From Fitness to Fortune: Charlie Cow's Dynamic Shift into Profitable Real Estate and Self-Storage Mastery

Ever wondered how a career spanning health and fitness to medical sales can morph into a successful real estate venture? Charlie Cow's story is a testament to the transformative power of leveraging corporate savvy in the real estate realm. From the conservative investment strategies shaped by his father's post-crash challenges to the realization of applying his diverse background to property management, Charlie's narrative is rich with lessons on mentorship and hands-on commercial asset experience. Tune in for an enlightening exploration of how unexpected paths can lead to lucrative destinations.

Self-storage investment strategies stand as a profitable niche, yet navigating this terrain requires a balance of financial acumen and market trend awareness. Discover with Charlie the critical elements of educational content creation and asset selection, as well as the enticing world of bank financing and the implications of cheap financing on the real estate landscape. This episode promises a comprehensive blueprint for those aiming to carve out their own success in the self-storage market, without giving away trade secrets.

Lastly, we shift gears to discuss the calculated risks in passive real estate development investing. Charlie illuminates deal structuring nuances and the value of local relationships in overcoming the hurdles of the development process. He emphasizes asset protection, tax-efficient returns, and steering clear of high-risk ventures, offering strategic insights for both seasoned and budding investors. Whether you're a passive investor or actively seeking to refine your real estate portfolio, this episode is packed with strategic considerations and real-world advice that you won't want to miss.

Connect with Charlie
info@twinoakscap.com
www.twinoakscapital.com

Tony Johnson is a Commercial General Contractor.  Timeless Properties Construction Co. has been in business since 2007.  He does all things commercial.  Developing, Building, Upfits, and Renovations for Retail, Office, Industrial, and Multi-family.  Timeless Properties is licensed in North and South Carolina.  Contact them today for your construction needs.  www.timelesspropertiescc.com
info@timelesspropertiescc.com

Discovering his passion for construction when entering the industry over 20 years ago, Tony obtained his general contractor license and created Timeless Properties Construction Co in 2007. The company has performed an Proving that grit and passion can overcome any challenge, Timeless Properties Construction Co navigated the worst real estate collapse in our lifetimes under his leadership. Coming out of the recession Tony made sure he kept a strong focus on building relationships, quality work, honesty, and integrity.  With over 160 million on construction volume to date Timeless Properties Construction Co has grown to an area leader of Commercial Construction in eastern North Carolina.

Tony launched Timeless Capital Investments LLC in 2022.  This company was formed to create an avenue for partners to invest alongside Tony Johnson on commercial development and value add of existing commercial buildings.  Tony aims to help fellow investors take part in profitable projects that they otherwise would not feel comfortable undertaking.  By leveraging his construction and development knowledge Tony offers his partners a leg up against less experienced investors.  Offering the ability to self-perform Construction, Construction Management, Entitlement and Other functions of projects creates tremendous value for any project.

Tony hosts

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Transcript

Speaker 1: 0:00

Coming to you from the Tar Heel State. This is the Carolina Commercial Real Estate Connection, bringing you industry insights and hot takes from Carolina real estate experts, helping you begin, grow and scale your commercial real estate portfolio. And now your hosts Tony Johnson and Cameron Pearson.

Speaker 2: 0:30

Welcome to another episode of Carolina Commercial Real Estate Connection. Today we have Charlie Cow with us and it's Tony and Cameron here. Charlie, welcome to the show, sir. Hey how's it going? So, Charlie, could you take a quick moment and tell us a bit about you, what you're doing and how you got into the business?

Speaker 3: 0:52

Yeah, so I've been kind of in real estate my whole life. My dad basically came to the United States, had a job for a woman on a lot of commercial real estate as a handyman. He couldn't speak any English, so he pretty much had to take the only job where somebody could communicate to him in Chinese. And then, long story short, he made himself so irreplaceable to her over the course of the next 20 years that she sold off her entire commercial real estate portfolio to him, and during the whole entire time I was translating a lot of legal documents. I probably looked at a few thousand commercial real estate documents over the by time I turned 18. So that gave me a really good legal document background. And then on top of that, my dad he likes to tell me that he paid me, but it definitely wasn't much, but I pretty much did all the work. So I was his handyman.

Speaker 3: 1:43

So being tied to a tree of a chain stock, flat roofing, commercial building, cleaning sewage back up in a restaurant, I mean, you name it I pretty much did it and I did it well before I was 18. So kind of flash forward. After that I said real estate sucks, I don't want any part of that, and so I worked for a number of 1,400 companies working health and fitness, commercial lending and medical sales. Did that really really well? Worked for one of the largest companies in the world on two separate occasions, and then came to realization that, hey, if I can make these companies tens of millions of dollars, even nine figures worth of sales, I'm pretty confident that if I do even a fraction of that, I can make more for myself. And so that's when I decided to kind of take hold of my own journey.

