Walking Away from Wall Street with Michael Pouliot - Episode - 575

As a standalone asset, yeah, maybe they generate $100, a couple hundred dollars in cash flow a year, but that's on a cash basis. You're not necessarily accruing any reserves when you do that. So if you may have a year of, especially if you just renovated, you may have very limited R&M, and then eventually you may have, you know, $5,000 of fixing in one year and you've lost 3 years of cash flow. More importantly, as you start doing more and more projects at the same time, you have to do more and more roles. All of a sudden you're a project manager, you're a bookkeeper, you're an acquisitions guy, you're a financing guy, and you can't really do all of those roles at the same time. So you have to start hiring somebody to do some of that work, maybe a bookkeeper.

Many investors are taught to chase highest projected returns, but what if the real secret is building wealth that isn't speed but ownership? Long-Term Wealth Blueprint explores why patient investors often outperform those Constantly chasing the next deal. Welcome to Streams to Impact, brought to you by Stuttgarter Capital. I'm your host, Dr. Allen. If you're a high-achieving professional who has spent years mastering their craft, you may have discovered something surprising. Financial success in your career doesn't always translate into financial freedom. Many accomplished professionals continue trading time for money long after they have earned more than they ever imagined. But there's another path, one where your capital works as hard as you do, creating multiple streams of passive income and opening the door to greater freedom, purpose, and impact. If you'd like to explore that path further, I invite you to claim your complimentary access to Beyond the Paycheck, the Financial Clarity Compass, my educational masterclass designed for professionals who want their wealth working for them. You can access it here at www.go.stetaker.com/beyond-paycheck. Just a brief disclaimer, all information shared on Streams to Impact is for educational purposes only and should not be construed as financial, legal, or tax advice. All investments involve risk, including the possible loss of capital. Always consult your legal, financial, and tax professionals before making any investment decisions.

Our guest today is Michael Pulio, co-founder and chief investment officer of Carbon Real Estate Investments, a vertically integrated workforce housing platform managing more than $150 million in assets. Michael brings a rare combination of institutional finance and generational real estate experience. Before launching Carbon, he built his career at JP Morgan, and Merrill Lynch and earned both the CFA and CAIA designations, some of the most respected credentials in the world of investing. But real estate is also his DNA. Michael comes from a 4th-generation real estate family, and today he blends that longstanding entrepreneurial tradition with institutional-level underwriting and disciplined operations. When he's not working with investors or managing portfolio, Michael is husband and father of 4 young children and also a triathlete, private pilot, and host of the Dale Flow Podcast. Michael, welcome to Streams to Impact. We're glad that you are with us today. So before we dive into the investing side, I'm always curious about origin stories. So what role did real estate play in your life growing up, especially coming from a family that's been involved in it for 4 different generations.

Yeah. Yeah. Thank you, Allen. And I appreciate you having me on the podcast. I'm looking forward to this conversation. Quick background on me and that origin story. My, as you had said, my family's been in real estate for some time. My father was a single-family home developer. So I got early experience to being on construction sites. and just everything that goes into bringing a house from, you know, dirt to the vertical construction, completing it and selling it. And whether that's an individual home or, you know, a number of homes. And so that's something that I got to experience as a child. And, you know, eventually I didn't go into real estate right out of, you know, college or anything like that. I did spend summers working for my father, some summers working for my father, mostly as a day laborer. laborer. I never really like advanced into, you know, managing projects or anything under, under what he was doing. But I did dig a lot of holes and level a lot of ground and pick up a lot of toilets from, you know, supply depots and things like that. That was mostly my job. And then I decided to go into finance. So, you know, I got that experience and, you know, never at that, at that time when I was off to college, never really thought I would pursue real estate. as a career or anything like that. I was always very attracted to the Wall Street world and the finance and the numbers and trading stocks, bonds, things like that. And so that's what I thought I was going to make a career in. And that's where I certainly started my career and learned a lot of the skills that we employ and kind of permeates through our organization today.

