bit more streamlined. But that's one thing I like I mean, I like doing it I think it's easiest because I'm always worried when you're giving money away that it's gonna go to the wrong causes but can't really do wrong if someone's giving you you know, you're giving away Campbell's soup or something you know, I mean so…

 

Sam Wilson  19:37

Right, absolutely, man love it. If our listeners want to get in touch with you what is the best way to do that?

 

Charles Carillo  19:42

Well Sam, what you can do is you go to ScheduleCharles.com at schedulecharles.com. It goes right to a booking page on my website at Charlescarrillo.com and set up a 30-minute call with me if you're interested in actively or passively investing real estate, if you've never invest in real estate, if you have a whole portfolio, if you want to go to the next level, and I'll spend 30 minutes with you obviously free and see kind of possibly we can work together and possibly, you know what I can do to kind of put in the right direction for you to scale your business up.

 

Sam Wilson  20:06

Sounds great, Charles, thanks for your time today. I do appreciate it.

 

Charles Carillo  20:09

Thanks, Sam, for having me on.

 

Sam Wilson  20:10

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 I appreciate you listening. Thanks so much and hope to catch you on the next episode.