266 – Chris Larsen – How To Break Into Commercial Real Estate!

Synopsis

In today’s episode, Chris will share his real estate investment experience, including how he went from residential to commercial investing, what it’s like to invest in a partnership, and the things to remember when putting together a team.

Key points

Background

Chris bought his first property when he was 21 years old. He majored in Biomechanical Engineering at college, but after two weeks, he realized he didn’t want to be an engineer and instead wanted to focus on riding his bike competitively. Spending 20 to 30 hours a week training clearly shows his dedication to the sport. After his junior year, his friend passed, and he lost motivation to continue training, so he had some time to focus on his studies and other matters.

After some time, he was determined to enjoy life to the fullest, but he realized he needed financial power to do this. With this in mind, he tried his luck in the stock market. He became into day trading, earning $5,000 per month. Soon after, he wanted a more stable source of income, so he began reading books on investing. He claims to have read roughly 250 books on finance and investing, but he didn’t stop there. He also got an MBA and is almost a PhD in finance and portfolio management.

He also attended several real estate meetings, which inspired him to purchase his first property. Chris valued the predictability of the real estate industry and the ability to control his assets, so he decided to make real estate investing his full-time source of income.

Limited Partners (LPs) and General Partners (GPs)

Chris was an LP for four years before deciding to become a GP in 2016. Initially, he invested in numerous GPs to learn from them directly. After getting the hang of things, he and his partner were able to purchase their first property in 2016. Now, he continues to invest in projects as an LP because he wants access to different asset classes.

Residential Investing to Commercial Investing

Chris was working with an operator when he decided to introduce his partner to him so they could invest together. Instead of earning $200,000 and paying $100,000 in taxes to save $100,000, he thought he could create $200,000 of equity in value through his hard work in finding, operating, and managing a property. With this in mind, they struck their first deal in 2016.

When asked how Chris convinced the sponsor to work with them, he mentioned the sponsor’s mentorship program. You’d have to pay for the mentorship program, and then they’d take a portion of the asset management fee when you partner with them.

Role in a Partnership

Chris’ contribution to the partnership was mainly operational. When looking for deals, there were a lot of things that needed to be done, such as talking with investors and meeting with brokers. Every other day, all day and night, he was in charge of making calls.

He said that he has now discovered that his expertise in communicating with people and logistics has been quite beneficial to the projects he is presently involved in. Chris said that he has always enjoyed explaining processes to others, so he has drifted more into an investor relations role in recent years. At the moment, he is trying to figure out ways that he can help investors improve their returns.

Raising Funds

Sean asked Chris how he raised funds when he was still new to multiparty management. Chris said that although many people may disagree with him, the old-fashioned method works great for him. By “old-fashioned way,” he means face-to-face meetings and phone conversations in which you tell them about your proposal and ask them if they want to invest in it. You’re essentially creating an “interest list” with this approach.

You would also need to ensure that you have a backup plan in place, such as a contingency budget, that you can tap into when unexpected events occur, such as people getting sick and losing their jobs. It’s also important not to be too pushy when approaching investors. If the investor declines to invest, you have no choice but to go on to the next individual on your list.

Investing in Various Asset Classes

Chris is a massive believer in multifamily, which can explain why that’s where most of their investment is. He said that if you want to diversify into different asset classes, it all comes down to the operational teams. It would be best to have groups of individuals you trust to manage various asset classes since they will go in different directions at different points in the cycle.

According to Chris, as for the similarities and differences of some famous asset classes, multifamily is slow and steady. They’re purchasing properties with cash flow every month, so they’re inherently less risky. In terms of demographics, self-storage is relatively comparable. They do, however, vary in terms of monthly rent.  Instead of raising rents by $200 a month, you might raise rents by just $10 a month for self-storage.  Furthermore, multifamily properties are often owned by big institutions, as opposed to self-storage, which private players generally control.

Mobile homes, on the other hand, are affordably priced. It only costs $300 to rent a lot, which practically everyone can afford, whether they are on a fixed income or not; therefore, it is relatively stable, similar to multifamily and self-storage. Finally, carwashes vary from the previously described asset classes in that they are managed on the operational side rather than the real estate side.

Building Teams

Building a team is all about finding the right people for the right job. Chris is a member of Strategic Coach Inc., a group founded by Dan Sullivan, who often highlights unique abilities as the key to identifying the roles required in a project.

When putting up a team, the primary consideration is finding individuals who have the correct skillset and enjoy what they do.

References

More from our guest

• For more information about Chris, you can visit www.nextlevelincome.com, where you can also access his book, podcast episodes, and blogs.
• If you have any questions you’d want to ask him directly, you can reach him at chris@nextlevelincome.com.