In less than 12 months, Carlos went from being a novice investor to becoming a Multifamily Real Estate expert with over 1000 Multifamily doors under his belt. He is on track to acquire 1 billion dollar’s worth of Multifamily Real Estate in under 5 years.
Here’s some of the topics we covered:
- Interning For Free To Learn The Business
- Beginning With Commercial Real Estate
- Where To Invest The Money That You’ve Earned
- Building Relationships To Leverage Deals
- Reaching Out To 20+ Year Multifamily Owners
- Brokers That Have Capital Groups
- Negotiating Tactics
To find out more about partnering or investing in a multifamily deal: Text Partner to 72345 or email Partner@RodKhleif.com
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Full Transcript Below
Intro
Hi. My name is Rod Khleif, and I’m the host of “The Lifetime Cash Flow Through Real Estate Investing” podcast. And every week, I interview Multifamily Rock Stars and we talk about how they’ve built incredible wealth for themselves and their families through multifamily properties. So hit the “Like” and “Subscribe” buttons to get notified every Monday when a new episode comes out. Let’s get to it.
Rod
Welcome to another edition of The Lifetime Cash Flow Through Real Estate Investing. I’m Rod Khleif and I am thrilled that you’re here. And I know that you’re going to get tremendous value from the gentleman I’m interviewing today. His name is Carlos Salguero. And Carlos is kind of an instant success story. In less than 12 months, he went from zero to 1000 multifamily doors. And so, you know, we’re going to have a lot of fun digging into how that happened. And we’ve already preframed some other topics that we’re going to talk about today. Welcome to the show, brother.
Carlos
Thanks so much, Rod, I look up to you so much. You’re a legend in this business. So it is my absolute pleasure.
Rod
Legend in my own mind maybe, but a legend in my own mind, but thank you. So why don’t you take a minute and tell a little bit of your story, you know? I know that you mentored under Grant Cardone and we talked about that. He’s a hoot, just a brilliant guy.
Carlos
Yes.
Rod
But talk about your real estate journey.
Carlos
For sure. You know, I don’t know how far back I should go, but I should tell you that I came to the US at 17 years old. First ever in my family to come to the US. No friends, no family, no money. I landed in Pueblo, Colorado, of all places to–
Rod
Pueblo, wow. That’s my stomp– I mean, Denver is my stomp– now, where did you come from? Forgive me, I wanted to find– I want to ask that.
Carlos
Ecuador. [inaudible]
Rod
Okay, wow. Okay.
Carlos
Yeah.
Rod
Sorry I interrupted. Please continue.
Carlos
So I opened a US map. I lived in the mountains in Ecuador and I saw the Rockies. And I didn’t realize that Pueblo was not in the mountains. But I picked that school, ended up there, and became an engineer. Right, I went to engineering school. And I also got a business degree, a master’s in engineering, and a business degree. And I went to work for Hewlett-Packard for five years.
Rod
Wow.
Carlos
I tried the corporate route. I was born in an entrepreneur family. My mom and dad were entrepreneurs. They were not real estate entrepreneurs. They were, you know, [inaudible]
Rod
Entrepreneurs. Entrepreneurs. Okay.
Carlos
Yeah.
Rod
I wasn’t sure what you were saying. I was thinking of Troubadours, horses involved. Okay, all right. It took me a minute. Got you. So they were entrepreneurs or they’re not? I’m sorry.
Carlos
They were.
Rod
They were. Okay.
Carlos
They were business owners.
Rod
Okay.
Carlos
And, you know, I grew up around– in their office, in their shop, running errands, watching them on the phone, making phone calls.
Rod
Nice.
Carlos
And then I find myself in college. Then I find myself in Hewlett-Packard. That’s my professional career in–
Rod
Was this in Pueblo? HP had a plant in Pueblo?
Carlos
No. So after I graduated from Pueblo, I went to San Jose, California to Hewlett Packard.
Rod
Oh, nice. Okay. Got you.
Carlos
They were not hiring in those days. So I ended up being a free intern for nine months because I wanted my foot in the door and I thought, you know, that was a good way to get in.
Rod
Okay, can I stop you right there?
Carlos
Yeah.
Rod
Guys, there was his first clue of the conversation. Okay? He went intern for free because he knew what he wanted. Okay, sorry. Please continue.
Carlos
No problem.
Rod
Okay.
Carlos
And I learned that from my dad, by the way. I worked for him for free for forever, just to learn, just to get to know things. So right around that time, that was in the early 2000s, these big corporations were losing people by the throes to the startups in Silicon Valley. And, you know, I almost felt like I wanted security. So I started as a free intern. I ended up being a junior engineer. And because everybody was leaving, that created a lot of opportunities to go up fast. So I became an engineering manager for North America Printing within four years of being in the company in my 20s.
Rod
Wow.
Carlos
And then the Dot-Com Bubble pops back in those days in Silicon Valley. So everything compresses and, you know, we’re going to talk about the economy here in a minute. But everything–
Rod
Oh yeah, if you want to talk about tech layoffs, that’s a conversation because it’s– come in a full circle again. But please continue. Yeah.
Carlos
100%.
Rod
Yeah.