Speaker 4: 2:32

Yeah, that's a really good point. I mean, once you start seeing those numbers fly and you're like wait a minute, I'm not getting the chunk that I want.

Speaker 2: 2:39

Yeah, doing the health and fitness and the other medical sales. Yeah, I'm assuming. Yeah, when you take grasp with real estate and see that real opportunity, especially having the background that you did, it's kind of puts you right into there. And obviously when you're raised in it and have that understanding, you already have a leg up on the majority of the other investors. Right, a lot of people just get into it and no numbers, but you were hands on understanding commercial assets. So how large of a portfolio did your father put together?

Speaker 3: 3:13

It was a nine figure portfolio. Well, actually I will say it was nine figure at its peak. Unfortunately, a lot of the real estate assets he had I never rebounded from basically the crash. There was just large companies and company towns which never rebounded. They never reclaimed the workforce. They had still turning downwards in population to this day for the most part. So that obviously has affected how I invest.

Speaker 3: 3:39

Now I invest much more conservatively than before. And then I think of the bigger thing too. About it is I never realized how much information I got until I was I was pursuing training a client that had a very high net worth and his wife kind of called me up and said I don't know why, but my husband actually likes to work out with you. I'm like, oh, that's weird, I don't know why. And she's like why I could tell you why is because he says he likes to talk about real estate with you because you make the time fly by faster and he happens to be losing a lot of weight. And I was like really, she's like, yeah, she's like he tells me all the time like you never expected to get such good real estate advice from his personal trainer.

Speaker 1: 4:16

And then I think that was probably the first time it really dawned on me.

Speaker 3: 4:19

I'm like wait, this guy is paying me 150 blocks for an hour and a half workout and he's finding value from you know, I was a good personal trainer too, as well as straight conditioning coach but he was finding more value from us talking about real estate. And that's when I realized like wait, maybe I just didn't go take it a step further. Maybe I could do what my dad did, but not lift toilets, not do all the repairs. Maybe if I can add systems to it, like what I learned from corporate America, maybe then I can actually do or have a career that I actually wanted. And so that's when I made that commitment, well before I retired from my W-2 job, that hey, I can make this work. I just gotta basically be patient with that.

Speaker 2: 4:58

Okay, so let's walk down that line a little bit. So you were still doing your W2 job and started into the pivot, into real estate. Yeah, so you've jumped on a couple of things, one where you were coaching. So how did it first begin? What was your first real estate deal that you did? How did that spark you to continue forward? What was the first deal you worked on?

Speaker 3: 5:24

Yeah. So I really enjoyed. I was a division one strength and conditioning coach for two division one universities. I really enjoyed that career.

Speaker 3: 5:31

But I got pretty much, I felt, to the pinnacle, like I remember at one point on men's fitness and men's health, I was actually publishing articles in both magazines and I was thinking like, oh yeah, maybe someday I can make six figures off of like publishing articles. And so I talked to them about getting paid and they're like oh, you don't realize this. Your content is so good. You're one of the few people we don't charge. And I'm like I won't even charge. And they're like most people pay $5,000 or $8,000 to get their stuff published in our magazine because they want the notoriety of it. And so that couple that was a couple of the fact that I was trading time for money. If I took a two week vacation, I obviously wasn't training clients. There was no income coming. So that was the main reason I switched out was that I realized, like I did the numbers and I worked backwards from it. I'm like you know, if I'm making $55,000, $65,000 a year, which in Northern California is nothing, then it's going to take me a really, really long time to get to my goal. So that's why I pivoted out of that career into financing. I wanted to be in a career, that one I could work on getting residuals or have benefits, but I wanted to make sure that I had a high income, because whether I was making $50,000 or $250,000, you can tell one of those, if I spend the exact same amount of money, is going to give me a much higher leg up into retirement. So that was the first reason why I made that switch. Why I chose kind of commercial real estate and financing was because, simply, I said, well, if I can't get into commercial real estate now, then the best way I can get into is learn every aspect outside of it before I actually get into it.

Speaker 3: 6:58

As far as my first deal, when I left California, I tried to buy deals but it was just such a competitive market I was dealing with cash offers. I didn't have the cash and at the time I was going to move to New York with my ex and while we were kind of in the process of moving back, I decided I wanted to stay in Michigan because Grand Rapids, michigan at the time you could buy a house for under $40,000. And I'm not talking about like a beat up house I'm talking about like you could buy a house that was moving ready. My first house I bought actually.

