Charles Bulthuis is a seasoned CRE Broker and the President & Founder of Reformation Asset Management. With 30+ years in the investment and wealth management industry, Charles is recognized as a Veteran, Certified Residential Specialist, Accredited Buyers Representative, and Honorary CCIM. He’s chosen by numerous investors, managing a portfolio of 500 doors, and offers comprehensive services in brokerage, property management, maintenance, landscaping, remodeling, and new construction.
Here’s some of the topics we covered:
- An Inside Look at D-Class Properties
- The Buy Hold and Sell Strategy
- The Beauty of Fix and Flips & How They Help
- Who You Should Have On Your Team & Why
- What Charles Would Do If He Had 0 Real Estate Experience
- The Different Pillars of Leadership
To find out more about partnering or investing in a multifamily deal: Text Partner to 72345 or email Partner@RodKhleif.com
Full Transcript Below
Intro
Hi, my name is Rod Kleif, and I’m the host of “The Lifetime Cashflow Through Real Estate Investing” podcast. And every week, I interview Multifamily Rock Stars and we talk about how they build 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 Cashflow Through Real Estate Investing. I’m Rod Khleif, and I am thrilled that you’re here. And you’re really going to enjoy the gentleman I’m interviewing today. His name is Charles Bulthuis, and he’s a real estate broker. He is the President and founder of Reformation Asset Management. He’s a veteran. Thank you for that, by the way. And he’s a residential specialist. I didn’t realize this was a designation, but he’s an accredited buyer’s representative as well, which is cool. And an honorary CCIM. He’s close to getting his CCIM. So we’re going to have a wide-ranging conversation today, and I’m very excited to get into it. Welcome to the show, brother.
Charles
Thanks for having me, Rod.
Rod
You bet. So why don’t you, you know, do a much better job of defining who you are, where you came from, why real estate? Just give us a high-level overview of where you came from and bring us current.
Charles
Well, real estate was an accident.
Rod
Really?
Charles
When I left the army, I was supposed to attend San Diego State and go into marketing. When I went to enroll, the box for my army GI Bill had not been checked. So they said, you can’t receive the GI Bill. And I said, oh, crap. I’ve got to find a job. So back then, we had newspapers, remember?
Rod
Right.
Charles
And I got the newspaper and I circled a few things I thought I could do. I left messages. And one of the ads was real estate brokers needed will train.
Rod
Wow.
Charles
And the manager of the brokerage called me back before the head of the security guard company. So I went in and I interviewed. While I was in the interview, he was telling me how hard the job is going to be. And this man walks in with monogrammed sleeves and cuff links and shiny Italian shoes and speaking to the broker with his hands. And he leaves. I’m like, who was that guy? Is that your boss? No, that’s my number one broker. I’m like, oh, well, what does he make? He said, well, he had a really bad year last year. This is 1992. And he said he made $300,000. He said that Rolls Royce Corniche, he bought that from Mike Ferry. I’m like, who’s Mike Ferry?
Rod
I even know who Mike Ferry is.
Charles
Yeah. So I said, okay, I want to work here.
Rod
Wow.
Charles
And he started training me. And I worked real hard at learning how to do the business.
Rod
And this was in San Diego?
Charles
This was in San Diego in 1992.
Rod
’92.
Charles
And I worked in residential real estate and had 1,300 closings before I decided that I didn’t like arguing over garden hoses and washing machines and decided I wanted to work into moving to multifamily and commercial. So I also felt the recession was going to go. So in 2000, I switched to commercial and multifamily. 2005, I was getting very nervous about the trajectory of the market in San Diego and how overpriced it seemed to me. And I started looking around the country for different spots that matched the metrics that created the growth in San Diego. And of the five cities I looked at, Raleigh, Durham was the one that had, to me, the most opportunity. And so I took my general contractor, who was working with me, flipping houses and doing rehabs in San Diego, and I brought him with me to look at it. He said, yeah, there’s tremendous opportunity here. So we went back to San Diego and we told our families that we were moving, and I brought five different families with me, and we moved to Raleigh, Durham.
Rod
And this is when?
Charles
2005.
Rod
2005.
Charles
Yeah.
Rod
Three years before–
Charles
Before the crash.
Rod
Before the crash, yeah.
Charles
So we started buying properties for $40,000 a door. We bought fourplexes for $80,000.
Rod
No kidding.
Charles
I mean, single-family houses for 40 and $50,000. Multifamily, $20,000 a unit. And so we bought 40 different properties. My general contractor is still with me. The wife’s not.
Rod
Wow. That’s funny. Well, and probably because you were buying D-class assets, right? That was probably more than she could handle.
Charles
That was busy. She surely didn’t want to see them. And the divorce, she said, you can have them.
Rod
Yeah, I bet she did. Well, I know– you know, we talked about this before we started recording, and you’ve really made a niche in the D-class assets, you know, where you convert them.
Charles
Right.
Rod
You take a rough asset like that because you know, that pricing, even in 2005, was really low. And I come from that background as well. I started with– you know, I was telling you before we started recording, I remember buying a whole block in Denver in Aurora, Colorado, actually, and the drugs were so bad that they blocked off the end of the street with concrete pilings just to slow down the drug traffic. Not to stop it, just to slow it down. Yeah. But, you know, it is a lot of potential for cash, but it’s a lot of brain damage. So maybe you could speak to that a little bit.
Charles
My general contractor was rehabbing a fourplex we bought. And while he was in there, the SWAT team rolled up and threw concussion grenades in the building across the street.
Rod
No kidding. Wow.
Charles
And he dropped to the ground and called me. He’s like, what the hell did we buy?
Rod
Right.
Charles
But that property at the time, we’re getting for about $300 a door.
Rod
Right.
Charles
And I think we paid $78,000 for the building. That building is in Escrow right now for $650,000. And the rents currently are $1,250 a month per door.
Rod
No kidding.
Charles
And so that’s an example of the possible upside.
Rod
Yeah. You know, when you can buy the ugliest property in an area that’s gentrifying and improving in that– and I had that same thing happen in Denver where you could buy whole blocks in downtown Denver for 20,000 a door. And these were two-story antebellum houses that are 1.2, 1.3 million right now, you know.
Charles
Yeah.
Rod
So that’s what’s possible. But it is painful. I mean, you can deal with a lot of crap when you’re buying you know that kind of stuff, but the money can be good, obviously, which is what you’ve done. So do you look for a rough property in a better area?
Charles
I look for the worst property I can in the best neighborhood I can find.
Rod
Yeah. And that exists there in Durham?
Charles
It exists.
Rod
Wow.
Charles
In Chapel Hill in Raleigh.
Rod
Wow, that’s crazy. You know, I’m surprised that those deals are still there because–
Charles
They’re still there.
Rod
Yeah. That’s awesome.
Charles
They’re hard to get at.
Rod
Sure.
Charles
The two ones I’m doing right now, one of them was 96 doors in an existing condominium community.
Rod
I see.
Charles
Not one of those 96 doors is owner-occupied. In Chapel Hill, median rent, $800 a month, surrounded by student housing that rents for $1,000 a bedroom.
Rod
Wow.
Charles
So we’re picking them up for $135,000 a door, rehabbing them for $100,000 a door. The condo value upon completion is $400,000.
Rod
Really?
Charles
Really.
Rod
So you’re going to have 235 in each one and the completed value is looking like 400?
Charles
But it was trying to buy all 96. One man had 68, which was huge. But then six individual owners owned one each and one owner owned eight, and two owners owns six, and one owner owns four.
Rod
So you basically did– what do they call that in the– an assemblage. An assemblage.
Charles
Yes. That’s it. I’m an assembler.