Carlos
So a lot of these engineers that left now want to come back. They can’t. And HP starts laying off people and they give me 50 pink sheets, pink slips, and saying, your 100 engineer group, you got to get rid of 50. That was just painful, right? It broke my heart. I felt like a henchman. I didn’t know who, when, or where. These people have families, mortgages, and kids.
Rod
Yeah.
Carlos
And I had to fire 50 people in my group.
Rod
Wow.
Carlos
And that lit a fire in me, Rod to start a business. I knew that there was another way, so I started moonlighting, selling stuff online, and figuring out what to do. So I built an eBay business, replaced my income in about nine months, and I walked away from the corporate world. And that was the last time I worked for an employer. And then that’s when really the journey started as a business owner. I had some successes, I had some failures. And then I ended up leasing warehouse space for my business because back in those days, I needed to store my boxes and my inventory. And that’s when I started learning about real estate because I was a tenant, a triple net tenant. And I realized, wow, I’m paying for everything. I’m paying for the rent, I’m paying for the insurance, I’m paying for the real estate taxes, I’m paying for the common area maintenance, and everything else. I was like it must be nice to be on the other side of that. And my goal was to buy a warehouse. So I started scouting for a warehouse. I found a 50,000 sqft commercial warehouse here in Denver that I still own today. And I was like, I don’t know how I’m going to buy this, but I’m going to figure it out. I ended up getting an SBA loan to get into that.
Rod
VA?
Carlos
SBA.
Rod
Oh, SBA. Okay, got you.
Carlos
For business own.
Rod
Okay, I thought you said VA. That’s not for a warehouse. Okay, sorry. Okay.
Carlos
Yeah, it’s a Small Business Administration loan, an SBA loan and that allowed me to put only 10% down.
Rod
Nice.
Carlos
I didn’t have 10% down, so I figured out, I sold more inventory at cost. I sold some under costs just to kind of get my money and end up closing in this deal. I had no clue what was going to happen. And I bought this building for $820,000, ten years ago.
Rod
So ten years ago. Okay, got you.
Carlos
Ten years ago. I’ve owned the property for ten years. And then, you know, like all of us rookies in the space, I’m like, okay, I need a quarter of a million to renovate it because it’s an older warehouse. Ended up being half a million dollars of renovation. That almost broke me but survived it. And then the classic story of you putting a fish in a bigger tank, and the fish grows to the tank, right? Now, I had all this space and I was like, how do I fill it? So I had to build my business faster and harder. And also I started taking some clients to store their boxes and the inventory fulfillment. So that was the birth of my second company, which was a fulfillment and logistics business. And I learned how to charge by the cubic foot. I started charging my clients by the cubic foot. Every box in the warehouse pays rent.
Rod
Wow.
Carlos
And I was like, you know what? I could have a free warehouse. If I have enough clients that pay by the cubic foot, by the box, this whole warehouse, my mortgage, the maintenance, and the taxes can be for free. So that was my goal and that’s what got me into commercial real estate in a way. But I kept building my businesses. And then I started getting curious about what is the best asset class. Is it industrial? Is it a single-family? Is it multifamily? And then I started buying some homes along the way, single-family. We started–
Rod
In Denver?
Carlos
Here in the Denver area. Yeah. We started upgrading our own house too. We would move to a bigger house, keep the last one, rent that out, and do Airbnb. But I always tell, man, this doesn’t scale. Right? The small stuff wasn’t scaling as fast as I wanted to, and I kept building my other businesses. And then in June of 2020, I started a supplement business, a nutritional supplement business on the Internet, 18 months ago. And right during the pandemic, nutrition and supplements and the internet just exploded, as you know. Right? So everybody started flocking online to buy, and our business actually grew to eight-figure status very, very quickly. And I had this big exit in June of 2020.
Rod
Wow.
Carlos
And I had all this money in the bank, and I was scared because I was like, I don’t know how to multiply this money. I know how to make it. I know how to save money, but I don’t know how to invest it. And everybody was telling me, oh, you go buy some crypto. Go buy some stocks, you know. And I’m like, oh, man. I don’t know it. Right? I don’t know this. I don’t know how to predict it. I don’t know what’s backed up. I’ve been always like you know when somebody shows me an investment, I’m always like, yeah, but what’s behind it? Right? What is it backed by? I’m kind of [inaudible].
Rod
Well, ask the people that invested in FTX.
Carlos
Yeah, I know. Totally, right? And Rod, I have some buddies in the E-commerce space that had exits like me, and they went all in on crypto and they suffer right now.
Rod
Oh, that’s so sad. I’ve seen literally, people crying for losing millions of dollars on social media.
Carlos
Yeah. Overnight.
Rod
Crazy. Yeah. So what was next?
Carlos
So after that, I’m like, okay. Then I find myself buying duplexes and fourplexes. I bought a fourplex in Milwaukee, sight unseen. Still have it. Cash flow is really nice. Triplex in El Paso, Texas.
Rod
Wow.
Carlos
That was my first–
Rod
By the way, I want to not suggest that to people–
Carlos
I know.