Speaker 3: 7:33

My second house I bought had actually an upstairs deck. I bought it for $36,000, three bedroom, one bath. And then the very first property I bought before that, I actually bought for us the condo. I bought that for $36,000 cash as well, where I just wrote a credit card offer and cashed out my 401k. And so those were kind of my first two deals just bought a cash kind of went all in on it credit card offer, paid it off as fast as I can before that 0% credit card offer could expire, and that's kind of how I got my start on my two very first deals.

Speaker 2: 8:05

Wow, that's awesome. Now you say now your main focus. You focus on a lot of different commercial asset types, but your main focus is self storage. What attracted you to self storage and how long have you been investing in that?

Speaker 3: 8:22

Yeah, I mean I want to say that self storage is my main focus. I would say that self storage is what I've known most known for, mainly because I speak for inside self storage. I have a couple of courses with them and I think the reason why people enjoy my blog and my video posts is because I relate it to other asset classes and I compare it Now, because people are always asking me like, hey, which asset class do you like the best? And I'm like I like the one that makes me the most money. Like I have no loyalty to an asset class. I have loyalty to my family. I don't have loyalty to self storage, even though that may be where I make the most of my money right now.

Speaker 3: 8:57

So, but with self storage, I think you know like there was a gap at one point where I could build for like $35, $45 and the market was trading at $85. And so banks were loving the financing. We were getting like 3.5% and 3.75% interest only for two years. We were just getting such ridiculous terms on it and there was just such a gap where I was like any other asset class I build, there's a good chance. I'm underwater, right.

Speaker 3: 9:26

So that's, I think, why I got so well known for that is because I use my trades background to leverage, building really good quality self storage cheaply. And then obviously I had a lending background because it started out there, and then I had a basically just a strong analytical background from all those years of analytical documents. You know reading stuff over for my dad. And so self storage represents roughly by a percentage of my real estate portfolio. That's about a third, maybe 40%, of my real estate portfolio, but right now most of my stuff that I haven't sold off is still in the stabilization period. So, as far as my income is, pie closer to about a fourth of my total portfolio income.

Speaker 2: 10:09

Interesting. That's interesting. So in your you said it's inside self storage. Is where you is that? The correct is what you said it was inside self storage. You're doing a blog and you do video posts. Tell me a bit about that. What is what exactly? Are you relaying? Are you relaying? You know tactics to take down self storage. You were. What exactly is the posts and the video posts and the blog about?

Speaker 3: 10:36

Yeah, so kind of what happened was I had so many friends asked me the exact same questions over and over again that I'm like, listen, I don't, I don't want to have this exact same conversation 40 times, like you know, over the course of the year. So was, why don't I just do this? You guys send me your questions and then I'll have my assistant or I'll read through, kind of what questions do I feel are good questions? I want to ask people that yet same time, doesn't give away the playbook. Like I'm not going to give away a decade worth of knowledge and you know I've bus easily spent over six figures on my education, completely free. But yeah, I can help people get a jumpstart. So people were asking me like you know, how are you building so cheaply, lily, or how are you figuring out these numbers? And so I just started doing videos and you know the videos basically, like you know, I had a couple of videos get like 60,000 views, 10,000 views, and essentially kind of what I assess did was they have this metric that says you know how good is this content and basically how the metric works is that, let's say, you have 1 million followers and you have 10,000 hits. Okay, that's not that impressive for kind of for video content. But if I have 100 followers and then I have 10,000 hits, that essentially tells these YouTube and all these other people that like, wow, this person has good content, it helps get flagged for it.

Speaker 3: 11:54

So, out of nowhere, I had all these people ask me for podcasts. I had people asking me like I asked to speak for them and write blogs for them, and then it kind of just kept going from there. So the content on that page is all people asking questions, you know, and it sucked at like I'm getting towards people that kind of taking that first step. But now they're trying to take the next step. They're diving way into the weeds. How do I pour concrete, specifically? How do I avoid bug holes? How do I get my formula for determining, like, price per square foot? So we dive really, really into the weeds.

Speaker 3: 12:28

But you know, I don't have a ton of followers. I may have like 5, 6,000 followers. But what's nice is that anytime somebody asks me a question, I can just refer them to that page. I'm like, listen, we're not going to give it to one person. If we want to give the advice, we're going to give it to everybody, and the best part about it is that you know it's not something I'm trying to post every single week, maybe not even every single month. It's just something I wanted to help people on. People saw that and they've now asked me to do consulting agreements. They've asked me to speak for them. So it's relating to actual things that actually have now resulted into a profit for our business.

Speaker 4: 13:02

Well, and when you look at that front, you know past 10 years I think most people wouldn't have thought sell storage, but now do you feel like it's starting to get saturated, where it's more and more difficult to find a good spot because most people are there onto it?