Rod
Right. Okay. And guys, that’s a term you haven’t heard on the show before. But, you know, what a lot of commercial brokers and purchasers do is it’s more common in land. They’ll, like, assemble a street corner and they’ll pull in different pieces to come up with enough land to really have something they can do something with. And that’s a very common business model, a very successful, very lucrative business model. I know you’re a general contractor, you got that so that you could do these renovations. And you’re in the midst of one right now. Is it the one you just described, those nine–
Charles
That is one of them.
Rod
Okay.
Charles
I have two. The other one is 108 doors. That was also condominiumized, not occupied by any owners. And there were six buildings of 18 units each. One woman owned three buildings, and then three other owners owned one building each.
Rod
I see.
Charles
So I assembled all 108 doors there for about nine million. The rehab there is just over 10 million. And then the resale value is 32 million.
Rod
Wow. And you’re just going in and just completely gutting them and redoing them? Is that it?
Charles
All the way down to the slab is the stud, jackhammer off the slab, put in all brand new waste and we’re putting water lines above and sewer lines below.
Rod
Holy cow.
Charles
Then we do the hurricane bolting and we do the Seismic strapping and the bolting to bring that all up to code. And then inside we’re putting in, you know, bamboo floors, quartz countertops, curved tubs with glass doors, and LED mirrors.
Rod
Holy cow.
Charles
We’re putting in nice, high-end things.
Rod
And the area supports this kind of upgrades.
Charles
It does.
Rod
Wow.
Charles
And because I’m able to resell these at $285,000 each. With the two on buy down, the monthly payments about PITI, HOA is $1650 a month.
Rod
Wow.
Charles
And that’s the equivalent of what the rent would be for a similar product. And it’s only 10 minutes from downtown, two minutes to the highway.
Rod
What is your projected timeline for these– you know to start selling units?
Charles
We will go on the market next week.
Rod
Really?
Charles
Yeah.
Rod
So you’re going to kind of do it in phases and start selling as you get some done?
Charles
Yeah. We own a property management company, and that allows us to start the vacating process and go through that and create a situation where we have a viable construction zone. And then once we have a viable construction zone, we can start working on that section of the project, and then we vacate properties in advance of moving the construction forward. Bless you.
Rod
Thank you. Yeah. Sorry. Okay. Yeah, right. Just almost similar to what you do in an apartment complex as you’re renovating units, you vacate them out, you get them going, you re-rent them, and go on to the next step.
Charles
That way I’m not removing all the cash flow from the owners.
Rod
Both of those projects are buy, renovate, and sell. You’re going to basically individually sell them.
Charles
Right.
Rod
Are you doing any buy-and-hold stuff?
Charles
Yes. There are other properties that we’ve bought. Buchanan is a street in North Durham that is about six blocks from the Duke campus. And I was able to buy a half acre of land by buying an assemblage of property that gives me the ability to put up student housing. And there hasn’t been a half acre available on Buchanan since Eisenhower was president.
Rod
Wow.
Charles
And now we’ll be building out 67 doors on that property.
Rod
Wow.
Charles
And that will allow us– excuse me, I’m sorry, 67 rooms.
Rod
Beds, yeah, I was going to say, man, that’s a lot on a half acre. Okay. Right.
Charles
That’s a lot.
Rod
So you’re going to do three-bedroom units, common area, things like–
Charles
Four-bedroom, four-bath.
Rod
Four-bedroom. Got you. Four-bedroom, four-bath. Love it. Students love it.
Charles
And then we’re going to build them on podiums with parking underneath.
Rod
Okay.
Charles
And then this will be student loans for the Duke University undergrads. And that’s a whole property. I mean, that’s a class-A property.
Rod
That’s about 18 units, basically, on that half acre.
Charles
We have the ability to build an ADU as well. So we’ll build an 800-square-foot ADU on the same footprint and we’ll have an additional two bedrooms there. So there’ll be 6x2x4 and then an additional 6×2, as far as bedroom count.
Rod
Got you. What else have you got going?
Charles
Then we have land on Pettigrew and Murphy, which is where the properties– for example, right now Google has bought land in the neighborhood called Hayti, which is right next to downtown, but south of the 147 in Fayetteville, near one of the other universities we have in Durham called NCCU. That whole neighborhood is being regentrified right now. It’s a combination of Google just bought 9.5 acres for $63 million.
Rod
Wow.
Charles
And they’re going to be generating a campus with live work play. The city owns another 30 acres just half a mile away, and they’re putting up another 600 doors there. That’s going to be a $93 billion project.
Rod
The city is putting doors in– like this is affordable housing they’re putting in?
Charles
It’s going to be a mixture of affordable housing and affordable ownership.
Rod
Interesting.
Charles
So some people are going to be buying, some people are going to be renting. But then there’s also going to be office and there’s going to be daycare.
Rod
There’ll be a lot of mixed-use there, but the city is doing it. Interesting.
Charles
But I’ve moved clients into that neighborhood over the last five years. I knew this was coming, so we control 30 acres in that neighborhood, my clients and I.
Rod
Wow. No kidding. Okay. Like land?
Charles
Like land.
Rod
Okay.
Charles
Or properties that we could knock down and assemble.
Rod
Right. Fantastic. Well, it sounds like you’re really up to speed on what’s happening in that marketplace. You’ve lived there now, what?
Charles
Almost 20 years.
Rod
20 years. Yeah, that’s fantastic. And it sounds like there’s a lot of opportunity there. I’m intrigued candidly. I wish there was an opportunity here in Sarasota. It’s just so crazy here. It’s just not here. But so I know that– talk for a little bit about what CCIM is. My brother is a CCIM and I don’t get CCIMs on the show very often. And for those of you listening, you know it’s a really prestigious designation that takes a lot of work to get. And I took one or two courses. My eyes crossed. I’m like, screw it, I’m not doing it. But talk about it for a minute, would you?
Charles
CCIM stands for Certified Commercial Investment Manager. And it’s basically an individual who goes through the process of learning the metrics associated with determining real property valuations along the entire spectrum of real estate opportunities. So whether it be land, land development, office, retail, multifamily, you know. And then whether it’s owned to build, build a suit, leasing, all the different varieties that are associated with the convoluted forms of real estate ownership and usage, they teach you how to do it. So there’s a lot of math and a lot of law.
Rod
Yeah, which is why I failed. The math part. I took the short bus to school for math. I can do it, but I just don’t love it. That’s all, you know. I mean, I can read a P&L and look for anomalies and everything else, but it’s just not my love. And I tell people in this business, play to your strengths. My strength is communication and management and asset management. So in this journey of yours, did you have any mentors as you were progressing here?
Charles
I’ve had several mentors during the course of my career. And the one that has been the most transformative is somebody I met about eight years ago. And he’s been an investor for about 25 years. A very interesting man by the name of Ken Gorfkle. He has a Ph.D. in Romance Languages and plays the piano and brings you know, ranked pianists.
Rod
And he was a mentor for real estate.
Charles
Exactly. Right.
Rod
Interesting.
Charles
Played– he loved– you know he plays to his strengths. So he’s writing a poem on a Hispanic– or writing a– anyway, he loves that kind of stuff.
Rod
Right.
Charles
But how he makes his money and his other passion is real estate.
Rod
So he supports his passions through real estate.
Charles
Exactly.
Rod
Right.
Charles
So he hasn’t had a real job in 25 years. But I built my business in North Carolina by setting up postcards. And he received a postcard in his mail box and called me up at nine o’clock on a Friday in the evening. And I’d had about two Bourbons and he decided he wanted to play Jepperty and I decided I wanted to answer the questions.
Rod
Oh, that’s funny.
Charles
So we did about a two-hour interview and he said, well, you know what, Charles? I think I’m going to give you a try. And I said, well, you know what, Ken? You give me five years and I’ll be the only broker you ever use again. That was eight years ago and now I do everything for that man.