Rod
To buy things that small out of town because yeah, maybe you’re having a good experience, Carlos. But I hear from a lot more people that if you just have one small asset like that, maybe you did a turnkey kind of a situation. You are at the mercy of that local management company. So my suggestion is not to do what that right there.
Carlos
100%.
Rod
Okay.
Carlos
So this was me just trying things.
Rod
Sure.
Carlos
And here was kind of the conclusion to that. Like, don’t do that. Right?
Rod
Right. Okay.
Carlos
Don’t do that. Because that was a lot of management, a lot of anxiety of you know, tenants not being taken care of or the manager. The property is too small. They don’t attend to it. So I learned my lesson there real quick, and I was like, you know what? The small stuff doesn’t scale well enough. So I need to learn how to buy something bigger. And my gut was telling me apartments, right? So I started shopping for some apartments here in the Denver area, and I didn’t know how to go about it. I didn’t know how to write an LOI. I didn’t know how to underwrite properly. I didn’t know how to analyze the deal. I didn’t know how the debt would work. Right? So I was like, you know what? I need to get myself educated. And a buddy of mine called me and said, you know what? There’s this conference in Miami, you should go.
Rod
Was the 10X Conference that they were going?
Carlos
Yes.
Rod
Yeah. That last one he did was incredible. He had so many luminaries there.
Carlos
That was the July 2021 Conference that I went to. So I found myself three days with Grant Cardone in that conference, and all he spoke about was, you got to think bigger. You got to scale bigger. And that’s what really pushed me over the edge to go buy my first multifamily property.
Rod
Nice. I was telling you before we started recording, I’ve had Grant on my show three times, and he’s just a freaking riot. But I told you the last time, I think I pissed him off because I had a vet call in and we took questions. It’s very unusual for me to do that, but I did that on the show. I took questions, and the vet said, should I use my VA to buy a fourplex, and Grant’s like, no, buy a 16-unit because you know, he’s 10X everything. And I say, Grant, come on, dude, that zero-down money. Get into a fourplex for no money out of pocket. And like I was telling you before, I think I pissed him off, but he’s got a jet and a helicopter and God knows what else. So, you know, he’s a hell of a lot smarter than I am. But anyway, so you went and the rest is history?
Carlos
And the rest is history. So after that event, I’m like, you know what? I’m not going to look at smaller deals anymore. And I ended up finding a beautiful property in Murfreesboro, Tennessee.
Rod
Nice.
Carlos
84-unit with 37,000 sqft of commercial space, on the first floor, right in front of a hospital.
Rod
Nice. So a mixed-use asset. Okay.
Carlos
A mixed-use asset. Beautiful class-A in front of a hospital.
Rod
Wow.
Carlos
Right in front of the hospital. Literally, you can throw a rock and we’ll hit the hospital parking lot.
Rod
Nice.
Carlos
And the first question that comes to mind is like, what’s wrong with this deal? Why is it not selling? Because the location was incredible. The asset was incredible so–
Rod
When was this?
Carlos
This was October of 2021, right after the summit.
Rod
Wow. Last year. Wow.
Carlos
Last year. So I think–
Rod
The market was really hot then.
Carlos
It was.
Rod
Yeah.
Carlos
And, you know what, it was misposted. They posted it as a shopping center instead of a multifamily asset. I found it on LoopNet, of all places.
Rod
No kidding.
Carlos
Where people say that deals go to die.
Rod
Right.
Carlos
Found it right there. And I didn’t know any better so I picked–
Rod
Let me interrupt you for one second.
Carlos
Yeah.
Rod
Let’s have a little teaching moment here. You know, I talk about this a lot in my boot camp, where– and I use that– in fact, I have a slide that says where deals go to die because people say that about LoopNet. But I’m going to tell you, if you’re willing to dig deeper, you’ll find deals and the deals that have been looked over by thousands of people. But, you know, what I tell people about LoopNet is if there’s not a lot of information there visible, get excited because everyone else will quit at that point. And we found a phenomenal deal in Tampa that way that nobody called on. The cap rate was too low at the time. This was years ago. It was 6%. I’m like, I’m not paying 6%. I mean, this is back when 6% was like an A-class asset cap rate but you dug deeper, and it was a hell of a deal. And I’ll tell you something else. Another little quick tip, guys. You know, very often, brokers will misclassify or miss-list stuff. Like my brother, I bought a farm up in Georgia for about $300,000 less than it was valued at because they put it in the wrong MLS. And I tell my students you know if you’re going to buy multifamily, get a relationship with a residential broker as well because a lot of times you know if somebody buys a house through a broker and they own a ten-unit, they’ll go to that same broker to sell the ten-unit who hasn’t got a freaking clue how to market that ten-unit. So he’ll put it in the residential MLS, and you can get deals that way, you know in the residential MLS. Anyway, I just wanted to take a moment and elaborate on what you just said because that was really insightful.
Carlos
And that was exactly what happened.
Rod
Yeah.
Carlos
These guys had posted under a shopping center, listings, and, you know what, the title even of the property said, a lot of vacancies in the commercial space. So I think that deterred a lot of people that they were like, oh, man, something’s wrong with this deal.
Rod
Right.