Speaker 3: 13:16

Yeah, I mean, I think it's like anything like anytime asset class. Well, there's three things that contribute to asset class exploded, I think number one is basically financing. Multifamies, no secret, because multifamily you can get agency debt. So, fannie Freddie, third year financing sponsored by the government, non recourse, anytime you can get cheap financing, that's going to help basically cap rates, basically concentrate essentially or get smaller. So that's the first one.

Speaker 3: 13:44

Secondly, technology we've had a ton of technology industry. When my first kind of self storage, like you know, over 20 years to my father, you know it was like oh, we have electronic gate, that is as much technology you need. Maybe you know you used, you had some type of software, but most cases people are using an Excel spreadsheet to keep track of their rent roll. So that's number two. And then the third thing to about it as well is basically is the cost of trading versus the cost of build, which I talked about earlier. You know like I could build self storage significantly cheaper than the cost of build in Michigan. Without a grant it's nearly impossible to build multifamily. So when you have those three things combined it causes a huge influx of people chasing numbers. So when I write, tell people, like you know, hey, you have a site that's getting a dollar 50 square foot, if I see.

Speaker 3: 14:35

Land is cheap, causes the build and the municipality is easy to work with. People actually are surprised to hear me say this, but I actually don't like those numbers because I've been to multiple markets before where the nominee was too easy and every time the money was too easy. Within three years the money wasn't easy anymore. Actually was the exact opposite flip.

Speaker 3: 14:54

So right now when we're targeting, we're targeting the worst areas to build, whether it's municipality doesn't want it, whether it's very, very high footprint costs like a million an acre but we're targeting places that have such a high barrier to entry that we know that if we build self storage here, it's going to take at least two or three years for competition to get built. So, like a good example of that is San Francisco, california. They do not want more self storage in San Francisco, they need more housing and the only self storage facilities there. Every year the demand goes higher and higher because you've got growing population and the exact same amount of inventory every year. So that's kind of what we're talking about with an arm portfolio right now. Interesting.

Speaker 2: 15:35

That's a great way to look at it. You know, I've definitely heard the barrier of entry is always one of the first metrics that you want to look at. You definitely don't want to go because you'll build one and then somebody's apt to come build one right across the street, undercut you and then you're out. So I like that idea. But targeting the highest land value and highest build costs, that is not something that I've looked at. That seems a little bit scary to me when you're going at these these counterintuitive for sure, Right. So when you're saying that you're talking that's a very expensive land cost per acre for self storage. So you're saying, could you, on a high level, underwrite what you're saying? So if you're buying what on a high note, what are you looking at per acre and then what is your build cost and then what's the sell cost? Just quickly looking at in these higher dollar environments.

Speaker 3: 16:37

Yeah, I mean it's hard to say because some of the markets I'm in I can't really just kind of disclose what I'm working at, but like, I'll tell you kind of what we, what we actually let's do this way. I'll talk about some of the deals that we did which got us to why we think the way we did now.

Speaker 3: 16:52

So I used to target $150,000 or less for acre, because the land was so cheap that I could basically like, get 20 acres, I could build like 100,000 square feet, or I could build 15 and then 10 a year, and then you slowly build it up for them. And then the nice thing about it too, is my whole cost was incredibly low, which is kind of what you said, where it wasn't as scary that okay, if it doesn't make any money, then at least I don't have a hundred, a $1 million mortgage just on the land, right. But then what happened was those that, because it was cheap for me, it was easy for me to get into. Then I was dealing with a guy that's like okay, he's got a six-figure net worth or low nine, low, eight, seven figure net worth, whereas now, like you know, my competition is basically funds, and the best part about it too as well, is that if I can basically source the deal, a lot of times I can partner the funds by having to manage it and they can also be my end buyer, and so that was the biggest reason why I kind of went around. The all reason why I decided to go with the more expensive to from is when you went cheaper on that price per square foot basis.

Speaker 3: 17:54

The people tend to value. When you go into these more rural areas or these areas of cheap land, they tend to not want to pay you a premium for the storage itself. So when you want to provide them quality storage, like, hey, okay, I'm going to put a ton of pest traps in, we're going to basically have somebody shovel instead of basically just using a push plow. All these things that cost extra money AC, video cameras, technology, things like that. People are less likely to pay those in those cases, because in areas where land is that cheap, the average household income is also much lower as well. So they just simply can't afford it. And so we're going into markets now where that's not the case, in markets where there is plenty of jobs. You know, let's just say like San Francisco. Okay, you know, like if San Francisco has a net migration outflow of people, eventually people will come back getting those houses, and then also the top of that, that's also where all the jobs are at. So we have a downturn in the economy. Jobs are going to go back there. So the economic indicators are so strong. That also gives you a big cushion too as well, now is another thing we realized too.