Well, I'm interested just before we go further here, just stepping back to those childhood experiences and even into your college experiences when you were working on those construction sites. What did you learn from those experiences?

Yeah, so my experience working with my father was mostly high school summers. I went to boarding school as a— for high school, and so when I was home for For summers, uh, that's when I would, uh, work. Uh, it was a couple of summers, uh, not every summer I did. Uh, yeah, it wasn't necessarily the, the most amazing job cuz you were waking up. I was waking up at 5 o'clock and my, my grandfather was, uh, also involved. And so he would pick me up, we would go and pick up a couple other day laborers, and then we'd all drive an hour and a half to the job site. So we were there bright and early when the sun ro— uh, came up. and worked a really strenuous day. I could never keep up with the rest of the crew. But then we would break a little earlier than probably typical for construction, where we'd break in like the 3 or 4 o'clock range and then do that reverse strip, drop everyone back and then go home. And it was a very long day. So it wasn't something I— so I think what I learned was that that was really hard work, one. And the second thing that I took away was development comes with a lot of risk. So when you're building something that never existed, you know, you're selling a dream and you've got to find someone to sell that property to. So you're very susceptible to interest rates, to the market environment, to how you built that house and what type of people or families are going to be attracted to the layout that you created. So learned a lot about what I think I didn't want to do. I learned, you know, My father was successful as a developer and very skilled as a builder. But there were several times during his career, during, say, the savings and loan crisis of the late '80s and then the 2008 crisis, where, you know, if you were a builder of spec homes, you know, especially luxury spec homes, you're maybe in not the greatest position when those properties get delivered.

Mm-hmm.

And, you know, I know that that's happened recently in the multifamily space with a lot of new developments. So it's not a surprise, but it is something you learn. And it's something that if you want to do development, it's a risk that you have to mitigate in some way. And for me, I learned that I think I was, I was more interested. And even though I ended up going totally a different direction for a while, when I ended up coming back to it, I really decided, hey, I want to be in workforce housing. I want to be in an asset that I can acquire. It's already full. And all I'm doing is optimizing something that already exists versus creating something brand new that I have to fill up for the first time. And I saw that risk is probably what I've learned a lot about.

Yeah.

Well, I learned that same risk in 2008. And I was actually doing single-family homes. That was a terrible time to be in single-family homes. And I'd always thought prior to that, that real estate really, of any kind of real estate endeavor, was really a low-risk investment opportunity. And I learned in 2008 that that just is not the case.

Mm-hmm.

So I turned away from that as well myself. So you turned away from that, you went into finance in college, and you left college and went into what many people would consider to be at least from a financial perspective, a dream job. You worked with JPMorgan and Merrill Lynch and went on to earn your CFA and your CAIA. And so I'm just curious about the moment when that path stopped feeling like it was your path. Was there a specific experience or realization where you thought, I just need to build something different and go on a different path than I am today?

Yeah, so I think it came over time, uh, slowly, uh, chipped away at my, uh, you know, soul, I guess. Um, but, you know, at the time when I started, I was in JPMorgan's analyst program. This was 2011-12 timeframe, so not the greatest time. to be going into finance. So there was very— there weren't a lot of people in the program that year that I started. And I was commuting from Princeton, which is about a 2-hour commute from Princeton area to central Midtown Manhattan, which is where the office was.

Mm-hmm.

And so, you know, 2 hours each way plus a 12-hour workday, usually you know, meant that I was leaving the house at 5 and coming— not much different, I guess, than the construction jobs, but no 3 o'clock end, you know, end, right?

Mm-hmm.