Carlos
I just looked at it and saw the picture, picked up the phone, call the broker, and said, hey, you know, this property looks amazing. The location looks amazing. Tell me about it. And I just kind of heard him ramble for 30 minutes telling me how amazing it was.
Rod
Right.
Carlos
That they had great tenants. Morgan Stanley is one of our tenants.
Rod
Wow.
Carlos
A plastic surgeon is one of our tenants.
Rod
Wow.
Carlos
An OBGYN clinic is one of our tenants.
Rod
It doesn’t get any better than that. Wow. Okay.
Carlos
So I’m like, wow, I need to be there right away. So I booked a flight, and I have a very good friend of mine that is my partner that lives in Nashville. So I called him and said, hey, James, you got to drive to go see this property today. So he’s like, yeah, I’ll go. So he goes and he FaceTimes me from the property, and he’s like, Carlos, this place is amazing. It’s unreal. You got to be here. So I flew down there, and you know I asked a question to the broker, and I said, hey, do you mind if I meet the seller when I’m there?
Rod
Wow.
Carlos
Right?
Rod
Very unusual, by the way. A lot of times they won’t do that, but, yeah.
Carlos
I know.
Rod
You didn’t know any better, so you just did it.
Carlos
Exactly.
Rod
You know, when you don’t know you ask these questions that most brokers will like grimace that, but that’s awesome.
Carlos
Yeah.
Rod
So, he actually lined up a meeting?
Carlos
So he lined up for the seller to give us the tour.
Rod
Wow.
Carlos
And, you know, and he said, oh, let me check. And I didn’t feel much resistance so I was like, let me check. So he calls me back. He’s like, actually, the seller wants to give you the tour. Do you mind? I’m like, not at all. That’d be amazing. So we land there, and the seller takes us, and he was the developer.
Rod
Wow. Okay.
Carlos
He built it. He lived in it for ten years at the penthouse of the property and has two commercial units. Still today he’s my tenant.
Rod
Wow.
Carlos
And he just gives us a two-hour-plus tour, showing us every nook and cranny, every detail. Look at the crown molding. Look at the nine-foot doors. These are actual hardwood. You know, it was his baby.
Rod
What’s great about that, the fact that you spent that much time with him is a huge step in the right direction from a negotiation standpoint. So that in itself was a huge deal. Love it.
Carlos
Yeah. So, you know, and my goal, because I’m a businessman, I was like, you know what? I need to build a relationship with this guy.
Rod
Right.
Carlos
I have limited opportunity to just connect with him.
Rod
Right.
Carlos
By then, he already looked me up. He knew I was from Ecuador. And, you know, we didn’t talk much about the property other than him showing me, but we talked about our journey together. Right? This 84-year-old man that had been investing in real estate for 60 years has all the money in the world, right? Hundreds of thousands of acres in Tennessee, millions of square feet of industrial space. This was kind of his pride and joy.
Rod
Oh, wow. So there was an emotional attachment. Let me do another teaching moment here, if you don’t mind.
Carlos
No. 100%.
Rod
Guys, when you deal with a retiree like this gentleman was. You know, one of the things I– in my boot camp, I teach seller financing, and that was one of the topics we might talk about today. But, you know, I tell people, you know, reach out to owners that have owned for 20-plus years because they’re likely retirees. And what you want to do is you want to focus on the relationship instead of the asset. Focus on seller bonding. I mean, I’ve done deals where I bonded with an elderly seller for nothing down. I’ve done deals where I didn’t take a payment for a year because the property needed so much work. I’m like, hey, I need to put the money back into the property. And I didn’t make a payment for a year because I bonded with them, and they trusted me, and it was the truth. So, you know, if you’re dealing with an elderly seller like this, Carlos, you must have known it instinctively to focus on the relationship instead of the asset. And then, of course, in this situation where this guy’s got an incredibly emotional attachment to the asset, then, of course, you’re talking about how beautiful it is and how you can’t wait to take care of it and so on and so forth and all of that, right?
Carlos
Yes. 100%. You’re so [inaudible] because I have done deals before where the relationship matters so much.
Rod
You bet.
Carlos
Right? What do you offer somebody that has all the money in the world? You can’t offer them any more money.
Rod
No.
Carlos
Right? It’s all about the connection, the relationship. And so I brought a bottle of wine. I had it in the car to give to the seller because I found out, so I stopped and bought a bottle of wine.
Rod
Smart.
Carlos
And then I asked the staff, though. It’s like, hey, I brought a bottle of wine for him. Does he like wine? And they’re like, actually, he doesn’t drink.
Rod
He doesn’t drink? Oh, good catch. Okay.
Carlos
So I’m like, okay. I gave the bottle of wine to my friend, and I told him what does he like? Oh, he has a sweet tooth. So I was like, we’re scrambling to go buy crumble cookies, right? We find crumble cookies online, and we bring him a big old box of cookies, and they’re like, oh, my favorite cookies.
Rod
Wow.
Carlos
Right?
Rod
Nice.
Carlos
So, you know, we just try to find a way to connect. And I think that’s one of the things that you say [inaudible]
Rod
Well, what you did by that is build rapport.
Carlos
Yes.
