Finding A Dead Body In One Of Your Units

Full Transcript Below

Rod
Welcome back to Multifamily Rock Stars. As you guys know, this is where we interview people that are absolutely crushing it in this business. And today’s guest absolutely fits that bill. You know, we show you guys the inside scoop into how multifamily investors are creating incredible success in their businesses and in their lives. And as always, I’ve got my co-host, who’s the director of our massive action team for our Warrior group, Mark Nagy on the call. Mark, what’s happening with you, brother?

Mark
Yeah, man. Well, that’s what I’m excited about. Usually, we have people that have been getting started over the past couple of years here, but our guest has been in real estate for a long time, so I think we’re going to have some good stuff today.

Rod
Yeah, no, absolutely. So his name is Charlie Peters, and Charlie, oh, God, I don’t know, he got 25 years experience, you know, just has been around the business for a very, very long time and kind of a unique individual as it relates to the Warrior program in that regard, actually. And he’ll tell you all about that, but, you know, he’s pretty much done it all and even approved to do HUD purchases and, you know, done different asset classes. And what I love about Charlie is, you know, in this business, the most successful operators are the ones that are able to solve problems. And so we may make him stand a little longer than normal and talk about a couple of those examples. Welcome to the show, brother.

Charlie
Yeah, thank you so much for having me. I’m honored.

Rod
Yeah, this is going to be a lot of fun. So why don’t you give a little background, you know, about who you are, you know, real estate, why you got into it, just give us, you know, like an overview of your chronology in this business.

Charlie
Yeah, so I realized as you guys were walking through that little introduction. I bought my first property when I was 26 years old. I’m 52 now. That was January in 1996 when I bought that property. And so I’ve actually been a real estate investor for more than officially half of my life now.

Rod
Wow.

Charlie
So that’s kind of an interesting–well, you know.

Rod
Damn, you’re old, Charlie. Damn, you’re old.

Charlie
I hear you, man. I hear you. Yeah. So what got me–yeah, my very first landlord was my older brother. Do you guys know Caleb? That’s Caleb’s dad. He was my landlord when I was in college, I rented a five-bedroom house with a bunch of my buddies. And I would like to tell you I was an exemplary tenant. However–

Rod
That would be a lie.

Charlie
He may tell you differently there, but no, we had a lot of fun in that house. But I remember talking to him one day and saying, you know, why would you want to be? Why would you want to own real estate? Why do you have all these properties? And he walked me through, literally, he asked the question, the question that changed my life. He said, well, you know, you earn some kind of rate of return on every dollar that you spend, right? So if you go to McDonald’s and you spend $10 on a value meal, number one, your ROI on those dollars is negative 100%. You lost it all. So the worst you can do is total consumption. So that’s food, vacations, you know, something where you buy it, there’s nothing left over. Slightly better than that is buying clothes or cars or something that, you know, goes down in value over time. And then he said, you know, about real estate because I want to get a good return on my investment. And I said, well, what’s a good return on your investment, right? And he said, well, I make probably about 50% on buying these old junkie houses and fixing them up. And at that time, I knew just enough about numbers to know that a 50– Warren Buffett, over his career, year in, year out, has returned about 28%.

Rod
Right.

Charlie
Right. So my brother from Jackson County, Florida, is beating Warren Buffett.

Rod
Love it. Love it. Love it.

Charlie
[inaudible] his ROI. And that just really got my attention. And so I kind of started picking his brain. And he was my first mentor in real estate. He still owns probably about 90 properties here in Tallahassee, and he’s the guy who rides around all day with a lawn mower and a toolbox in the back of his truck.

Rod
He’s one of those. He’s one of those.

Charlie
Yeah.

Rod
He mows his own yard. If he sees a piece of copper on the side of the road, he will stop and pick it up. Although he’s a multi-millionaire, right? By describing this guy properly.

Charlie
He is a wealthy guy and has the largest collection of torn-up T-shirts and ratty-looking shorts with paint all over him and everything you could imagine. Great, great guy. Awesome brother.

Rod
Yeah, I’m sure. I’m sure. Well, keep going. Keep going. What happened? So you got intrigued.