We would work, you know, it was very— the culture was, and maybe it still is, very much like, you know, the most junior people leave last, right? So, you know, you can leave in order of seniority and reverse seniority, I guess, or whatnot. But so I was usually the last to leave, or my managing director was a very hard worker, so maybe we were there at the same time. So, uh, but either way, it was very frequently taking the last train home and, uh, then going to sleep, waking up 4 hours later just to get back, uh, on the train. So I think that over years of time was, uh, a lot of, uh, a lot to do. Um, plus the studying and everything else that needed to happen in order to get that going. Uh, at the same time, I had met my, uh, my now wife. in college. She was, while I was doing my first year at JPMorgan, she was in Boston finishing her master's. And then ultimately we moved. That's when we moved down to Princeton after she finished. So as we're sort of starting our life together and figuring out what we're going to do, children, marriage, that sort of a thing, the lifestyle just wasn't consistent with what I wanted. Long-term. And that's when I decided— I didn't necessarily decide to go into real estate at that point. I went from that to a job in financial consulting where we were working, doing bankruptcies, workouts, acquisitions, financing events for private and public companies. And that job got me closer to home. I was in the Princeton area, a smaller commute, which saved me 4 hours every day, got me to be able to exercise again because I definitely put on some weight. with all that commuting and bad eating habits and such. So that's, you know, that was the first shift kind of away from the pain to the consulting. But in that role, it was very clear, you know, I was very much trading time for money, right? As a consultant, I was literally being paid by the hour for the jobs that I did, billing very much like a lawyer would or something like that. And I, after some time doing that, uh, realized that I looked at my boss and I looked at my boss's boss and they all seemed to have worse jobs and worse lives than either I had today or I wanted to have in the future, right? And so they seemed very stressed. They were working a lot. They weren't necessarily making a lot more money, uh, and they were very much limited based on the amount of hours they literally could bill, um, either themselves or below them on their teams. And so that didn't seem like a great outcome either. And so that's when I is like, hey, I got to figure out how I can do some work one time and then get it to pay me forever or pay me residuals over time. And that's how I started to look into the BRRRR method, BiggerPockets, a lot of the— we're in the mid-2010s at this point. So a lot of the resources that are everywhere now, the information is plentiful, but the BiggerPockets, the books, anything I could get my hands on to learn about how to create passive income through real estate. I started kind of devouring all of that and then started acquiring single-family homes. And that's really where that started in 2016 is when I purchased my first property.

So even though you had grown up in a real estate family, you hadn't really been exposed to the long-term and passive aspects of real estate. Do I understand that correctly?

That's right. Yeah, everything that had been done was, you know, project by project, and it was all for sale real estate. So much more like a speculative development versus, you know, cash flowing investing or things like that.

So definitely working for an income rather than having your money work for you.

Definitely.

Well, when you moved from institutional financing into operating real estate, what was your biggest surprise about how the industry actually worked compared to how you thought that it looked like from the outside?

So in the beginning, everything worked exactly like it did in the books, I guess. All right, the BRRRR method worked very nicely in the mid-2010s. It may very well still work very nicely. BRRRR just being buy, Buy, renovate, rent, and refinance. So I would go, and I was doing these projects in Philly, and so I would buy single-family rundown homes, $25,000, $35,000, $45,000, usually about 1,000 to 1,500 square feet. I would do a gut renovation, probably spend about $40,000, and then I would go— now I'm in for, say, $60,000, $70,000, maybe $80,000. I'll go rent it out $1,200, and I'll go to the local credit union and they'll refi me out, usually, uh, at least as much as my basis, uh, in the deal. And that worked really well until it didn't. Uh, and so— Mm-hmm. But when I did the first one, I was like, wow, this is like magic. It totally worked exactly as, you know, described. Uh, if anything, it worked out better. I got more than 100% of my money back. And okay, let's just do this a lot more times, right? Let's just increase the frequency and the volume. And so, you know, what I learned a lot about was capital reserves. And when you do a number of projects all at the same time in the same area, there's some correlation risk across the place that you're doing the investing, as well as if you're using the same financing partners. So, you know, if you have a bank that's financing your deals, And you hit the limit for the amount of loans that you can get, all of a sudden you may have 6 projects in motion and you find out that your takeout lender will no longer give you financing. Well, now you've got a problem to solve and maybe you take your eye off the ball as it relates to construction. And there's just a lot of moving parts. And so I think in the beginning, doing one project at a time, which I was doing while at my job, you know, it seemed pretty easy on the spreadsheets. It's Looks easy. As you start to scale it and you do many things at the same time and you're doing all of these different functions, there's exponential complexity to that. And so that was probably one of my first learnings. It all ended up working out. Most of the deals, it was only like one deal or so where I wasn't able to pull the money out of that deal, but I had made sure that I only put a little bit of money in each deal. So it wasn't like I had all my eggs in one basket. So that was helpful. So I was able to take some of the things I learned from finance and apply them in the space, you know, position sizing, leverage ratios, um, you know, really having a good understanding of what my negative carry was, like how much is my really, you know, how much can I afford.