Rod
And, guys, every relationship starts with rapport. Now, women are great at this, you know. Like, oh, I love your shoes or your top or whatever. Men are not so much, but, you know, how about those Broncos, right? You know, whatever. You start by building rapport. And that was a great icebreaker to bring a gift like that, too. And that also triggered– and we’re talking negotiation again, that triggered the law of reciprocity.
Carlos
Yes.
Rod
Right? So, you know, anytime you give something there’s a– in fact, that actually ties into the conversation we had before we started recording today, Carlos, okay?
Carlos
100%.
Rod
If you want to get right down to it, we’ll leave that alone. But that’s interesting.
Carlos
Yeah.
Rod
Anyway, sorry. Please continue.
Carlos
Anyway, we get this grand tour. I’m super interested in the deal. Put an offer right away, underwrote at, you know, 5% plus cap. We could get a loan right under that. So, you know, the numbers checked out. You know, in fact, I underwrote it so much because it was my first one, Rod. I went out and found five underwriters because I didn’t trust myself enough, right? And I paid for those services because I was like, you know what? I know that my numbers work, but I just want to get my double checking.
Rod
Sure.
Carlos
So, you know, what I’ve done in business before is that I hire some professionals, got five people to underwrite it, compared notes with them, and I said, okay, I think I’m spot on.
Rod
That’s smart.
Carlos
And I went under contract, you know, because of the relationship, we had a couple of interviews after that with the seller. The broker told me, you’re competing with a $50 million liquid group from New York.
Rod
Oh, wow. Hang on. Before you move on, that’s incredible. That ties right back to the relationship you built. But I want to mention something. You talked about having other people underwrite your deals, and, guys, it’s so important. It’s so freaking important that you have people that say, hey– that try to talk you out of doing the deal. And that’s why, you know, my Warrior coaching program, I mean, my students now own somewhere upwards of 130,000 doors that we know of, and I’ve only been teaching five years and super proud of that. But most of those done between Warriors where they’re checking each other’s work is the point I wanted to make. So I don’t care if you join my Warrior program, but make sure you get into a group like that that you can– or hire it like you did. You did the easy, quick ways. You just paid to have people review your stuff. So I wanted to mention that, but yeah. So you were up against somebody that could pay cash. That no contingencies, no nothing. No definitely could close and wow. And you still got the deal.
Carlos
Yeah. So I was asking, so what would get me the deal? I know my competition. What would make me the deal? Like, Carlos, you got to have a little shorter due diligence period. You got to put more money down after the due diligence, and you got to lock in with– and I don’t know if this was the right way, but it got me the deal. He’s like, the broker, I think, kind of also took advantage of me a little bit. He said you got to use our lender. You got to use our capital group.
Rod
That’s not necessarily a bad thing, though, Carlos, I will tell you because– and I’ll tell you, just another teaching moment. You know, if you are dealing with a big national brokerage that has their own lending group, like a Marcus & Millichap or a New Marker, you know, a lot of these big ones have their own capital groups. And I will tell you, when you use their guy, a lot of times you get some of the behind-the-scenes negotiations that are going on because there are two commissions at play here instead of just one.
Carlos
Yeah.
Rod
Okay, so I’m sorry. Please continue. That’s a good stuff. Yeah.
Carlos
Yeah. So I’m like, you know what? I love the deal. I know I want it. I know the location is amazing. I know that the city was booming.
Rod
Right.
Carlos
All this stuff, all the boxes checked.
Rod
Right.
Carlos
So, you know, I kind of pushed it all the way, paid asking price, met their contingencies, and we went under contract, and, you know, it was that. But it was not an easy journey once we were under contract. We started the contract in October, and I don’t know if you recall, but, you know, interest rate talks started right around November. So it started getting a little shaky. The lender started getting a little bit nervous.
Rod
Sure.
Carlos
During due diligence, we found just a couple of little things in their financials that, you know, the lender didn’t necessarily like. And I was like, okay, what do we do? So, you know, they’ve got a little more extended, that the seller was a little slow in providing us you know. And that happens with in-house operations.
Rod
Oh, sure. 84 years old. You’re going to get that.
Carlos
Yeah. Anyways, we end up being under contract for five months instead of the 90 days that we were supposed to [inaudible]
Rod
What happened to the rate? What happened to your interest rate?
Carlos
My rate went up to 50 basis points. Right?
Rod
Wow.
Carlos
Now, here’s one thing that I think I feel so grateful for. The lender gave me two choices. She said, Carlos, you can get a floating rate for a little bit less, but you got to pay for your cap insurance, which was hundreds of thousands, or we’ll fix it at 50 basis points, which ended up being five and a quarter. Right?
Rod
Right.
Carlos
Now, at the time, I was like, you know what? What if rates move? So I was like, you know what? It works with five and a quarter. Just fix it.
Rod
So did you do like a conforming debt, like Freddie or Fannie on that and do it?
Carlos
No, it’s a bridge.
Rod
It is a bridge, but it’s fixed for three years or–
Carlos
Three years plus two years plus three years extensions.
Rod
3-1-1. So 3-1-1.
Carlos
Yeah.
Rod
Okay, so you got two one-year extensions. Okay.