Charlie
So, yeah. From an ROI standpoint, you know, I always kind of had this–and not even realizing it at the time, but I always sort of looked at my life through ten-year glasses, where I could kind of see what I wanted my life to look like ten years down the road. And so investing is absolutely a part of that, financial freedom. And he was a real estate broker also at the time. And so he calls me one day and says, I’m about to graduate from college. I’m engaged at the time of my wife now for 27 years. Sorry, ladies, but I’m taken. And he called me and said, I got a quadruplex for sale. It’s in a good area. It’s in between the two hospitals in Tallahassee off of Miccosukee Road. So long story short, we bought that quadruplex. I owner-occupied it, and that’s how I got into real estate. And it was after I graduated that I actually kind of fell in love with, you know, this idea that you’re buying this major asset and your tenants are really–they’re paying for it for you. So it is the ultimate example of how to build wealth.

Rod
So you basically house hacked a fourplex, lived in one unit, rented out the other units, and that got you going. And here we are, a whole lot of property later. I mean, I know you’ve got multifamily assets in Alabama, Colorado, Florida, Georgia, Illinois, Missouri, North Carolina, and Texas. Good lord. That’s as many as I have. Good lord. Very impressive, brother. So the obvious question is, and I know the answer, but I want my listeners to hear it, is why did you bother joining the Warrior Group? When did you join, by the way?

Charlie
I joined in 2020, August of 2020. So coming up on two years here.

Rod
Coming up in two years. So tell my listeners why you joined. Because it was a great reason.

Charlie
Correct. So this is the importance of picking a good mentor. And frankly, my brother is an awesome guy, and he would be a great mentor if your goal is to own 90 properties in your hometown and be the landlord and travel around with a mower and a paintbrush. And no off– and he’s done a great job and he’s a great guy.

Rod
Right. Oh, sure.

Charlie
I don’t want to [inaudible] my brother.

Rod
Of course.

Charlie
But, yeah, I wanted something a little different in that I didn’t want to own investment properties. I wanted to create a business that invested in real estate. And so I wound up doing all this stuff, but kind of on a larger scale. He never got into multifamily properties, whereas that’s the majority of what I’ve done. So to answer your question, the reason I joined the Warrior group is, up until 2020, I had never done a syndication before. And to achieve true scale, you got to have that business model. And so I sought out. I did– this is a great compliment to you, Rod Khleif, but I did a ton of research. There’s a lot of multifamily guys out there in the spaces, you know, and I actually put– I mean, I put a fair amount of time into researching all this. And I settled on you. Like a lot of Warriors did, I attended the boot camp, loved what I heard, and loved your energy. You know, you– at the time, I would say you seem to have had a heart for people–I have– you know, since getting to know you better, obviously, realize that’s 100% accurate. So I appreciate your heart and how you legitimately want to see people succeed. So yeah. I joined the Warrior program specifically to learn the syndication business.

Rod
Yeah.

Mark
When you made that transition there then from hometown investing, whatever you want to call it, over to syndication. What do you think for the listeners is the number one thing that they should learn when they’re getting started if they want to do multifamily?

Charlie
All right, so I’m going to critique that statement just a little bit. I run three business models. So we have buy to flip. I still actually flip houses. That’s just kind of– it is like clockwork. We have our systems and processes down for that. And then we buy multifamily properties that I don’t syndicate just for myself. And then the third, so we have three models. The third one is the syndication model. So we’ve added that in. So, your question–

Rod
Back to this question around a newbie, you know. So, yes, thank you for that clarification because I knew that. But back to a newbie. Somebody coming in, what do you think they should do?

Charlie
What’s the advice I would give them?

Rod
Yeah.

Mark
What’s the number one thing they should learn first, whether it be underwriting, whether it be– whatever. Right. I don’t want to put any words in your mouth. What do you think it should be?

Charlie
The number one thing they should learn? I would back up even beyond that a little bit, and I would say, you guys, I am such a huge fan of goals, crystal clear goals. And so if you’re going to get to a destination, you have to know exactly what that destination looks like. And this is– I mentioned it earlier, but it’s looking at your life through ten-year glasses. What do you want your life to look like? And then if you can set goals that will get you to that destination and then break those goals down into a daily to-do list, you’ll get there. So it’s going to be a little different for each person just because not everybody wants the exact same thing. Generically, I’d say just to get educated, pick a good mentor, and set solid goals. If you’re going to pick a specific area to learn in the syndication business, I would say underwriting, because it’s critical that you understand the numbers.