Speaker 3: 18:54

As well as that, let's just say that we are wrong. If we're in a more rural area, where land is really cheap, and let's say that we're wrong, well, I don't have anything to buoy me up. It's going by a three 4% population every single year, which might amount to one or 2,000 people a year, and then maybe only 40% of those people want self-storage, whereas if I go into a market that has 30% growth, 10% growth on a million or 2 million people, then I have a huge, huge basic, just like what we saw with all these indicators that were buying deals and they were bragging about how much were the returns were at. And I'm like well, the returns were more of a function of the fact that we went through this high inflationary period, so they had such a cushion from such strong economic indicators that that's actually what made the investment perform, not the fact that they were great operators.

Speaker 3: 19:44

So that's another reason why we also made that pivot too as well is because we realized there's a lot more room for error, that, okay, worst case scenario, this deal doesn't perform now, yes, we might lose more money, yes, we have higher whole costs, but if we're patient and we hold on, more than likely the market will always benefit us, because the market's going to keep expanding these markets that we're investing in. So we're investing in very population dense 100,000 people within three miles or more because that is where we find that there are areas that are always going to appreciate. They're always going to have rent growth, and then, on top of that too as well, there are areas that have high barriers to entry to as well.

Speaker 2: 20:22

That's very good philosophy, I mean, it makes perfect sense. So I completely understand that aspect of it and is everything you're doing? New development.

Speaker 3: 20:33

Primarily, everybody has their philosophy.

Speaker 3: 20:36

I like new development similar to like I used to flip houses a long time ago and we've done new construction and when you do new construction, once you get past the soil stage, there is nothing unexpected.

Speaker 3: 20:49

I mean like it might be small, but like. If I do like conversion, say, oh the HVAC, it doesn't have the proper capacity, or there's just all these things pop up. Or like, oh hey, this wall, it's going to take us much more to take this wall out because we didn't realize the infrastructure. There's all these things that pop up. So I prefer as few unpredictable things as possible. If I do go with like, if I did go with a conversion like we looked at, for example, conversion of a bull and alley at one point, those are typically investments that I will take on myself because there's more unknown risks, whereas if I'm doing more of a new construction or like an existing stabilized facility, that's safer, those are typically the things I take to my investors just because I feel it's a safer investment to place them into, even though they honestly may not care. But I care what investments I put my investors at and what typical for your investors.

Speaker 2: 21:41

If somebody investing with you, what are they typically? What are you shooting for for return projections? Are you looking at a 30% return on new development?

Speaker 3: 21:50

Yeah, so typically with new development it's a little bit different because obviously there's a period of time where they make no money or what some people I see do is the overraise and they pay people back their own money. But in general I'm trying to target 8% of the people who are in the same company, 8% cash in cash or yield on costs, with a 15% internal rate return and typically we're actually much higher in an internal rate return because typically I'm targeting those returns on conservative debt. We're really not going after interest only or available rate debt. So like a good example is that I had a deal that first two years it looked really good and I kind of like man, maybe I could have taken to investors but it was a variable rate loan and we finally got fixed and we didn't get fixed at a low rate, we got fixed at like eight and a half and that basically kind of crushed returns.

Speaker 3: 22:43

So the good thing about it is I'm the only one that I have to answer to on that because I basically owned that deal by myself. I didn't expose that to my investors. But I didn't feel that was a good deal to expose my investors to because I felt that while the returns could be really good, I knew that there was a chance that rates would go up with it, and so it's a risk that we took. It was calculated Overall. It's gonna work out well in the end anyways, because I think that we're gonna be able to refinance out. Plus. We made a lot of money in the first two years, but it was just a deal that like in hindsight you look at it and I'm glad I made that decision.

Speaker 2: 23:21

So somebody who hasn't invested as a passive investor in development could you walk them through that expectation of when you invest, what's the hold period before they would get paid and then do you give them a lump sum to catch up that money? Or could you kind of walk us through that for somebody who hasn't experienced that as a passive investor?