Rod
No kidding. What asset class does he buy in or what–
Charles
He does what I tell him to do.
Rod
Oh, okay.
Charles
Now he buys what I tell him to buy and he lets me remodel it for him and sell it for him.
Rod
Nice.
Charles
He’s my number one client and, you know, I take care of him and–
Rod
But he’s been instrumental in helping you as well.
Charles
Yes, because he’s the one that started getting me interested in the idea of assemblage and construction from being involved on the ground floor. Instead of just being the broker that dealt with the construction company or the broker that was dealing with the land planner, I started acting as a land planner. I started acting as the contractor and looking at it through that lens. And so the tutelage and the information and advice he’s given me has been very transformative in heading me down the path I’m on now.
Rod
If you were going to pick one thing that, above all, things that he taught you, what would be the number one thing you think he taught you?
Charles
I’d say the number one thing that he taught me, as far as when you’re looking at a piece of property and you’re looking at it from all angles, it’s easy to let emotion get involved. But when I look at a property from his angle, one of the things I picked up most would have to be looking at the loan constant. I was never actually looking at– I knew what my interest rate was, and I knew what my payment was relative to my projected earnings on a property. But knowing how to determine what a loan constant is, no matter what your interest rate is, and comparing that relative to the P&L on the property, that matters a lot because it can knock it out right at the end.
Rod
I need you to define what you mean by loan constant because that’s not a term I’ve heard before.
Charles
Alright. When we look at a property and we’re trying to determine the loan constant, it’s taking a look at what your actual cost of money is going to be over the term of that loan.
Rod
Oh, okay. So you look at the present value of the money and it’s not just– so it’s more like factoring an internal rate of return versus an annual adjusted return. Annual adjusted return is just basically the return that you get with no calculation for the time element involved.
Charles
Right.
Rod
So the loan constant speaks to the impact of the debt with time involved.
Charles
Right. Because as your assets grow and you start dealing with lenders, the number of lenders that will work with you gets smaller and smaller and smaller.
Rod
Okay.
Charles
And so what they’re looking at is not just the debt service ratio of the property, but they’re looking at your assets relative to your debt, and they’re looking at your cash outflow relative to your income from a much different lens. And each bank is going to have their own– those types of banks are going to have their own lending criteria. You’re not falling into a box for Fannie Mae and Freddie Mac.
Rod
Right. Interesting. Interesting. So in this real estate journey of yours, talk about some of the epiphanies that you had as you were growing. You’re like, okay, you come across it, you realize something like, now I get it. Talk about some of those.
Charles
Well, this might be a little political.
Rod
Okay, that’s all right.
Charles
All right. Growing up, we were poor. We lived in a tent for a year. We didn’t have anything. And we lived in a neighborhood that we shouldn’t have been able to afford to live in because a landlord gave my mother reduced rent because she had property management experience and she could manage his properties in the area. Well, then when he sold that property, the new buyer was going to knock them down and build condos. So I’m, you know, ten, well, maybe 12 years old, I’m learning the word gentrification. Then we get to watch “Boyz n the Hood” and we hear about gentrification. And then I’m a real estate broker and I’m in Durham and I’m knocking down the houses or I’m reconverting apartments into condos, and I’m now the regentrifier. And that was an epiphany for me, where I realized that I’m not– you know, in these people’s eyes, I’m not the good guy. I’m actually the bad guy. To my clients, I’m the good guy. But to the people that are worried about the cost of living–
Rod
People that are being displaced and complaining about the high cost of rent and so on and so forth. Yeah, I get it. I get a lot of hate. I mean, you know, when you become a thought leader, you get a ton of hate. And I can’t tell you how often I get hate from people that you know, are upset about rent is going up or landlords in general, you know. But I will say this, and if you don’t like it, then stop watching me. But I think that we’ve got a pretty entitled young group right now. I think the younger generation, there’s a lot of entitled there. And I really believe we live in the greatest country on earth and you can create whatever level of wealth and success you want in your life if you’re willing to do it. But, you know, if you’re relying on the government or other people to achieve that level of success, then it’s not going to happen. So again, if that pisses you off, then go watch somebody else. But that’s how I feel, you know.
Charles
Yes.
Rod
And I think there’s some, what is that quote, that “hard times create strong men, and then good times create weak men”, and it goes on from there. But I think it’s absolutely accurate. So let me ask you this, what do you enjoy the most about what you do?
Charles
I enjoy taking something that nobody wants and everybody complains about and turning it into something that’s really nice and people love.
Rod
That’s a great answer. What would you say is the most challenging– and I totally connect with what you just said when you can take something that’s just a piece of you know what and turn it into something awesome. I mean, with the amount of money you’re spending on your CapEx, I can imagine the level– I mean, what you just described is extraordinary. You’re actually tearing the concrete floors out to put, you know– I mean, that’s taking it to a whole another level. What would you say is the most challenging part of what you do?
Charles
The planning departments, the bureaucracies.
Rod
Oh, good God, yes. Oh, geez.
Charles
Yeah. They’re intense.
Rod
Oh, my God.
Charles
We go to duke power and say, hey, duke, what do you want us to put in here as far as our troughs and our meter bases and they tell us we put them in. Then the city comes out and inspects them, they say, well, we don’t want those.
Rod
Right.
Charles
So what do you want us to do? Well, you have to take them out. But then duke won’t hook up power unless we have what they want. So what do we do?
Rod
Oh, geez. You know, I have to tell you– and guys, if you’re listening, if you ever communicate with the city or the county or bureaucracy in general, and I’m sure you agree with that, make sure any conversation that you have, you reduce the writing and you confirm with an email or a letter that, hey, this is what we discussed. This is what we agreed on. Just want to confirm so there’s no misunderstanding that I didn’t mishear something because I’m sure you’ve encountered where they’ll say, yeah, you said this. And they’re like, no, we didn’t know. This is how you do it.
Charles
The head of the planning department said, tear up the plumbing underneath the slab, but put it back exactly the way it was. So my plumber did exactly that. Well, what was there before is the code today.
Rod
Geez.
Charles
So the head of the planning department says, well, of course, I don’t mean not to code. Well, then what do you mean by exactly the way it was?
Rod
Wow. Yeah. And that communication, again, is not only challenging, you’ll have people roll in and out of these departments as well. And if you haven’t documented what was agreed to you’re– and this is in asked me how I know. When I do my boot camps, I actually give away shirts that say #AskMeHowIKnow because I’ve made every freaking mistake you could possibly make.
Charles
You don’t want to be challenged to historic properties.
Rod
Oh, God, I know. Geez. I had antebellum properties in Denver you know, I mean, beautiful, beautiful fireplaces, you know those things they sell for thousands of dollars. I remember that. I remember we looked behind one of those fireplaces once and we found two Civil War uniforms. I mean, this is bringing a memory of the fact you said that.
Charles
Wow.
Rod
Yeah. And they’d crumbled when you touched them. It was really– this was in Denver. And, you know, those windows that have the weights, the lead weights, and the ropes. And oh, my God, they’re a nightmare, those freaking windows.
Charles
Don’t talk to me about that.
Rod
Yeah, I know, right? And the old furnaces with the asbestos-wrapped duct work you’ve got to deal with, the gravity-fed furnaces, they call them. I think they were gravity.
Charles
I had to make an asbestos remediation team and get them a license to do that in my company as well.
Rod
Oh, you did. You became licensed. Now, that was smart, actually.
Charles
Yes.
Rod
That was smart because that’s–
Charles
I saved two million dollars.
Rod
Yeah, I was going to say that costs a freaking fortune. So when you’re dealing with asbestos, you have to create that containment zones with the negative where you’re pulling it, you’re sucking the air out.
Charles
Exactly.