Rod
Yeah, and if you’re not analytical, you don’t have to like become– I mean, you need to know how to read a P&L and understand, you know, how to look for anomalies and how to normalize expenses, all of which we teach at our boot camp. But, you know, typically, what you’ll see is you’ll see somebody that loves that align with somebody that’s really more outgoing. Now, Charlie happens to be both, which is kind of unique. But, you know, talk about your favorite types of deals. I mean, again, I know what they are, but I just want you to put it out there, you know, because you actually expressed this to me, or maybe you did it publicly, I can’t remember. Maybe you did it in the Facebook group. I just saw you post this or express this, like, in the last few days.

Charlie
So, again, it depends on which of those three buckets you’re going into.

Rod
Right.

Charlie
My bread and butter, which I think is probably what you’re getting to, has been these– I’ll call them extreme value-add properties. They’re typically in these tertiary markets that nobody wants to go to. And the property I think you’re talking about there is an 88-unit property in Daleville, Alabama.

Rod
That’s an example of it. Yes, that’s an example. But you know what? Before we talk about that one, how about you talk about a successful one that you’ve done in the past. I know you’ve done several of them. Before we talk about this new one. Talk about– if you don’t mind, I mean, if it’s okay. Yeah.

Charlie
I’m an open book, man. We can stay here all day. Yeah.

Rod
Yeah. I know, we absolutely could stay here for a full day, but, you know, I just know you’ve done case studies, you know when we met at the Warrior event. Actually, you know, we do these Warrior-only events just for our Warriors, and we had 250 people there. And you did a case study about a unique one, and that may not have been this. That was, I think, a different example because that had a parcel you broke off and stuff like that. But talk about, you know, one of these really hairy deals that you did that would scare the average Joe.

Charlie
Yeah. All right, so when you mentioned that, the first one that pops into my mind, 76 units in Andalusia, Alabama.

Rod
Oh, good, Lord. Wow.

Charlie
Yeah. The federal government will provide loan programs through the USDA for these very rural, multifamily properties. And so this was a USDA-backed property. The previous owner stopped making the payments. The federal government foreclosed and took title to it. The federal government is not wanting to be a residential landlord. And they kicked out all the tenants.

Rod
Wow.

Charlie
Boarded up the whole thing. Homeless people came in, ripped the boards off, and it moved in. And the federal government auctioned it off, and we bought it at an auction. So at 11:00, we won the auction. 05:00, they had to have a cashier’s check for the full amount of the auction. So we bought 76 units for about $480,000.

Rod
Wow. When was this?

Charlie
2018.

Rod
Wow. Crazy. Okay. So talk about what you did. Talk about what you did with that gem of an asset.

Charlie
The first thing we did was we got somebody over to walk the units. They found a dead body inside one of the units. And so we stopped walking units. We called the police. The police told us to stay off the property. They opened up a crime scene. I actually have the newspaper article in my office which says that we were exonerated as the death was ruled by natural causes. But basically–

Rod
They actually did an investigation? They couldn’t figure that out? Good, Lord.

Charlie
Anytime there’s a dead body, they have to–

Rod
I had one in Denver, they didn’t. It’s a funny story. I mean, it’s not really that funny, but it’s kind of because I had these two– let me interrupt for a second, just because it really is– part of it’s kind of funny. So I had these two guys, these two Spanish guys that worked for me. I mean, they were a brother. I wanted to hire one. They said, no, you have to hire both. And I hired both of them, and they lied like nobody’s business. But it was funny. Okay. And what was really funny is the brother would shore up the other one’s BS. Okay. And so, they called me one day. They were doing maintenance and renovations for me, like, we found a dead body. And I just said, shut up. And I hung up the phone. Okay? They called back and they said, hey, we really found a dead body. I’m like, quit freaking bugging me, and I hung up the phone again. Then they finally got on the third time, they’re like– and it was just you know, was a vagrant that had gone in there and actually, I think, froze to death. Sad thing. But, yeah, and then I drove out there and I expected to see you know, tape and lights everywhere, and there was just a cop in his cop car just writing a report and, you know, that was it. So I was just kind of surprised to hear that they even had to look at you for it. It’s kind of interesting. But anyway, I just need to throw that in.