Speaker 3: 23:43

Yeah, I mean, the biggest things are like. So one of the things that we do unique from our deals is that every deal is different. A lot of people do like 30, 70 every deal and whatnot. What we do is, because I'm my partner, I personally, we like equity. I don't like fees, so we have a very, very low fee structure. But let's say that I get an absolute screaming deal. If I can get an absolute screaming deal and take 60% of the deal and still get my investors 40% equity and that eight and 15 I was telling you about, then that's what we'll do. So most people are not used to that. They're used to like oh, every deal is 30, 70, 78% prefer and there's a multiply and whatnot. We don't do it that way, so that's a little bit different. But I would say the biggest thing that people need to understand is that when you see these crazy returns and like, like a good example is I saw somebody saying 9% cash and cash return on a new bill for multifamily and you look at them like how is somebody gonna pay when they're not gonna be done building for two and a half years? Like I mean that should be common sense to anybody. So I'll tell people that when you look at something, if you can't give a very clear answer to it, whether it's have your kids they'll look over and ask you. That that would be the first thing. There's a red flag. So it's like, okay, so how are you gonna pay us 9% from day one when you're not making any money until month 28? So that's the first thing.

Speaker 3: 25:04

Number two I talk about my company Secret Sauce, so naturally I gravitate towards people that have the similar Secret Sauce to mine. But mine is basically we source our own deals. Sometimes we go through brokers, but in general, because we source our own deals, our motivations get the best deal possible, not go through a broker that wants to get the highest price, possibly noble clothes. So that's number one. Number two we're vertically integrated. So asset management, property management, everything's in house, although that might that's changing over the next year. So because we're just trying to outsource more of our stuff. And then, number three, we have a home fuel advantage over everybody. I know all the engineers, I know all the city officials. I've done builds already in these markets or I have somebody that has that advantage on my team and so when I look for people that do that I want a high probability of repealability.

Speaker 3: 25:55

Yes, you've done a lot in multifamily but I can tell you I see syndicators all the time that come into my backyard that overpay for deals I didn't buy that get crushed because they don't understand the dynamics. Like we had a mobile home park 30 miles away from me. This is a very large syndicator that everybody in the country knows. They bought it and they didn't even know the due diligence that the city won't allow them to infill the remaining lots. So they thought they had 80 lots to infill and they actually don't have any lots to infill. So they're going to get crushed on that. I think they're going to probably give it back to the bank the next year. So those are actually kind of really the two biggest things.

Speaker 3: 26:30

And then the next thing from that too as well is that don't chase. You know everybody's different, but don't chase numbers, chase safety. For me, all my deals that I target, I want a very, very high floor, even if that's a sacrifice of a very low ceiling. So, like you know, for example, like there's a lot of investments out there where you can invest, like in a startup, and then you can make 10 extra money in five years. But the problem, though, with those deals is that you either make 10X or you lose it all. It's never anything in between.

Speaker 3: 27:06

So I'm not at that standpoint where I'm at now, when I invest personally myself, pass the lily or even my investors. What they're targeting, they're just looking for asset perfection. Don't lose my money. Whatever you money you give me, give it to me tax free and also, on top of that, go back to rule number one don't lose my money. I mean, that's all I'm looking for is like safe return. Can I make sure I get you your money back? Because I can tell you that. You know, I thought I was in a bad scenario where I had a couple of operators only paying me two or 3% this year on deals I've invested in. I talked with, if not hundreds, at least 70, 80 people this year that have told me that they had lots of investments to the invested passive that are not performing. So you know, I would say that you know you can't just basically invest in somebody because you like their podcast, or you feel like you know them, or they're a nice guy or whatnot.

Speaker 2: 27:56

I think it's critical to kind of go back over to something that you touched on there. It's all about, especially for development you have to understand your market, so you can't just jump in random markets, because not only understanding the market, you have to have relationships, because in any development scenario you want to be able to get yours through in a tight environment where not everyone can get their deal through. And in order to get that deal through, you have to know the right people. You have to be dealing with the right people within the city or the town in order to get the deal approved through so you can get entitlement and begin the project. And that's really where the money's made getting the deal under the proper price point on the land and then knowing the people to get it through entitlement where it's too hard for other people to come in and undercut you on the market.

Speaker 4: 28:44

No.

Speaker 2: 28:47

So that's, amazing.

Speaker 4: 28:49

Well, and with your point you said that the safety. With the rates doing what they've done recently, the numbers don't look like they used to. So when you're looking at a deal now, the floor would assume is that much higher because that cap rate is gonna be muted with the rates where they are.

Speaker 3: 29:08

Yeah. So I'll give you an example of a deal where it didn't mean my metrics, but I had an operator that had built a lot but they had never built an area that they were targeting at that point in time, and so I simply tell them why don't you fret the majority of the money? And then, once you actually get approvals and once you actually break ground, that's when I want to invest. So most people, when they invest in this indication, especially new build, their money is going in super early or they're committing to it like just when they're close to plan approvals or whatnot, and so that was one of the ways that I could offset my risk as a passive investor. Now I will say that having the ability to contribute a lot more helps. If you're only trying to contribute the $50,000 or $100,000 or the minimum, you might not have that leverage, but in my case I have leverage to because I have my own money and I have that in my investors that I can also help place, and so in that case that was the way that I was able to kind of offset that risk. But I use this example like, if I'm borrowing a million dollars at 3.5%, okay, that's $35,000 a year, right? Well, just think about this now.