Carlos
Correct.
Rod
Okay.
Carlos
So locked the rate. Now, here’s the second part of that.
Rod
Okay.
Carlos
Two weeks before close, they’re like, we need to take a million dollars away from proceeds. And I’m like, oh, man.
Rod
So you had to raise an extra million dollars. By the way, how much money did you have to raise before that point?
Carlos
Five million dollars before that point.
Rod
Five million. Okay. And you did that through your meetup or how did you raise a money?
Carlos
Yeah. I did that through my meetup. I did that through my network. You know, my E-commerce network.
Rod
Okay. Oh, Got you.
Carlos
Since I had the logistics business, I had logistics–
Rod
Oh, yeah. So you already had a nice Rolodex, as it were. Okay, got you.
Carlos
Yeah. But you know what? Here’s the point, though. To that point, I had never raised a penny in my life because my dad was one of my first mentors and he was the typical business owner that wouldn’t try to get a loan, wouldn’t ask for money from anybody, bootstrapped, everything. Okay?
Rod
Got you. Yeah, got you.
Carlos
So I acquired those good habits that–
Rod
Mindset. Me too, man, me too. And it was real hard to raise money the first time. Yeah. I feel you. Okay.
Carlos
Yeah. So anyways, go that, and so my first thought was to let me go ask the seller for the money. I mean, let me swing, right? Swing the bat, book the flight, asked for an audience with the seller, let’s sit down in the room, and I dragged everybody in that room. And this is kind of funny because I dragged–
Rod
When you say everybody, what do you mean?
Carlos
The broker, the lender broker, I drag them all in there because the communication was a little poor towards the end where you know, they’re trying to negotiate with me and they take the million away. I was mad, right?
Rod
Right.
Carlos
I was angry. I was like man, I want this deal. I don’t want this to blow up. By then, I was $600,000 hard in this deal.
Rod
Right.
Carlos
So I sit the seller. The relationship was instrumental in this, right?
Rod
Sure.
Carlos
Because right now, I’m like, I explained the journey, and then I’m like, hey, would you give me the million dollars? Would you finance a million dollars for us? And, you know, he thought about it for a little bit. Turned us down.
Rod
Did he really? Wow.
Carlos
Yeah, he turned us down. Which I was like, you know what? That’s okay. But that just, again, lit a fire in me to go find a million dollars in two weeks. And I just made more phone calls. Right?
Rod
Sure.
Carlos
Made more phone calls. I ended up, you know, loaning the property some of the money, but then I filled up the rest.
Rod
Nice.
Carlos
And we closed the deal.
Rod
And sometimes you do that, you got to loan the deal some money, and sometimes you can backfill that, too. You can pay yourself back by doing post-close raising. You know, we’ve done that before, where you just raise money after the closing, but, okay.
Carlos
Yeah, exactly.
Rod
And you got it done.
Carlos
Got it done.
Rod
Love it.
Carlos
In the last eight months, Rod, we’ve signed three commercial leases, triple net, $29 square foot average. I was performing a $200 increase on the residential. We’re up 450, the average bump on the rents. So the deal has gone from a $20 million deal to now we estimate the value is $29 million in eight months.
Rod
Yeah. I was going to say 30 million is what it sounds like.
Carlos
Yeah.
Rod
That’s fantastic, man. Good for you, congratulations, brother.
Carlos
Thank you.
Rod
And you got that whole go big or go home from Grant, obviously, because most people start with a much smaller property than that.
Carlos
Yes.
Rod
And so you just went for it. You know you said a couple of things I want to circle back to. You know, you’ve had some ups and downs. You’re an entrepreneur, and, you know, I’m an entrepreneur. I’ve built 27 businesses, and I don’t call them seminars. I mean, I don’t call them failures when they fail. I call them seminars when they fail, and, you know, several worth you know, a lot of money. And most spectacular flaming seminars, you know, and as it relates to failure, we fail our way to success. And you know that, right, Carlos? As an entrepreneur, like a shark, you only die if you stop swimming. Right?
Carlos
That’s true.
Rod
See, you just don’t give up, man. And, you know, you got some great framework from your parents, obviously, and you know, Denver is my stomping around. I don’t know if you knew that.
Carlos
I didn’t know that.
Rod
I can still name every street between Havana and Kipling because I own houses on most of them.
Carlos
Oh wow.
Rod
Yeah.
Carlos
So my building, so that you have some reference, is right on Federal in 92nd.
Rod
Federal in 92nd. Dude, that’s where I grew up, man. There used to be a big shopping center up there. That’s right there where the Boulder Turnpike is. I went to high school at Ranum High School at 84th in Zuni right there, man.
Carlos
I live three minutes away from that, Rod.
Rod
No kidding. That’s hilarious. Yeah, I’m sorry to bore you guys that don’t live in Denver, but I wanted to ask you where your warehouse was, just because I know exactly where it is. I mean, like I said, the thing about Denver is all the streets are alphabetical, going north to south, and you can, you know, I pretty much still know them all.
Carlos
That’s awesome.