Charlie
I say we were exonerated. I don’t think we were ever really–

Rod
Right. Okay.

Charlie
People of interest there but–

Rod
All right. Yeah.

Charlie
It was about 24 hours. They roped it off, they did their investigation, determined natural causes, and so we got the body out of there, but there really was a newspaper article, and anyway, kind of a cool little thing.

Rod
Yeah, that’s the biggest excitement. They are probably in that town in 12 months, you know. So you cleaned it up, you got the body out. What next?

Charlie
One building at a time. We would go in, renovate. You know, you turn the water on to one building, there are leaks everywhere. So you go in, just stop the leaks. Fix the plumbing. The structural stuff has to be done first. So we put new roofs on, simultaneous to while we’re fixing the plumbing. But once the plumbing is done, you’re kind of stabilized and so then you can go in and do all the cosmetic improvements and everything. It was built in ’83. We didn’t do many–

Rod
That’s not an old–that’s not that bad. I mean, we have assets that are older than that. So, okay. Nice.

Charlie
Yeah, it was all PVC piping.

Rod
Nice.

Charlie
We had some bad water heaters and so, you know, you get a fixed supply line and all that stuff. But, yeah, I did the electrical upgrades, and then from there, it’s all cosmetic. And we had this one– I mean, this building looked gorgeous compared to everything else there. And it was almost like it was its own little complex. But we started renting units as soon as those first eight units were available. And then we went to the next building and so people can kind of see the vision for what was happening there. We didn’t have any trouble renting it out and got it filled up. We built a stabilized, I think it was about a T6, maybe a T12, but then we put it back up on the market and sold it.

Rod
Oh, you sold it. Wow. Fantastic.

Mark
Out of curiosity, would you mind sharing what you sold it for since you said you bought it for 400K?

Charlie
I think– I actually posted this in the Warrior Group as well when we sold it. Marcus & Millichap were our brokers. They were the sale brokers. I think it was 3.2 million.

Rod
Nice.

Mark
Wow. 400K to 3.2 million.

Rod
No, he put a few hundred in it. Okay.

Mark
Yeah, I know that. Yes.

Charlie
We put over a million dollars in it.

Rod
A million in it. Okay, so you doubled. I mean, more than doubled.

Mark
Still doing pretty good.

Rod
Better than a sharp stick in the eye.

Charlie
The great thing about that deal, that’s where–you know, a lot of people look at 400. You put a million into it, you got– call it 1.4, 1.5 in it. You sold it for three. Yeah, it worked out great. But what made that deal literally sensational is we brought financing in immediately. And these are bankers that we worked in. We just used a local bank here in Tallahassee. Synovus bank. Anyway, they’re [inaudible]

Rod
Yeah. No, that’s a pretty good-sized bank. Now, they’ve loaned you on an Alabama asset?

Charlie
They loaned me on an Alabama asset. Yeah.

Rod
Nice.

Charlie
And they gave us renovation money. You know, it was taken in draws as we’re doing the renovations.

Rod
Sure. Sure.

Charlie
But, yeah, we wound up. Our max out of pocket on that thing, like, at the high point, might have been $600,000.

Rod
Wow.

Charlie
We were able to get most of that back, you know, almost right off the bat there. Yeah. Worked out unbelievably well, and especially I don’t know what the ROI is, but it would well, it’s substantial.

Mark
A lot.

Rod
It’s better than most, for sure. Nice.

Charlie
100%. Yeah.

Mark
Plus all the other benefits, cash flow, etc. And that we won’t have to get into, but let’s talk about the new one, the 88-unit that you just talked about. You mentioned also, Dixon Heights, okay. That’s the name of it.

Charlie
Dixon Heights is the name of the complex, yeah.

Rod
Okay.

Mark
Okay. You said also very rural. I believe you said 30% occupied when you bought it. So, obviously, extremely vacant. Give us a story on that deal. How it’s been going since.

Charlie
Yeah. So, we bought–here you go. I’m just seeing all my mugs with all Rucker’s Landing.

Rod
That’s funny.

Charlie
In Daleville, Alabama, which was right–

Rod
So, do you get a mug every time you buy an asset? Is that what I’m seeing here?

Charlie
I got a few mugs. Yeah, we got a couple of them here.