Mm-hmm.

Uh, and I had the benefit of all having my existing job that paid me well. So if I had an extra, you know, a couple debt payments on these properties for a few months, It wasn't going to kill the budget or eat into reserves. It would just be less discretionary income, I suppose. So I was in a fortunate position at that time. But yeah, I've learned a lot in that first 12 months. I think I did about 15 of those projects in that first 12 months.

Well, that's a lot in one year, to be sure. And what you just explained there, I think, is something that a lot of people who think that starting out in single-family is really the way to go about it, and they don't realize how quickly that complexity can multiply, and it just comes with diminishing returns. And I mean, there are a lot of people who decide at that point to go into it as a full-time business, and they make it a full-time business, but it is indeed a full-time business, and you're still, you're still working for your income and working hard.

Yeah, well, I could say one thing on that. It's exactly what happened to me, is after I had done all all these projects, which was on the side of my job, I realized, you know, as a standalone asset, yeah, maybe they generate $100, a couple hundred dollars in cash flow a year. But that's on a cash basis. You're not necessarily accruing any reserves when you do that. So if you may have a year of, especially if you just renovated, you may have very limited R&M, and then eventually you may have, you know, $5,000 of fixing in one year and you've lost 3 years of cash flow. More importantly, as you start doing more and more projects at the same time, you have to do more and more roles. All of a sudden you're a project manager, you're a bookkeeper, you're an acquisitions guy, you're a financing guy, and you can't really do all of those roles at the same time. So you have to start hiring somebody to do some of that work, maybe a bookkeeper. Well, a bookkeeper might cost you $1,000 a month. Well, all of a sudden that's 10 houses of cash flow.

Yeah.

So you just worked for a whole year just so you could pay the bookkeeper every month just to record the things that already happened so you could pay your taxes at the end of the year to find out that you didn't make as much money as you thought because you paid your bookkeeper to do that job. And so it was very, you know, after that first year, year and a half, it was obvious that I was going to have to buy like 300 houses by the time I was able to, you know, really make an income that was going to surpass my salary without me having to do 17 different jobs.

Right.

Like, so.

Mm-hmm.

That's when I decided to go into larger assets, multifamily assets, because of the scale and because of just the amount that the— how many deals I would have to do in order to make it happen in single-family.

Yeah. And I think that's just really a realization that I would like a lot of people to realize that to really make single-family investing work, you really have to scale it. And it really is a full-time job. It's multiple full-time jobs, as you just explained there. Well, you use a different strategy now, certainly, and we're going to jump to what you're doing now, which is you focus your investments on multifamily properties by and large, and you look at this from from the long term. So the question I hear all the time with the investors that I work for is, when do I get my money back? And so how do you make this work for investors who are asking you this question? Like with, I mean, most people, or I don't know that most people in the multifamily industry, but most investors are looking to have their money back within 3 years. And of course, most family investors who are doing the really essentially flipping are looking at, uh, they're underwriting for 5 years, but you're underwriting for long-term holds. So how do you answer that question, essentially, when do I get my money back?