Speaker 3: 30:14

Now that rates are like 8.5%, I'm paying an extra $50,000 a year in interest. So if you were to look at just how to cap rate, you may have a 10 cap. That's $500,000 of loss value, even though, technically, financing doesn't count towards that, but people will still count that. So now, if I'm doing a $10 million deal, you're like well, wait, now I'm basically, like you know, dropping $500,000 a year of interest more. So those are things that people have to factor in. Like, if people are still saying they're getting the exact same 8% cash in cash return as they were two, three years ago, I'd really look at the numbers carefully and see how are you doing this? Because you're not doing it through financing? Obviously so is it because it's bank owned or something else? But you have to dive into those numbers because they're just numbers and if you need to see the likelihood of execution on those numbers before you really invest that money away.

Speaker 2: 31:11

So when you're saying that you have investing your own money or some of your investor money, do you do a customizable fund, a fund of funds? Do you have just an investment fund or are you raising through private investors and they're for just one deal? Specifically, how are you structuring that for your passive investors?

Speaker 3: 31:34

You know, that's something I've considered too as well, because I have done that. Basically, what happened is I had investors that came to me that wanted to invest my deals and they're like Charles, you haven't had a deal in a while and I'm like well, that's because I don't have a share I like. And they're like well, can you help me vet this operator? And then like it'd be like you know, this is so. Then I'm a yash or you know, and so I was just kind of offering it as like a free service. And then then it got to be the point where I'm, wow, I'm doing a lot of work to help these people. And so then I was like okay, you know, pay me $3,000, pay me $5,000, just a small amount to kind of walk you through and then also teach them how to vet other operators. But then it got to the point where I'm looking at some of these deals and I'm like, you know, I do like this deal actually. And so then I reached out to the operator directly and I'll say hey, you know my client myself, we're thinking about investing this deal. I know it's offering 7.5% preferred. Can you give us 9.5% preferred? And so at the beginning I was just doing it to give myself a greater return.

Speaker 3: 32:27

But I'm considering going down that route where like, let's say like, and I have an operator right now that's looking at $10 million raise If I do a $2 or $3 million raise for them, rather than at 8% with everybody else I do at 10%, I keep 1%, so my investors get 9%, which is still more than the what the operator is offering. But then I also handle the communications and so the operator. What's nice is that now they don't have this big team that they have to have just investor relations. They can just communicate with me and I handle the communication between. It's a small fee and then I can also get a bigger return on my own investment. So that's the model I've been kind of considering, just because I've been doing a lot more with these past couple of years, as I just really haven't liked what's out there to really put my investors. Most of the stuff I've bought in the last two years is pretty much the stuff I've just bought off my own money.

Speaker 2: 33:18

Well, that's good and that's a great option. You know it's always with something like this it's the people that are going to thrive in this type of an environment. You have to be creative, you have to find different ways of making money and diversify, and so being in the space sounds like you have found creative ways to inject your skills and get fees based on providing a win-win for both sides, on that, which allows you to get some transactions even when it's slow. Like you say, when you're not getting deals, there's because there's no deals out there.

Speaker 2: 33:49

You know I've been searching high and low for deals, but if the deal doesn't make sense especially for development, which is everything I'm looking for as well it has to really make sense for you to pull the trigger on that, because there are too many potential hiccups and hurdles that you'll run into, and always the biggest one is what you mentioned, which is the flatwork, the soil issues.

Speaker 2: 34:11

So you don't know what you don't know and you really don't know anything until you get equipment on the ground. You can do tasks, you can do phase ones and you can do bore testing, but it's just that it's bore testing, so you don't know what you're going to hit when you start digging footers. So that's awesome that you've diversified and been critical and it's great that you're helping people. And, yeah, I feel like even if you're getting a small fee $3,000, $5,000, that gets you vested to really work them the best deal for a client. Doing it for free is very nice, but you're only going to do that so many times and how hard are you really going to work for somebody when you're doing it for free? If they give you some money to invest in your time, then you're going to work that much harder to make sure you secure them the best deal. So sounds like yeah, that was a big deal.

Speaker 3: 35:02

At first I was just going to work 10 minutes, but hey, I don't want you to make a $200, $300, $400, $400 decision off of what I told you after a five minutes looking at it. So then I just like, listen, I want to do a good job, Let me do this, Let me look over it, Let me do the research and then I'll get back to you. But then, secondly, what you see and how I vet these people will basically now allow you to vet now the next 100 operators you look at or whatnot. So I mean, it was and really the fee is more. Do you value my time or are you just basically trying to get as much free stuff as you can? So that was another thing.