Rod
Okay.

Mark
Instead of trophies, right? You have mugs out there instead of trophies.

Charlie
Yeah. So we bought Rucker’s Landing. Rucker’s Landing is named after Fort Rucker, which is the home to helicopter aviation for the US army, located in South Alabama. We had a maintenance guy working there who did some part-time work for a family in town that owned a hotel and another apartment complex. So our maintenance guy comes to us one day and says, hey, you know, I think the family may want to sell this apartment complex. It’s an old cardinal–

Rod
How did you know?

Charlie
Our maintenance guy told us that the family that he worked for on the side had mentioned they might going to sell the apartment complex.

Rod
Oh, got you. Got you. He was already your maintenance guy. Got it. I’m sorry I missed that piece. Okay.

Charlie
But, yeah, no broker involved. No, nothing. This is just my maintenance guy coming in saying, hey, I think this place might be for sale if you want to make an offer. So, absolutely. So we called them up, had a conversation. You know, they were here, we were there and–

Rod
Right. He’s got a– one-hand up, one-hand down for the people that are watching. You are pretty far apart then, initially, yes?

Charlie
I don’t even remember, but it worked out. And so we paid $850,000 for that, for 88 units. So that’s just under 10,000 a door.

Rod
How long ago?

Charlie
Which sound–Rod, you’re in Sarasota, so that’s how–

Rod
How long ago?

Charlie
2020.

Rod
10,000 a door. Good God.

Mark
Wow. Now, I’m curious. I’m curious, Charlie because you mentioned earlier that these are deals that you said, you know, “people don’t want to touch”. Why do you like these properties and why do you like to get into them and touch them and buy them?

Charlie
I would look at both of those properties and say that the downside risk is darn your almost nonexistent.

Rod
Yeah. I love that stuff. By the way, this is all the stuff I grew up on, too, man. This is why we get along so well. I mean, this is the same crap I did. And these brothers fix these places up and not larger ones like you’re doing. It was more smaller stuff, you know, 12 units, 16 units that we go in and do the same thing, just trashed and destroyed. I remember, I bought a six-plex in Northeast Denver for 20,000 a unit, and each one now is worth a million.

Charlie
Yeah.

Rod
That area gentrified. So, yeah, this is like music to my ear. So what happened with that 88-unit? Talk about that one. It was 30% occupied. You bought it from you know, Rucker’s Landing. What happened with that one?

Charlie
From a local family in town on that.

Rod
Right.

Charlie
Yeah. So we bought it from them. About 30% occupied. It was in terrible shape, Rod. This is the first time–you know I always tell people, yeah, I’ve been doing this forever. I’ve seen everything.

Rod
Right.

Charlie
Well, we pull up out there. They have carpet on the roof to try and keep water out inside their places. I’m like, is that carpet? And yeah, sure enough, they had carpet up there trying to get– so, you know, we’re rolling that off. The first thing you do–

Rod
You roof it.

Charlie
If there’s a takeaway from today, the first thing you do in a really bad place is fix the roof.

Rod
Absolutely. You got to solve the water problems. You got to solve the water problems. And then plumbing. Again, water problems. You got to deal with the water first. Yeah.

Rod
Right. Yeah. So, yeah, same kind of thing. This prescription that we’ve done over and over. We pick one. You pick– in this case, we picked the most occupied building, which was also right near the entrance, completely renovated it, and then moved on to the next building.

Rod
Building at a time. So that’s an interesting strategy because you know, a lot of people will do one piece of a renovation in all the units. Like all the paint, all the–the way you did it is much better. And that’s the way we do it as well. It’s just to do a building at a time and a unit at a time. Now, do you have your own crews, or did you use management companies to help? Do you have a construction company? How did you handle the renovations?

Charlie
On the 88-unit property, we had a contractor who agreed to work for free for some of the equity.

Rod
Wow.

Charlie
And then we had some problems with him, and he took a buyout and is gone now. So we have another crew in place. We still have three buildings to go there, so we’re not doing [inaudible]

Rod
Oh, wow. So you’ve been working on it for a couple of years. Okay. No, well, I mean, that kind of outlay to buy it it’s– I’m sure it cash flow very quickly.

Charlie
Yeah.

Rod
Do you have a third-party property management company using these different locations since you’re all over the place? I’m guessing you do. Yeah?