Rod
It’s hilarious because I used to knock on the doors of people who were in foreclosure. That’s how I bought, you know, I had 500 houses there at one time and, you know, some apartment complexes, too. But, yeah, I’d knock on the doors of people that were in foreclosure. So there’s a clue for those of you that want to buy a single-family, it takes some oomph, you know, to go up and knock on somebody’s door and try to help them.
Carlos
Yes.
Rod
So, you know, let’s talk about negotiation for a minute. We talked about that. We pre-frame that, and we don’t talk about that, that much on the show here. I’ve had, you know, Chris Voss, like I told you, the author of “Never Split the Difference”. The FBI hostage negotiator, a brilliant guy on the show. But, you know, let’s talk about some negotiation strategies. Like, you know, we just talked about seller bonding, which with an elderly seller is a must-do. But, what else? What other strategies can we talk about, Carlos?
Carlos
You know what, I think one of the things is, like, you only know what you know when you’re sending an LOI, right? You don’t have all the intel on the property.
Rod
Right.
Carlos
So when you start the due diligence process and you start finding kind of where the hair is at.
Rod
Sure.
Carlos
You start finding some things that maybe the property management company didn’t take care of. Maybe your financials are not the same as that you presented before. So, you know, this gaining some intel along the way that you can use for a possible retrade if you need to retrade on the price or the terms. So I’ll tell you a couple of examples that I–
Rod
Well, let me stop you for one second.
Carlos
Yeah.
Rod
Sorry. Yeah, now, first of all, don’t be the person that’s known as retrading a lot, because this is a small world we live in. So you want to be careful with that. If there was something misrepresented or left out or something discovered in your process, then absolutely you should retrade. But the other thing I want to mention, though, is when you talked about doing some initial due diligence, I would tell you to do it before you even write the offer. Find out when did they buy the property, what sort of debt do they have on it. You know, try to get as much information as to why they’re selling– because that will also give you an edge. So please continue with your thought. Okay.
Carlos
Yeah, totally. So, you know, this is the information that you just have to kind of state the facts. So like for example, if you’re in due diligence and you find out that extra expenses all of a sudden showed up because you checked invoices and you compare them against the financials and, you know, spending an extra 30 grand a year on something, then you just have to be– I think one of the things that I’ve learned is you just have to present the fact to the broker and say, look, this is what we found. How do we come up with a solution, you know? What’s the solution for this? Because all these things erode the value of the deal.
Rod
Sure. In a big way. Yeah.
Carlos
In a big way. Or, for example, you go under contract and suddenly you have a huge vacancy drop or increase. I’m sorry. You go maybe from the 90 percentile that you looked at it or the rent roll that they presented you and then, you know, halfway into diligence now you’re down 10% or something like that.
Rod
Well, that should be in your contract, especially if you’re getting conforming debt. Because if you drop below 90, you’re not going to be able to get your conforming debt because you have to be 90% occupied for 90 days. It’s 90 for 90. So that is a big deal. That one. That’s a big one. Okay. Yeah.
Carlos
Yeah. So, you just have to be very, very aware of the details, especially when you’re doing your first deal, is like, we don’t know what we don’t know, right? So just monitoring this along the way. And then, you know, I think one of the things that I use for negotiations like I just present the facts that I find so that I can prepare the soil. So when the time comes about, hey, let’s talk about the price, let’s talk about the terms. Because there are many ways to skin the cap.
Rod
Sure.
Carlos
One might be a price reduction if that is warranted because of the value. Maybe the income went down or the expenses went up while you were in due diligence. Number two–
Rod
Or they were misrepresented or not, or left out unintentionally, whatever. You know, you never know what the actual story is, but yeah.
Carlos
Exactly. Second thing it might be how about a credit for that vacancy so that, you know, we see, okay, this is going to take us six months, a year to fill that gap. That 10%, 15%, whatever. How about you give us a credit to make up that difference? Because who is on my side is like my investors, right? I promise my investors a certain return and I want to make sure that I fulfill that promise to my investors in that return.
Rod
Sure.
Carlos
Or the mighty seller carry, right?
Rod
Sure.
Carlos
Is like, look, I don’t want to hurt your price. I know you probably have a promise to your investors. But like you said, if you have intel on what their debt is on the deal and if they have a lot of equity, maybe you keep $5 million in the deal, right? Maybe seller,– you keep $5 million into the deal. Either as a note or as an LP.
Rod
Yeah. [inaudible] in the deal as a passive investor and put that money back into the deal. Yeah. That’s very common, by the way, guys, is to have a seller remain in a deal. And I’ll tell you, with an aged seller, you know, that’s to their benefit to get a preferred return of seven or 8% and stay in a deal versus putting their money in a bank. Because most elderly sellers are not going to put their money into another high-risk investment. They’re interested in cash flow.
Carlos
Yeah.
Rod
So I’m going to tell you, you know, let me just talk about seller financing for a second. You know, if you’re out there marketing to sellers that have owned for 20-plus years, first of all, their tax write-offs are gone because they’re fully depreciated. Secondly, again, they’re not going to take that money, put it into a high-risk investment, they’re going to throw it in the bank at 1% interest, 2% interest, whatever. Maybe three now. But if you can offer them, you know, six, seven, maybe even 8% interest, and guys, don’t get scared about these higher numbers. When I started, it was 18%, okay?