Speaker 3: 35:40

And then the second thing about it too as well, is that it establishes so much loyalty. Because now when they look at my deal, they know, Charles, there's me on these metrics that you were always telling me, teaching me. I'm like, well, it does, except for this one. And it's kind of ways it kind of puts me now on where now I just taught you how to vet somebody. If I don't meet those requirements for some of you vet in myself, so I can't get away with anything now because I'm kind of giving you some of my secret sauce for, okay, what is a good deal.

Speaker 3: 36:08

So we're kind of work spoke ways, but I have a lot of people that have been asking me to help them place money. It's been kind of a weird part of the business where I keep kind of pushing back on whether I want to grow that portion of the business but my staff keep seeing like well, you seem to like it, why not try to do it? So we'll see. I had some significant life events this past year, so next year I'm going to try to make a decision on what I want to do with those.

Speaker 4: 36:33

That kind of leads me to my question too is what you see, the future short term? What's going to be the next thing that pops?

Speaker 3: 36:41

Yeah. So I mean, everybody keeps hearing survive until 2025, right, I don't think it's survive until 2025. I think it's more of get by until 2025, but I think you still need to survive until 2026. You shouldn't plan for, basically for whatever you're saying. You should plan for beyond that, because if you don't, you know numbers can change significantly.

Speaker 3: 37:01

The biggest thing that you know I'm telling people is that, like you know, get stuff that is just a single right now, because it, like I'm right I'm buying, like I just bought a deal. I bought a triple net lease healthcare building for less than what the owner bought in 2018, which is crazy, but I bought it for eight and a half cap and, you know, even with current debt, it's actually making decent money. I'm making, you know, high single digit percentage return, but when we get down to like four and a half, five and a half percent, what's going to happen is I'm going to pull all my money back out of that deal and it's going to cash a little better and I'm going to have infinite cash and cash return just because of the interest rate dropping that down. So if you can get even like a base hit now but I wouldn't buy anything that you got to be patient for money on unless you're sitting on a lot of money, because I think a lot of people that same scenario if you got a million dollars but you do a heavy value add, that you've now just committed all your money to one deal, whereas if you buy six to seven base hits and you and you, that gives you much more power to leverage real estate whether it's appreciation, depreciation, you know, and leverage too as well. So I would tell people to be patient with that, not to be aggressive. This is the time to buy, but you still got to be patient and stick to your gardens. You know like I don't know where I'm at.

Speaker 3: 38:19

But one more metric to kind of show you is that I used to hear a lot of people say that if your cap rates at, let's say that, your interest rates at four and a half percent, that means you can buy a six and a half to seven half cap rate. Well, using that rule, now nobody is getting a 10 and a half 11 half caps that read this property. So now what you're seeing is people now are trying to get like a 1% spread. I used to see a lot of people reference that number anymore by now. I don't see people reference anymore, but that's just kind of something to reference. Now, like you can't underwrite the exact same, you were in 3.5%. When rates were 3.5%, you needed that spread because you knew rates were going to go up. But now you're the exact opposite. You can live off a smaller spread in the meantime, knowing, as long as it's fixed for you know, five years or so that the spread is going to get better when you refinance down the road.

Speaker 2: 39:10

That's a great way to look at it and I completely agree. So, Charlie, I really appreciate you jumping on today and discussing that with us. If somebody wants to reach out to you to get you to help them underwrite a deal or find out what you're looking at and what markets you're working in, what's the best way to reach you?

Speaker 3: 39:27

Yeah, so email infoioat TwinOaksCAPcom that's the easiest way for actually trying to do like some kind of consulting. My staff will see it. I will say that if it's going to get screened out, if it's some type of solicitation over it say hey, I just want to review this deal, my staff will delete that email before it gets to me. So just want to put that out there. If you want as much free stuff as possible, I'd go to my YouTube channel, especially if it's about self-storage, just at TwinOaks Capital on Uhoch YouTube. If you want to. You know, have a video topic that's not on there. The easiest way is just simply commenting on the video or questions. My staff will see it and then once a month they'll review with me which topics they think I should cover next.

Speaker 4: 40:16

Yeah, that's very cool, thank you.

Speaker 2: 40:17

Charlie, thank you so much. It's been very insightful. I loved hearing about the development and what you're doing. Thank you so much for taking the time to join us. We hope to have you back again someday.

Speaker 3: 40:27

Yeah, thanks for having me.

Speaker 2: 40:29

All right, sir, I appreciate it. Have a great day, sir.