Charlie
That one, the 88-unit property was managed by a third-party property management company. We have just transitioned. My girl that was running Dixon Heights for us in Andalusia, these places are like 45 minutes apart. So we just hired her back, and so she started back, actually this past week. So she’s our property manager now.

Rod
So she’s going to manage it. You’re just going to keep it in-house, not have to [inaudible]

Charlie
We’re taking that in-house. Yeah.

Rod
Yeah. Nice. Nice. So, you know, we talked about you, you know, joining the Warrior Group a couple of years ago. What’s that experience been like for you?

Charlie
Yeah. It’s been awesome.

Rod
Yeah?

Charlie
Yeah. Do you remember, Rod–I’m sure you don’t remember because I know you talked to 50 million people, but the question I asked you when we were on the phone, I said, you know, if I’m disappointed with this, can I have my money back? And you said–

Rod
What did I say?

Charlie
You said, Charlie, if you think this is a scam, I’ll give you your money back. Yes, and I said–

Rod
You know that’s not the usual response I give, by the way. If I get asked that, I usually say, listen, if you’re coming in this–

Charlie
Actually, you did say that. You did say–

Rod
Okay. If you’re coming in with that kind of energy, it’s probably not a fit because you’re not going to do this. Okay, that’s funny. That’s really funny.

Charlie
That was your answer. But after I beat you up for a minute or two, you came away with, yes, if you think this is a scam, I’ll give you your money back.

Rod
Oh, yeah, I mean, yes, it’s never happened, but I’m sure it could. But, no, you know, and just to elaborate on my response, you know, if you’re looking at doing something, learning anything, and all you’re looking at is the potential negatives, what do you think gets bigger? You know, what you focus on gets bigger. And so when I hear that, you know, my concern is that–you know, obviously, you’re a huge exception to this rule. But my concern is that you’re going to focus on the negative, and that’s what’s going to get larger. But listen, guys, if you’re listening and you’re interested in applying for the Warrior program, it’s pretty extraordinary, but there is an application. Well, really, the application is verbal, but if you’re interested, text the word “crush” to “72345”. You’ll put your information down and we’ll set up a call. And I’m going to say this to you, you’re going to leave that call better than you went on it. I will promise you that. But anyway, again, text “crush” to “72345” to apply. And you look us over, we look you over, but, you know, hopefully, you know, you can see the value. And, you know, when someone is astute as Charlie comes in and just knocks it out of the freaking park and has been knocking it out of the park, that’s pretty you know, I love having you as the testimonial, brother because that’s awesome.

Charlie
I would add. It has never remotely crossed my mind to begin to ask for my money back. So, yeah.

Rod
Yeah, you’re right.

Charlie
Been worth absolutely every penny, man.

Rod
Oh, thank you. Thank you, buddy.

Mark
And maybe someone who’s been listening has been–has heard–lives in a rural area and has been hearing episodes of people buying in, you know, these big cities, has been wondering, oh, I can’t do that. And this is a great episode to think, well, absolutely you can. This is a very unique one. We don’t hear these sorts of deals that often. So it’s good to hear your story.

Charlie
Yeah.

Mark
I want to shift over to a second market crash, dip, whatever you want to call it. I know your bio said through the last 2008 crash, your business actually expanded and grew. You know, a lot of people are thinking, hey, we may have a– obviously, not a– the market crash like 2008, but there may be a dip, recession, flattening, whatever you want to call it. What are some tips you think that you’d give to listeners to help them grow during this dip that you might have used in the last crash that you could apply coming in the next couple of years?

Charlie
Yeah. So the best metric for measuring risk in my mind is debt. How much debt do you have on a property? So I read this article, 2008, right around the financial crisis, and it basically said you know, which the article– the gist of it was which REITs are most at risk of collapsing. And they talked about REITs that had a balance sheet where they were 60% leveraged and were more at risk than the ones that are 40% leveraged. And they said 40% was like the highest grade that they gave these Wall Street REITs. And so in my mind, I’m thinking if I can get my total global loan to value down to less than 40%, I’m going to be more stable than the most stable Wall Street REITs. And it may all go to hell in a handbasket, but I’ll be the last domino to fall. So, yeah, we started–