Rod
You’re sucking the air out with fans and stuff. Yeah, it’s a pain. Guys, if you ever find a property that’s got asbestos, do not buy it unless the seller hires somebody licensed to remediate it and does it before you screw with it. You know, unless you’re going to take it to a whole another level like Charles has here, which I’m not sure I recommend unless you’re going to–
Charles
No, I’m not insane.
Rod
Right. I mean, we did the same thing with mold on an asset we had in Shreveport where I literally purchased mold remediation equipment and the scrubbers and the suits and the–
Charles
I got the Tyvek suits and the respirators. All of that, yeah.
Rod
All of that crap. Yeah. And of course, that saved us tens of thousands of dollars. But anyway, so let me ask you this. You know, I have a lot of aspiring multifamily investors that listen to the show and, you know, they know they need to go do something and take action and make something happen. Speak to those people. What would you tell those people that haven’t done anything yet that know they want to create a better life for themselves and their families?
Charles
You know, it’s like being a real estate broker. You need to educate yourself, but you don’t want to over-educate yourself to the point where you scare yourself away from acting.
Rod
Oh, good answer. You know, we have a lot of analytical listeners, and they have to check off every single box before they make a move. Yeah, that’s a good answer.
Charles
You know I have engineers, a lot of engineers, and they’re the clients that want to overanalyze everything.
Rod
Right.
Charles
And they create the software spreadsheets that are supposed to be for a P&L. And it’s like, I’ve never seen anything that’s that ridiculously in-depth.
Rod
Yeah.
Charles
And that’s overthinking it, you know. You can’t do a 20-year projection on a property. You don’t know what’s going to happen in 20 years.
Rod
Right.
Charles
I told everyone that Putin was going to invade the Ukraine, but how many people believe me?
Rod
Right.
Charles
So if you planned for it, you were good. But, you know, if you didn’t plan for it, you didn’t know.
Rod
Right.
Charles
And so, you know, when the meteor strikes or who knows what’s going to happen. You just don’t have any idea. So put a plan together that makes sense on the front end because you’re going to change the plan anyway. Things are going to change along the way. Be adaptable. That’s a huge factor.
Rod
Yeah.
Charles
You’ve got to be resilient. You’ve got to be able to adapt. And you have to be able to constantly be educating yourself. I say get educated on the front end but don’t overthink it. Don’t spend too much time aiming, aiming, aiming. Eventually, you have to pull the trigger. But once you pull the trigger, remember, you’re going to keep pulling that trigger.
Rod
And you need to keep that learning process. And you need to keep–
Charles
Aiming is the learning.
Rod
That’s right. That’s right. The learning. Yeah, that’s absolutely right. You know, learners are earners in this and any business, frankly. I continually go to boot camps and things like I just did one this last weekend, two weeks ago, two months ago, three months ago, you know. I probably spent six, seven hundred thousand on my education, non-college education, because it’s a continual process. So let me ask you this. As you’re doing this business, you’ve built a team, I take it, yes?
Charles
Yes.
Rod
Okay. Talk about putting a team together and what you’ve done over the years, maybe some of the missteps you’ve made, some of the great moves you’ve made, maybe some of the things you look for. Talk about putting a team together, if you would. I’d love to hear your thoughts on that.
Charles
I am accused of having a too big of a heart. So I give people opportunity, especially if they’re a single parent, you know somebody that has some struggling.
Rod
Me too.
Charles
And if they aren’t up to par, it’s hard for me to say, you know I’ve got to let you go.
Rod
Yeah.
Charles
So for me, I need to have somebody that does that for me because I don’t want to be that bad guy. I’ve got enough negativity in my life. I don’t need to see that. But what that person boils down to is the key person you need. You need to have a right hand.
Rod
Yeah.
Charles
Somebody that’s going to take care of you, that understands you know, when you need lunch and you don’t have time to get lunch, they get you lunch. But they also understand that you know, your real estate licensing process and– I mean, they just got to be able to jump into everything. My right hand is Sharon.
Rod
Was just like a COO or is this what would you call her?
Charles
I’d call her the luckiest find in my life.
Rod
Yeah.
Charles
She was an admin at the real estate brokerage I started at in North Carolina when I needed two years of experience before I could start my own company.
Rod
Oh, wow.
Charles
She was the admin at that company. She’d been a business owner in her past. She’s mature, knowledgeable about the area. Family has roots and history in the area for generations. So when I hired her, she is like a mother hen, but she’s also you know, very capable and knowledgeable about the field that we’re in.
Rod
Yeah.
Charles
So now she’s my HR and she handles my insurances and my– you know, just all the things I don’t have time to deal with as a business owner. I’ve got you know, 17 different vehicles that have to have insurance and then we got to put GPS trackers on them. Oh, that’s the other guy, a tech guy. I have to have a tech guy. I can’t deal with that stuff on my own.
Rod
Right.
Charles
I still wish we had newspapers.
Rod
Oh, that’s funny. Yeah, I can’t spell the word technology. That’s why I’ve got Matt and I’ve got other awesome rock stars.
Charles
So you’re looking for people to fill the holes you have.
Rod
Yeah.
Charles
Henry Ford was an amazing automotive engineer.
Rod
Oh, I love his example. Yeah, talk about his example.
Charles
He was my guy.
Rod
Yeah.
Charles
So, you know, he said I could answer any question that anybody has about how to run this business.
Rod
Right.
Charles
And they set up the giant press–
Rod
Yeah. They had a bunch of reporters come in, right?
Charles
Come in and interview him. They’ve got a list of questions they’re going to ask.
Rod
They’re going to trip him up, try to screw him up, which, of course, the media wants to do anyway.
Charles
They want to see the mighty fall.
Rod
Right.
Charles
Henry Ford has seven phones on his desk. And the first question asked him– you know, the first reporter asked him a question, he picks up the phone, calls his accounting department, and asks them the question. They give him the answer and he repeats it to the reporter. They’re like, well, that’s not fair. Oh, he said, exactly. I don’t need to know everything about everything. I just need to know about what I know and then hire people to know everything I don’t know.
Rod
Yeah. I love that example. I love that. That’s a very famous example. I love that. So I’d love for you to share a war story. You know, when you got your ass soundly kicked. I mean, you know if you’ve done it as long as I have, and as long as you have, there’s a bunch of them. But pick a good one that may have a lesson in it you know, that’ll be a lesson for my peeps.
Charles
Wow. Well, that’s hard because there are so many different kinds of ass-kicking– you know,
Rod
Yeah, exactly. You know, just one where you’re like, oh, boy. If I’d had just known that one little thing, I might not have done it. Whatever.
Charles
Sure.
Rod
I don’t want to prompt you.
Charles
I’ll give you a perfect example.
Rod
Okay, all right. Good.
Charles
Because you’re a popular and famous individual now, right? And when you start to develop at the scale that I am in my little corner of the world, I’m becoming more and more well-known there.
Rod
Sure.
Charles
And as a result, you know I’m becoming the poster child for the gentrifier. And as such–
Rod
In a positive light or negative light?
Charles
Negative light.
Rod
Negative light.
Charles
There’s no such thing as a positive light for gentrification.
Rod
Did you make the paper yet?
Charles
Oh, I’ve made several papers.
Rod
Oh, really? Oh.
Charles
Oh, yeah. And television stations.
Rod
That’s the worst.
Charles
It is. And the worst thing is because, again, I have a big heart.
Rod
Right.
Charles
So I don’t move in and start evicting people. When I buy a property, the first thing we do is anybody who’s on a month-to-month lease, a holdover lease, we make them aware that we’re not going to renew their lease.
Rod
Right.
Charles
Putting them on notice that we’re not going to keep this property long-term, you know.
Rod
Give them as much time as you can. Right.