Carlos
Wow.
Rod
And I was doing backflips when it hit seven. That’s a true story, okay? So, trust me. The numbers have to make sense. Yes, the numbers are going to change if it’s 3% versus 8%. But if you can offer a seller a higher interest rate and secured by the asset that they’re familiar with, I mean, that’s a home run. If you have an elderly seller and you don’t make that offer, you’re screwing everybody around because it’s a big mistake. Usually, it’s to their benefit, honestly, to carry. It really is. So, do you agree with me, Carlos?
Carlos
100%.
Rod
Yeah.
Carlos
You know, I think that one of the things that– sometimes we are like, hey, you shouldn’t even ask, right?
Rod
Right.
Carlos
But first, you lose nothing by asking.
Rod
That’s right.
Carlos
You don’t know really what the true motivation is of that seller. And I think you need to continue to ask the broker, hey, why is he selling again? Why is he selling? Because the broker will try to posture and say, oh, they don’t need to sell.
Rod
Right. Oh, yeah. Sure.
Carlos
Right? They always say that.
Rod
Yeah. Sure.
Carlos
They don’t need to sell.
Rod
They have one agenda and that’s to get that property close for as much money as they can. And they will– you know, there’s a lot of BS that comes around in that environment. Just, so you know. Yeah.
Carlos
Yes. And I think one of the things that I always say is, look, don’t make it adversarial, right, with a broker. Communicate with them like look man, we’re on the same team.
Rod
Yeah.
Carlos
Our objective is to close this deal, take it to the closing table, you guys make your commission, we get our property so that we can go make some money with our investors and the seller gets what he wants.
Rod
And I’ll say this, don’t make it about one deal either because I can tell you a broker can make you wealthy, okay?
Carlos
Yes.
Rod
And you take care of that broker, you do the right thing and I’m going to tell you who they’re going to send the next great deal that they’ve got to. And it happens all the time in this business.
Carlos
For sure.
Rod
So don’t focus. Don’t be a one-hit wonder with one deal and screw the broker thinking you’re smart because you beat them up on something. That’s a huge mistake in this business.
Carlos
Yes.
Rod
So, okay.
Carlos
Yeah. And when you ask for something, always give something back.
Rod
Yeah, that’s a negotiation strategy. Yeah, give and take on that.
Carlos
Yes.
Rod
I’ll tell you guys one that I learned. This is when I put out on social from time to time. But here’s a strategy, is you ask a seller– if you’re talking to a seller. And this– I learned this from a guy named Ron LeGrand years ago. He was a real estate coach. Anyway, he taught this and he’s like you know, so you tell the seller you know if I could pay you all cash and close right away, you know what’s the least you’d take? And then regardless of the answer, when they give you an answer, you go, you know, something like that, like a flinch, and say, is that the best you can do? And even if that answer– even if that original answer makes you want to grab a contract and throw a pin in their hand, you always say, is that the best you can do? And I can tell you that question has made me millions, okay?
Carlos
Wow.
Rod
And I’m not exaggerating. Now, you know, especially in the single-family space where you’re dealing directly with the seller. In the commercial multifamily, it’s unusual what Carlos did to actually get in front of a seller. That’s not as common. It’s harder. Let me just say that. It’s harder, but this is good. Well, listen, I am out of time, but Carlos it’s been a real treat, brother. And I know I’m going to see you later tonight, but I really enjoyed this conversation and I look forward to staying in touch with you, my friend.
Carlos
Thanks so much, Rod. I appreciate you. I appreciate what you’ve done.
Rod
Thank you.
Carlos
The path that you’ve paved for many of us.
Rod
Thank you, brother.
Carlos
With your hard work, with your learnings. Look, I feel incredibly grateful and privileged that I get to follow people like you that have had the successes, but also that you made mistakes that now, we don’t have to go make again.
Rod
Big ones.
Carlos
So, thanks so much, Rod.
Rod
Thank you, brother. No, I appreciate your kind words, my friend. I’ll see you later tonight.
Outro
Rod, I know a lot of our listeners are wanting to take their multifamily investing business to the next level. Now, I know you’ve been hard at work helping our Warrior students do just that using our “ACT” methodology which is Awareness, Close, and Transform. Can you explain to the listeners how they can get our help?
Rod
You bet. Guys, we’ve been going non-stop for three years building an amazing community of like-minded people, and our coaching students which we call our Warriors have had extraordinary results. They’ve purchased thousands and thousands of units, and last year we did over 1,000 units with our students. And we’re looking to grow this group and take it to the next level. We’re looking for people who want to follow a proven framework that’s really step by step and then leverage our systems and network to raise equity, to find and close deals, and to build partnerships nationwide. Now, our Warrior community is finding success in any market cycle. So if you’re interested in finding out more about how you can become more of our incredible network and take advantage of the incredible opportunities that are coming very soon, apply to work with us at “MentorWithRod.com” or text “CRUSH” to “72345” and we’ll set up a call so you can check us out and we can check you out. That’s “MentorWithRod.com” or text “CRUSH” to “723455”.