Rod
You know what’s interesting about that is I was actually at a 30% loan to value and I still crashed and burned. But here’s why. You know, I was in mostly houses, okay? And so, you know, they’re harder to cash flow because they’re just different. And I was pretty spread out geographically as well. But I agree with what you said, though, and I get a lot of hate, you know, when I tell my stories like, yeah, you were over-leveraged. No, I wasn’t. But there were a lot of other factors involved in my situation, personally. But what are some strategies besides– any other strategies operationally maybe, besides debt or, you know, any other thoughts that you might have about what’s coming? You know, let me pre-frame this by saying, I don’t–you know we’re not going to have the foreclosures like we did in 2008, ’09. This is going to be different. But I’m actually doing a YouTube video on bridge debt here, tomorrow night or, yeah, Thursday night, actually. And I think we’re going to see a lot of– have some pain there for some of those operators. Did a lot of bridge debt these last few years. But I’d love your take.

Charlie
The market has absolutely bailed out bad operators for probably the last three or four years. So yes, at the end of the day, if you’re not covering– as long as property values keep doing this, it doesn’t matter if you cash flow or not.

Rod
Right.

Charlie
But boom, as soon as they level out, and they are leveling out right now. Probably a little pullback actually, I think, but, you know, at the very least they’re leveling out.

Rod
Oh no, there’s a pullback. I’m sorry to interrupt you, but, you know, this is just triggering thoughts for me. You know, in the last year, Scott and I have only bought one asset. And you know, we’ve gotten so close on so many deals and then we get into best and final and we’re like, they paid what? And, you know, there’s no way the returns are going to be what they say they’re going to be. And they put bridge debt on them. And, you know, back–you know, over a year ago, they really didn’t have caps. Now they make you put a cap. If we wanted to buy it, do a bridge debt deal we were looking at and the cap was a million dollars just to say keep the interest rate from going up more than 2%. But, anyway, I’m sorry I interrupted. Please continue your thoughts with what people might do through what’s coming and capitalize on it.

Charlie
Yeah, so I do believe there’s going to be deals coming because the market is going to– as soon as it flattens, the market is not going to be bailing out bad operators. So, I would tighten up your operations, and then I would make your underwriting more conservative. Those are the two big takeaways, just like you said. I like what you just said, which is basically we saw an investor deck for this property was in Sarasota and they budgeted in 17% rent appreciation for the next five years. And I’m just like. And the sponsor was like, yeah.

Rod
And they raised money for it. That’s just freaking crazy.

Charlie
I know.

Rod
There were people that thought that was okay. It was like, are you freaking kidding me? And so, yeah, I mean, we’re going to see some pain because those guys that did that, you know, we’re relying on those numbers to be able to deliver on that asset, to be able to meet their loan requirements and forget investor returns. I mean, those are going to be out the window for sure, but hopefully, they don’t lose the whole asset. So, you know, I’m really looking forward to this piece that I’m going to do on bridge debt. I don’t know when this episode will come out. It will probably already have been on my YouTube channel. But yeah, I think there’s going to be some pain, and really in the commercial multifamily space because of the fervor, the overzealousness these last few years with pricing and debt. I mean, a lot of the bridge debt is 18 months, 24 months, or three years. And if they didn’t plan for, you know– the other thing, when you’re putting debt on a commercial property, you’ve got to take a look at what the interest rate is going to be on your takeout financing and you’ve got to meet debt service coverage requirements. Meaning, you know, there’s something in this business called a Debt Service Coverage Ratio, which is the property’s ability to service the debt. Let me give you an example of this. It is called DSCR. Let’s say your net income on the property is 125,000 and your debt for the year– and this is an annual number and your debt for the year is 100,000. So you got an income of 125, and debt payments of 100. That’s a 1.25% debt service coverage ratio. Well, if these guys didn’t–if they weren’t super conservative with their take-out debt interest rate projections, big problem because they may not be able to refinance. Okay? And, you know, you’re right. Properties of absolutely–you know, values are pulled back. But I want to hammer something else home that you said. Super important. Now is not the time to be aggressive, guys. I’ve told my Warriors this ad nauseam, you know, right now, just in the last couple of months, specifically to be super conservative. Have lots of stress testing. What is your break-even? You know, how far have you projected your interest rates to go up? Because, I mean, we’re looking at, you know, on the single-family market, we’re looking at 8%, 8.5% by the end of the year, for sure. I mean, it’s coming. Now, I don’t know about you, Charlie.