Charles
And so we happened to close out a property that we went into contract in, I want to say, October. We’re closing in November. I got the right in my contract from the owner to notify the tenants in Escrow that we were not wanting to be renewing the lease.
Rod
Right.
Charles
So they got these notices in October, maybe November 1st, but they held on to them until two weeks before Christmas and then called the newspaper and they called the television. And so I had this reporter show up in my office and she wanted to ask me questions about the property. And I’m like, sure, no problem. And then she asked me a series of questions that I answered. And then through the magic of editing, when it aired on television, it was not exactly what it is.
Rod
It showed you in the Santa suit with horns, right?
Charles
Yeah, I think it was more like the color green. And I had a little doggy pulling my sleigh, you know.
Rod
Right. Oh, damn.
Charles
And, you know, gentrifying white men kicking black families out of their homes at Christmas.
Rod
They had to go to race. They had to go to race, too.
Charles
They went directly to race.
Rod
Yeah. That’s a shame.
Charles
And it’s horrible you know because I grew up in those neighborhoods. I served in the army for six years. I like living in mixed communities. It has nothing to do with races. It’s green.
Rod
Yeah. No, I get it, man. You know, it’s funny, I was going to buy a– what was that? I think it was a sixplex here in Sarasota just because I love having stuff close to me. It’s way not my wheelhouse. I’m in the 150-plus unit range. So I went and viewed this thing and I literally met every single one of the tenants. And to buy this thing and have it make sense, I literally had to double the rents, like from 1200 to 2200. And I actually backed out. After I met them and stuff, I couldn’t do it. So you’re stronger than I am in that regard. I had to back out of the deal. Now somebody else did it and threw them out, I’m sure. But, you know.
Charles
Of course. And that’s what’s going to happen.
Rod
Yeah. And my wife’s like, you’re a sap. But, you know, I just couldn’t do it.
Charles
Well, that reporter kicked my ass.
Rod
Yeah. Did they?
Charles
Yes.
Rod
Yeah. And I’ve had that happen to me as well. It’s no fun. And, you know, people think that the media is a public service organization. They’re not. They are for-profit and they only make a profit if they scare the crap out of you or they startle you and geez, you don’t even know what to believe anymore.
Charles
It’s a combination of selective information.
Rod
Oh, yeah. And of course, you know, without getting too political, there’s certainly a whole political component to– a huge political component to it as well. So let me ask you this, and this is usually one of the last questions I ask, but I’m nowhere near done. But if you could go back in time and tell your 18-year-old self something about real estate, what might you do differently, if anything?
Charles
I would not change the fact that I served in the army.
Rod
Yeah. Alright.
Charles
That was very, very productive and informative for me.
Rod
Right.
Charles
But I would definitely plant the seed that buying savings bonds instead of investing in real estate was not the right answer [inaudible]
Rod
Oh, yeah. But that’s what you got sold on. Uncle Sam with the picture of Uncle Sam, buy a savings bond. Because your parents probably did that, right?
Charles
No, the army just said, hey, well, the whole part of your check, you know.
Rod
Okay.
Charles
And so after six years in the army, I had all these savings bonds, right?
Rod
Right.
Charles
But if I had instead been investing in real estate in Denver when I was stationed in Colorado Springs–
Rod
Wow, you were in the Springs.
Charles
Yeah.
Rod
Wow. You know that’s my old stomping ground, by the way. I used to own 500 houses in Denver at one time. This is painful. If I still own those 500, I would be netting– bottom line, net a million a month right now.
Charles
Oh yeah.
Rod
But these are all seminars. I call them seminars. They’re not failures or anything like that. I sold all of those to buy here in Florida.
Charles
All are experiences.
Rod
Yeah. But, you know, I would have never met my wife if I had done that, and I’d give it all up again for her. But let me ask you this, you know, was there any fear when you first start going in real estate? Or can you think back to times where you were going to do a larger deal and like, oh, man, you tightened up and it was some fear involved?
Charles
No.
Rod
No, none of that?
Charles
No, I was airborne air assault, right?
Rod
Okay, so screw it. Badass. I’ll just do whatever I have to do. Yeah.
Charles
I just feel like if there’s a problem, I’m going to fix it. Oh, we’ve got asbestos. Let me create an asbestos remediation division.
Rod
Okay.
Charles
Yeah.
Rod
Well, did you have any failures? Not just that was obviously a negative experience you had with the media, but any actual failures that may have set you up for future success?
Charles
I don’t know about any– I mean, personal failures, sure, but not in business.
Rod
Okay, with the divorce and stuff. Yeah. Okay. What do you think is the– and you’ve done so many different things, so you could answer this from any segment of your experience, but what do you think is the biggest challenge you’ve ever overcome in this journey so far?
Charles
Again, that’s going to be staffing.
Rod
Staffing.
Charles
That is so hard.
Rod
That’s such a great answer. You know, every business is nothing but people and systems. You get the right people, you get the right systems in place.
Charles
No such thing as a self-made man.
Rod
Yeah.
Charles
You only become successful with the support and help of others.
Rod
Agreed.
Charles
And if you can’t build that team around you, it’s just going to be hard, hard, hard.
Rod
Agreed. If you want to be wealthy, make other people wealthy.
Charles
Exactly.
Rod
Yeah, I love it. You know, this is completely off the ranch, but if you could teach school children something that’s not being taught– do you have kids?
Charles
Yes.
Rod
Okay. How olds–
Charles
They’re adults.
Rod
They’re adults now.
Charles
Yes.
Rod
Well, if you could teach them something or wish they’d have been taught something, what might it be?
Charles
There’s no such thing as a participation award in life.
Rod
Oh, God. Don’t get me started. And that’s so common now.
Charles
Yes. It is. You don’t get rewarded for showing up. Showing up is required. How you perform is what you are graded on.
Rod
Yeah. I couldn’t agree more. Yeah, I couldn’t agree more.
Charles
Accountability, I mean, we can go on and on.
Rod
No, keep going. I’d love to hear some more. Because yeah, that one’s an obvious one.
Charles
I don’t know. I don’t like that’s not my job, you know.
Rod
Oh yeah.
Charles
No, you shake your head, that means we’re at claro. We’re 100%. You get it, you know. If you don’t understand, don’t shake your head because I could explain it to the point where you get it.
Rod
Right.
Charles
But if you walk away and you don’t get it and you try to do it, you do it wrong, now we’re in a spot that I don’t want to be in. And that’s the problem. I don’t get in trouble for things I do. I get in trouble for things that other people do when it wasn’t done the way I said to do it. But you can’t watch everybody 24 hours a day.
Rod
Right.
Charles
So you have to have good people around you that aren’t falling down, that aren’t messing up.
Rod
Now, to push back a little bit, you also have to have the mechanisms in place to make sure they are completely trained and up to speed and have some sort of an accountability framework. But you’re right, and you’re absolutely right. That is the biggest hurdle, I think, in any business is the human resources. It’s the people and finding and interviewing. I don’t know about you, but I’ve interviewed hundreds, maybe thousands of people.
Charles
Not thousands, but hundreds.
Rod
I made tons of mistakes. Yeah, in fact, I’ve got one right now. But, you know, it’s like an ongoing battle. And then you find you know, little glimpses of gold and you hang on to them with both hands. But, you know, let me ask you this, why do you think people give up that get into real estate? So I’m sure that you’re hit up a lot. You’re successful in your environment. Do you show up at meetups or any groups in Durham?
Charles
I don’t. I just–
Rod
No, you don’t. So you don’t have people come up to you and say, hey, you know, can I take you to lunch and show you what you’re doing?
Charles
Oh, I get that.
Rod
Okay. And so, you know, you’re connected in that environment in Durham. You know who’s working, who’s doing things, who’s not. Why do you think people give up or fail in this business?
Charles
There are so many different reasons. First of all, it’s hard, right, you know?
Rod
Yes, it is.
Charles
If it was easy– so it’s easy to get into real estate if you’re going at it from the licensing perspective, you know. You can get a real estate license fairly easily.
Rod
Right.
Charles
And then of the people that North Carolina, for example, they pride themselves on having the most difficult real estate exam in the nation.
Rod
I think Florida could give them a run for their money, but okay. Yeah.
Charles
So you have to– 50% of the people to take the test fail.
Rod
Right.
Charles
And then out of those 50% that get a license, half of them are gone in the first two years.
Rod
Right.
Charles
And then out of those, you know, it just keeps dwindling to the point where you’ve got 30 or 40 years in the system, they give you awards and pins because you know, you weren’t supposed to make it that long.
Rod
Right.
Charles
Now, the number of people that made it that long, and it was the household’s primary source of income is even more few, right?
Rod
That’s really small because it’s feast or famine in that business, you know.
Charles
Exactly.
Rod
Unless you’ve got an incredible system put together, you’ve got a team where you’re not just dealing with the people that you’ve signed up, you’re still filling the funnel, you know. And that’s the biggest problem in that business. And a lot of “self-employed” businesses, contractor businesses, you get the business and you focus on delivering on that business and you forget to continue to get business.
Charles
Yes.
Rod
And so, yeah, that’s interesting. So what are you not great at in the real estate business?
Charles
I don’t have a lot of experience dealing with leasing, commercial real estate. I haven’t done a lot of that.
Rod
I see. When you say commercial, you’re talking like retail or industrial, or office?
Charles
Yeah, retail, industrial. So long-term leases, you know, triple nets.
Rod
Got you.
Charles
I have very limited experience in that process.
Rod
Got you. Okay. Yeah, and there are some real nuances to that.
Charles
There is.
Rod
I mean, you can have– oh, what do they call– the percentage leases or revenue share leases.
Charles
Revenue share leases.
Rod
Right.
Charles
And then there’s the TI on the front end and how you claw that back over the term of the lease.
Rod
Right.
Charles
I just don’t have experience in that field.
Rod
TI is tenant improvements in the office and other commercial environments, the landlord will very often make tenant improvements for you, but they got to recover that money and that’s got to be put into the lease. So yeah, that is complex as well. And then common area maintenance and how you allocate all that. Okay, get it. So this will be fun. Do you have any favorite and maybe even funny stories in some of the stuff you encountered in your journey? I’ve got some really funny landlord-tenant stories.
Charles
Oh, yeah, those are the best.
Rod
Okay, share some of yours and I’ll share a couple of mine.
Charles
There’s the tenant that wants to do yoga in the nude in the apartment complex, you know. And the only complaints are coming from the women that live in the building.
Rod
Oh, that’s funny.
Charles
There’s that. There’s the– oh, gosh. Things where you just– you shake your head, you go, oh, my God.
Rod
Yeah.
Charles
And that’s where, like, you know, when you’re in construction when you dig in a hole and all of a sudden you find something that’s not supposed to be there.
Rod
Or you’re renovating a unit and you had a hoarder in there, or you had somebody that had 16 cats, which we have right now in our San Antonio asset. Oh, good God.
Charles
Well, that’s not even funny. Those are disgusting.
Rod
Right.
Charles
I mean, yeah, we deal with the buckets of feces and the rotting food in the refrigerators because they moved out and left it for two weeks. There’s all that stuff.
Rod
I’ll give you a funny one. I’ll give you two. So I had a house in Denver, 3,000 block of Columbine. I won’t throw the address out there publicly, but it was Columbine Street in Denver. And I’m reading the paper when one morning, the Denver Post, and there’s a picture of my freaking house. Okay? Then I’m like, I know that house. And the headline was making money the old-fashioned way. It was a five-bedroom house, I think, four or five-bedroom. And the tenant said he was in the maid service, and he had a girl in every bedroom and he turned it into a whorehouse.
Charles
Right.
Rod
And I had a partner in Chicago named Al in that house. And I called Al, I said, Al, you own a whorehouse in Denver. We had to evict him, of course. And he had bad credit. So we had got a huge deposit, like a triple deposit. So we made out good on the thing. But yeah, that’s a funny one. I’ll tell you another one. Here in Port Charlotte, Florida, there was an area in– oh God, now the name is going to skim me. Gulf– oh God, I can’t believe I can’t think of the name. It’s an area that has direct access canals, okay? So you can take a boat right out to the freaking ocean.
Charles
Oh, I know where this is going.
Rod
Okay, yeah. Well, I bought five houses there because were five of them under 150 grand at that time. I’m like, holy crap, I can’t believe this because I was just moving into the area. So I bought those five houses and I bought some vacant lots right on the canals. Well, I get a call one morning, are you the owner of 52 blah blah Boil Terrace? And I’m like, yes. And she said, well, this is so and so with WINK-TV. Have you seen the news? I said, No. And she said, well, your tenant just got caught bringing in, I don’t remember if it was a half a ton or a ton of cocaine. Okay? Night vision goggles, you know, DEA with automatic machine guns. And she’s like– and this was the time of what’s his face in Columbia, the guy that they finally killed, you know the Colombian drug lord.
Charles
Escobar.
Rod
Escobar, yes, this was his time. Okay? And these guys were from Columbia. They had perfect credit. By the way, like an 800 credit score. You know, when they have an 800 credit score, you don’t look any deeper. Okay? I mean, no problem, you’re in. And she’s like, well, I’d like to interview you on the station. I’m like, there’s no freaking way you’re getting my face on TV and I’m throwing these Colombian drug lords out.
Charles
Yeah, right.
Rod
Anyway. Yeah, that’s funny.
Charles
I don’t think that would have been a good idea, man.
Rod
No, this is no freaking way I was going to do it. Let’s talk about leadership for a minute.
Charles
Alright.
Rod
You know, you’re a leader. You’ve assembled these various teams to put these deals together. What do you think are some characteristics that a leader should possess to be effective?
Charles
Well, leadership is based on leadership style. So there are several different styles of successful leadership.
Rod
Agreed. Agreed.
Charles
One of the things that I learned from the army is their versions of the styles of leadership. And they classify them as authoritative, delegative, and participative.
Rod
That’s good. That’s actually very good.
Charles
Well, the army is good at things like that. When it comes to leadership they got the layout.
Rod
They have a pretty big budget. They’ve got it down, right?
Charles
Yeah.
Rod
Okay.
Charles
And logistics is another thing they’re great at.
Rod
Right.
Charles
And so those are the two things I’ve carried forward with me from the army or two of the biggest things.
Rod
Which one of those styles are you and which one do you think is the best if you were to answer?
Charles
There’s a reason for each one of them.
Rod
Oh, okay.
Charles
And so I am delegative when it comes to my number 1 and number 2. I delegate them a lot of different tasks that I don’t want to handle but are very important.
Rod
Right.
Charles
I’m authoritative when it comes down to dealing with my construction and my property management because it’s so vital that they follow the laws and then your– in construction, you build it right or it falls.
Rod
Right.
Charles
In property management, you follow the law or you’re culpable to lawsuits.
Rod
Sure.
Charles
So I’m authoritative in those directions. I’m participative on the front end, teaching them how to do this.
Rod
Oh, that’s good. That’s good stuff. That’s good stuff. Yeah. You know it’s funny– I’ll tell you another funny story. I have spent a lot of time in Tony Robbins’ environment, the motivational speaker and I went to his resort in Fiji. He had this event called Life and Enterprise Management, and it was all CEOs of companies. I mean, Fortune 500 CEOs, big money was down there. And they divided us up. There were, I don’t know, 40 or 50 of us, and they divided us up into teams of four or five people each, and we completed against each other. We did physical competitions. And it was dog eat freaking dog, let me tell you. And what was fascinating about it is you saw all three of these leadership styles.