Mark
It’s going to be three more times.

Rod
Yeah, three more raises. I don’t know about you, you’re younger than I am, Charlie, but, I mean, I remember when we were doing back flips when it came down to 7%. Okay. So, you know, it’s been gravy at 3%, 4% these last few years and, you know, those days are going to be gone for a while. But anyway, I’m rambling.

Mark
And real quick on that topic. I know you’re talking about bridge debt and opportunity coming. Correct me if I’m wrong, Rod, but if someone isn’t that shorter-term bridge debt and they can’t refinance because of that, I mean, correct me if I’m wrong, that basically means they will be forced to sell, correct?

Rod
If they can, yeah. If they can. Again, it could be a problem there because of their debt– they could be over-leveraged. I mean, some of these bridge lenders were doing 80% loans, including, you know, it was loan to cost, which meant including a CapEx, so they could be over-leveraged as well.

Mark
Wow.

Rod
And I think we’re going to see properties going to receivership. I think it’s going to be an incredible opportunity. So, you know, if this comes out before my boot camp, and you’re not coming to my freaking boot camp to learn this business, what are you thinking? Because it’s coming, and I think there’s going to be some incredible opportunity. So here’s a final question for you, Charlie. I may have a couple more, but, you know, you bought that first property when you were 25. And, you know, knowing what you know now, you know, I like to ask this question. I ask it a lot of the people that are super successful, like you. What might you tell your 25-year-old self that you might do differently now, knowing what you know now? If anything or maybe not, but just curious.

Charlie
Oh, no, 100%. I mentioned it earlier, but it’s so important to have a good mentor. My mentor is my brother. Great guy.

Rod
Right.

Charlie
But I would save up a down payment, go buy a property. Save up a down payment, go buy a property. Save up a down payment, go buy a property. That meant I was a buyer maybe one month out of the year and 11 months out of the year, I’m trying to save up a down payment. So if I just bought something and the deal century comes through, I can’t buy it because I don’t have any money. So the answer to that question revolves around the power of partnerships.

Rod
Yeah.

Charlie
And, you know, the advice would be everybody has people in their network. You pick the highest level of integrity, people that you can find, and those are your partners. That’s who you want to be in business with.

Rod
Yeah.

Charlie
It’s all about integrity. But yeah, you can kind of fill each other’s holes that way. My second-largest investor now is a medical doctor. Great guy, one of my best friends. And we always talk about, gosh, if we just would have met 25 years ago. He’s my age, you know, he was a young, you know, intern. Making all this money, but working 70 hours a week of craziness. Yeah. So we could have done some cool stuff. If I would have met him, and we’d recognized those needs back in 1996. That would have been beautiful. And I could have gone so much further, so much faster rather than just trying to do everything myself.

Rod
Here’s the line I tell people. I’ll take 50%, 20%, 30%, 40%, 50% of something over 100% of nothing, any day, right? That’s kind of saying the same thing you’re saying, Charlie.

Charlie
Yeah.

Rod
And as it relates to integrity, you know, we talk about– I think my Warriors have exceeded 70,000 units owned at this point. It’s pushing 70,000, if not– that we know of, and most of those are done between Warriors. And there’s an incredible amount of integrity in the group. Would you agree with that statement?

Charlie
I would agree with that. I’ve been very impressed. I don’t know how you pull it off, putting this caliber of people together, but yeah, you got the top-notch, absolutely top-notch. And frankly, some of my best friends that I didn’t even know, two years ago now. So, yeah.

Rod
We don’t take everybody, and I look at that very, very closely, but well, listen, brother, I really appreciate you coming on the show. It’s great to see you. And, you know, it’d be fun to do this again in two years and see what’s happened in the last two years, because I know you’re balls to the wall with this.

Charlie
Yes. We got some cool projects going, man, so yeah, I’ll be excited to talk about them.

Rod
All right. Mark, you got anything else? Are we good?

Mark
No, that’s it?

Rod
All right. Take care, Charlie. I appreciate it, man.

Mark
Bye, Charlie.

Rod
And then we’ll talk soon.

Charlie
Sounds good. Thanks, guys.