Charles
Right.
Rod
And you saw the authoritative, do what I say or else. You saw the delegator and you saw the participatory leaders. And I hadn’t heard it defined like that, but that’s exactly what I saw. I mean, I remember we were playing volleyball and I hit the ball wrong and my pinkie finger literally bent backwards.
Charles
Sure.
Rod
And there was a guy there was a SEAL member. He was one of Tony’s volunteers, and he grabbed my finger and he popped it back. And I’m like, Oh. You know, I was in a little bit of shock. Yeah, it was– anyway, I digress, but that was–
Charles
No, it’s important because when the army is trying to– or the SEALs you know for the Navy, I was accepted into special forces. So if I would not have chosen to get married and to get out of the army, I would have been going off to the SFAS, special forces assessment school. And you can watch that on the history channel. They’ll show you what the SFAS is. So for a while, the period of time that you’re in at the JFK special warfare center, a lot of the tasks they give you, aside from sleep deprivation and exhaustion from physical activity, they challenge you mentally. And they’ll give you tasks that are engineering tasks. Here’s a 50-gallon drum that weighs you know hundreds of pounds. Here are three tent poles and some death wires.
Rod
And some string. Now, move it 100 miles.
Charles
Exactly. And some teams just can’t even get the machine built to move the barrel because they can’t function. They argue they can’t communicate, right?
Rod
Interesting.
Charles
So you get to see the differences between the communication styles, which is your specialty, and the leadership styles and how to meld those. And then you get to see people will identify leadership and they will react to leadership.
Rod
Will they turn towards the leadership?
Charles
Yes, they will.
Rod
Yeah, interesting.
Charles
The person that may be the most authoritative is not necessarily the one that they’re going to turn to.
Rod
Right. Oh, that’s fascinating. I saw that, too, when I was in Fiji. I remember that as well. The ones that are screaming, trying to get everybody to do stuff. At some point, people started ignoring–
Charles
Exactly.
Rod
Yeah, that’s fascinating. Yeah, this is a very interesting conversation for me. I’ve really enjoyed that part. Although the conversation in general has been fantastic, that piece, though, I really enjoyed that. And you learn from a conversation like that. You know you want to be the best leader you can possibly be, and you want to identify where you’re not you know, operating in the most effective and supportive manner, you know. So this is good stuff.
Charles
Being a leader is about pride but it doesn’t have to be about ego.
Rod
Right. Good answer. So let’s talk about the current real estate environment.
Charles
Sure. We’ve been here before.
Rod
Yeah. You and I have been here before. The Fed has basically said they’re going to continue to raise rates. They basically said it. They didn’t do it this time, but they’re going to continue to do it, which to me is just astoundingly stupid. But what are your thoughts?
Charles
My thoughts are that there’s no such thing as new or this time is different.
Rod
Yeah.
Charles
It’s always the same. So when we started going– first of all, the bull market on the bond, you know we ended that. How long have we been in a bull market on the bond for what, 40 years?
Rod
Right.
Charles
And so when we hit zero, that’s a reset. So you’ve got to go back through history and look at what happens after a reset. And so you can look at the ’20s, which was very similar with the Spanish flu instead of Covid and the war that wasn’t paid for in World War I and this time Afghanistan. And then it was women’s suffrage. Now it’s Black Lives Matter. I mean, there’s a lot of dynamics that are very, very similar.
Rod
Wow, that’s fascinating. I’ve never even thought about those things.
Charles
I can go deeper than that.
Rod
Wow.
Charles
And then you compile that with what happened during the Volcker years you know, the ’70s, and the rising interest rates then.
Rod
I remember in ’78 when I got in the business, I was 18, interest rates were 18%. I remember doing freaking backflips when they hit 7% and 8%. I’m like, holy crap, 7% and 8%.
Charles
But remember, you were still buying and selling real estate when they were double-digit.
Rod
Sure. I was buying houses when it was 18%.
Charles
That’s right.
Rod
Because the numbers made sense.
Charles
It made sense.
Rod
It’s all about the numbers. This business is empirical. If the numbers make sense, it doesn’t matter what the rates are. You know, it just doesn’t matter.
Charles
So you’re going to see a thinning of the herd.
Rod
Yeah.
Charles
There’s going to be a lot of people getting out of the business. This is a reason because it’s feast or famine and this is going to be famine.
Rod
Right.
Charles
And if you can adapt, which we talked about earlier, adaptability being a key factor, then you’ll be able to learn to see where the next angles are or what the next opportunities are.
Rod
Yeah.
Charles
And the reason that you can still make money in that environment is because something we teach everybody, but haven’t really maybe thought about in a long time, is that real estate is one of the best hedges against inflation.
Rod
Right.
Charles
Why?
Rod
Because rents keep going up.
Charles
There you go.
Rod
Hello.
Charles
There you go. So keep investing in real estate. It’s okay. What we do for a living, multifamily is what’s going to be the rock star.
Rod
It really is. Yeah, it really is.
Charles
Now, if you can develop land [inaudible]
Rod
That’s really where I’m headed, actually. I just had one of my students send over a piece of land here locally today that I’m looking at. But yeah, no, that’s really where I’m headed. I’ve got a lot of–
Charles
We’ve got a lot of contractors out there in Durham that are charging $400 a foot.
Rod
No kidding.
Charles
To build multifamily. My margins are 160 a foot.
Rod
No kidding. Wow.
Charles
I could make money at 160 a foot.
Rod
Wow.
Charles
So we’ve got lots of opportunities ahead of us.
Rod
That’s not with the land. That’s over and above the land.
Charles
That’s the cost of construction, not the land.
Rod
Right. Got you. 160.
Charles
It doesn’t include entitlement. It doesn’t include plans or permits.
Rod
Got you.
Charles
That’s the physical cost.
Rod
That’s good. Are you seeing the cost of raw materials coming down still?
Charles
Yes.
Rod
Yeah.
Charles
Not labor. Labor is sticky.
Rod
No, labor is going up, but the cost of materials is going down. So here’s a question I’d love to hear your answer to. You know, if you lost everything today and had to rebuild you know, your business, let’s say in a new location with no contacts, let’s add that twist to it. You know, no contacts from former partners, investors, and let’s say you had maybe 1,000 to your name.
Charles
Okay.
Rod
Okay? What steps would you take to rebuild and why?
Charles
Well, since I did that–
Rod
Okay. Right.
Charles
My divorce halved me, then my business partner quartered me when he split. So I had to start out at zero. And even though I had been living in Durham, I didn’t socialize. I didn’t have any friends. I’d gone and traded roles of my wife. I was the house husband and she was working.
Rod
Oh, really? Wow.
Charles
Yeah. So I didn’t have this network built until eight years ago when I started again.
Rod
Wow.
Charles
So I know. I moved into the worst neighborhood in Durham into one of my own rentals. I bought a used Chevy Avalanche. I did all my own work on my own properties, whether it was the, you know, rehab or the management, the leasing, all of that. So it was a new area to me. But I could do it again. You know, as far as just $1,000.
Rod
No, it’s $5,000, whatever. $1,000 doesn’t do much today. But just very minimal money. Let’s just leave it at that.
Charles
Yeah, I think that the key factor there would be that I would use that money to just make sure that I could go out– well, to be honest, I’d look for a job opportunity.
Rod
Right.
Charles
I’d look for somebody that wanted my knowledge, that wanted to pay me for my knowledge because, at that moment, that’s my asset.
Rod
It could be consulting.
Charles
Exactly.
Rod
Right. Yeah.
Charles
And offer them my knowledge in exchange for capital, and then utilize my capital to put myself into a business venture with other parties that I’m meeting and then grow my ventures to the position where my holdings in the ventures are larger and larger.
Rod
So what are you really excited about right now?
Charles
So there was this house in Durham about a mile from downtown, a mile from Duke University, a very prominent corner lot, half an acre, built in 1901. Cathedral pillars, wrap around the front porch.
Rod
Oh, cool.
Charles
Just really classic Southern design.
Rod
How big is it?
Charles
40, 500 square feet.
Rod
Wow.
Charles
And three stories and a walk-in basement.
Rod
Wow.
Charles
So I bought the property and it was a fiveplex. When I went to buy it, nobody wanted to buy it. It just needed too much work and it was a commercial property. So I got the landlord, the owner of the property, to remove one of the tenants. And now it’s a fourplex and I was able to use my VA loan and buy a loan right now.
Rod
Oh, no kidding. Good for you. Good for you.
Charles
Yeah. Because after the divorce, I had no house. So, hey–
Rod
So you moved into it.
Charles
I moved into it.
Rod
Nice.
Charles
And I had the whole first floor, 2,000 square feet to myself.
Rod
Wow.
Charles
And spent about two years living in it, deciding how I wanted to remodel it.
Rod
Can you stop for one second? Guys, I just want to point something out to you. So he saw– and this is very common with successful real estate investors. You see something, it’s got a hair on it, which is why nobody’s touching it. And you just put on your thinking cap and you came up with a solution that worked. And there are so many examples of this in this commercial real estate business or real estate in general, where you can be a problem solver. So you saw a fiveplex, you know it had to be a fourplex to qualify as residential. So you could use your VA no money down loan to get that thing. So I just want to point that out to you. You know, very often people will look at a property and they’ll pass over it because at first glance it looks like there’s no way they can do something with it. But when you dig a little deeper, you’re like, holy crap, this could really be a gold mine. So please continue.
Charles
Yeah. Converting it from a fiveplex took over a commercial loan to a conforming loan.
Rod
Right.
Charles
And that would work for other investors, you know.
Rod
Right.
Charles
And then you’re not looking at a 20-year amortization.
Rod
No, you got 30 years and VA, no money down.
Charles
That’s right.
Rod
It’s incredible.
Charles
Exactly.
Rod
Yeah.
Charles
And working with those clients as buyers, as first-time investors, a good market to go.
Rod
Oh, you bet.
Charles
Starting in San Diego, I worked with a lot of Navy Marines.
Rod
Of course, out there.
Charles
And so now that I’ve got this property, I’ve got to design what I want it to have. Right? And I love cars. I have a car– I can’t tell you why they run, you know. I’m not Henry Ford, but I love the way they look, the way they sound. So I want a six-car garage, and then I want to put you know, offices above the garage.
Rod
You’re going to build a new six-car garage there?
Charles
Yes, there’s no garage there yet.
Rod
Got you.
Charles
And so then I want to put offices above the garage like you’ve got here.
Rod
Oh, cool.
Charles
So some cool stuff that I can do at home.
Rod
Right.
Charles
Then I want to have an indoor pool, a resistant pool, and a spa. I’ve got all these great ideas now that I’ve lived there for a while. Gate it, put a fence up.
Rod
So you’re going to do all this?
Charles
I’m doing all this. Well, until I realized– I didn’t realize it’s on the National Historic Registry, which I qualify for everything I wanted to do to the property. What I didn’t realize is it’s a locally designated historic property. And so that put me under the purview of the local historic planning department.
Rod
Oh, good God.
Charles
Good God.
Rod
Yeah.
Charles
So I didn’t realize that until after I spent $135,000 on windows, that I bought the wrong kind of windows.
Rod
Oh, no. Oh, my God.
Charles
And so that started the argument when the neighborhood improvement services shows up on my doorstep with a stop work order, right?
Rod
Oh, my God.
Charles
And so that led to 18 months of arguing with the account or the city about what I wanted to do to the property. The one thing is this, I own the property, they don’t.
Rod
Right.
Charles
And at the end of the day, as the owner, I can submit for a demolition permit and I can knock this historic home down. They make me wait a year but I can knock it down.
Rod
That was your leverage?
Charles
That was my leverage.
Rod
Okay. And that makes the blood drain from their face, right?
Charles
It does.
Rod
Yeah. Okay.
Charles
I will knock this bitch down and build townhomes if you don’t let me have me [inaudible]
Rod
There you go. Oh, there you go. Oh, God. That’s even worse.
Charles
It is worse. Because now the neighbors are behind me. Let him have his house.
Rod
Oh, that’s awesome.
Charles
Yes.
Rod
Sometimes you have to throw that leverage around. Sometimes you don’t have it to throw around. But when you do, by God. Sometimes you have to use it.
Charles
Don’t ask permission. Just ask for forgiveness.
Rod
No. That’s how I’ve rolled my whole life.
Charles
Yeah. I cut down a bunch of trees and the trees were historic. I’m like, what did the trees do that made them historic?
Rod
Oh, God, really? Historic trees.
Charles
Yeah. What did they do?
Rod
Yeah, that’s funny. Well, let’s end on this. You know, you’re obviously very dynamic and you’ve got a lot of drive. You’re making lots of things happen. Where does that come from? What inspires you? What makes you push forward as hard as you do?
Charles
I love a challenge.
Rod
Yeah.
Charles
I hate the word no. I think that as a little kid, I was given puzzles. So give your kids puzzles because they start to think about how to solve problems.
Rod
Yeah, no, it’s great.
Charles
I look at things like that and I go, you know just because somebody says it can’t happen doesn’t mean it can’t happen, you know. Question authority, question your peers, learn from people that you don’t necessarily you know, hang out with.
Rod
Right.
Charles
Just change your lens.
Rod
That’s a good answer. Yeah, change your lens is really good too because sometimes you can get some of the greatest feedback from someone that’s not even in your industry, you know that does something that sparks something with you that you can bring to real estate. And I’ve had that happen many, many times as well. Well, listen, brother, I really appreciate having you on the show. This has been a real treat for me. And you’ve definitely added value. And his website is– could you repeat your website?
Charles
Reformation Asset Management, but it’s “mgt.com”.
Rod
Yeah. Charles, it’s been a real pleasure. I hope we stay in touch because I’ve really enjoyed our conversation.
Charles
Thank you very much for having me, Rod. It’s been great.
Outro
So one other quick thing. We encounter so many people that are frankly frustrated. They’re looking in the mirror and they’re frustrated that they haven’t been able to escape the rat race. They haven’t been able to build cash flow to the point where they’re able to have financial and time freedom with their families. And maybe they see other people buying real estate and creating incredible cash flow and they think well, it’s just scary. You know, buying apartments is intimidating. And I get it. See, that’s why we created our Warrior Mentorship Program. They’re our coaching students, and they’ve had extraordinary results. My students, I’ve been teaching about five years and they own upwards of 140,000 units now that we know of. And we feel like it’s just getting going. Now, we’re looking to grow this group and really take it to the next level and honestly believe that the greatest transfer of wealth could be upon us right now with this current economic environment. Everything’s going on sale. So we’re looking for people who want to follow a proven framework, really like a blueprint or a map, literally step by step. And then they’re able to leverage our systems and our incredible network to raise money and equity, to find deals and close those deals and build partnerships, really nationwide. So if you’re interested in finding out more about how you can become more in our incredible network and take advantage of the unbelievable opportunities that are upon us, you can apply to my Warrior Mentorship Program by texting the word “CRUSH” to “72345”, or you can go to “MentorWithRod.com”. And what we’ll do is we’ll set up a call so you can check us out and we can check you out and see if it’s a fit. Now again, you can go to “MentorWithRod.com” or text the word “CRUSH” to “72345” to apply, and we will speak soon.