Yeah, so I would say that anyone who wants to get or needs to have their money back in 3 to 5 years should not be investing in private alternatives like real estate. They also probably shouldn't be investing in the stock market or any other real asset that fluctuates with market values. And I think if you were to go— and I'm not a— what am I not? I'm supposed to disclose away something about not providing financial advice. But if you were to go to any financial advisor and you told them, hey, I have this money and I absolutely need this money in 3 years to pay for my kid's graduation, you know, whatever it is, like if I have a liquidity need in 3 years, absolutely, then they will tell you, well, then a bond ladder sounds great or some kind of— they're not going to put you hopefully in equities because equities fluctuate year to year and it takes a while. for fair value to match intrinsic value, essentially. And it does over time. And what I mean by that is just that the market interest rates fluctuate, which is in the stock market similar to multiples fluctuate. The stock market is very expensive right now, they say, and that's because multiples are extremely high on a relative basis. And so multiples move around, but the earnings power of the stocks that consistently grows over time if you're buying the right assets with good fundamentals. And so what we focus on is trying to find those assets, not unlike in a company selection process. We look for assets that we feel we can, you know, that are in good areas, that have good solid foundations, good economies, great job prospects, fantastic schools, that we can drive good earnings growth over a 10-year period or longer. And whether or not the cap— and the cap rate would be our valuation metric in multifamily— whether that cap rate is at a 5, a 6, a 7, I don't know what that's going to be today. Like, I don't even really know what it is today. So for me to be able to predict it in a year or 3 years or 5 years, that's really hard. All I can say is that we're gonna— we're vertically integrated, so we're gonna operate the asset as best as we can. We're going to find the assets that are tired in great areas and drive earnings growth. And our view is that over the long term, the multiple or the cap rate will stabilize and we'll get a great return for investors. And that's the best— that's what we can do. We can't predict where multiples are going to be. And if you— again, if you're someone who wants to be in this space on a short-term basis, I would maybe recommend a different type of asset, a different type of exposure in real estate versus a private offering where there is no liquidity or no guarantee of liquidity in that timeframe. And so that's what we tell— we say to investors if they ask us for, you know, that they need their money back in 3 years, we say this is probably not the right opportunity for you. And we do explain to them what types of liquidity there are. Or there is, which is the cash flow. And then we typically will do some sort of refinancing event in the first 5 years where we pull and scoop some equity out, which is tax-deferred. And so that's a, that's a nice way of getting some capital back. Most of the investors that work with us see the, see the money that they put into real estate as a permanent part of their portfolio, and, and most of them don't want to see their money again. In the sense that they want that money to be a 1031 exchange into the next asset, into the next asset, into the next asset, so that they can consistently get that really strong tax-deferred return that real estate offers. But it only offers that if you hold it long-term and in an illiquid fashion. That's what you're getting paid for. If you don't want to get— and that illiquidity premium is important to the total return of what you're providing. So that's mostly our clients are like that. They have a permanent allocation of real estate. They try to work with just a few sponsors over a long 20, 30, 40-year career, and then ultimately have that be in their estate and have that basis stepped up. And then their heirs never pay taxes either. So basically, it just moves on and on and on.

Mike, your focus in workforce housing, Which are places where you're going to find teachers, nurses, uh, plumbers, electricians, everyday workers, everyday families. So when you spend time at your properties and talk with residents, what reminds you that this work is about more than just spreadsheets and returns?

Yeah, that's a great question. I think it's kind of central to everything that we do is thinking about our core stakeholders. And one of those 3 core stakeholders are the residents that are in our communities. And so, and it's the basis for how we filter opportunities, right? So we're really focused on being in those areas with the top 10% schools. And so that really translates back to the families that live in our communities. They're really focused on the schools as well, right? Otherwise, they wouldn't want to be in these areas because the areas that we buy tend to have very high house values. And so, you know, typically, as an example, the average house value in the areas that we're buying might be $400,000, $500,000. Now, in some parts of the country, that may not be that high, but if you're making $60,000 to $100,000 as a household, you're not going to be able to You buy that house, you can't afford the payment and you can't afford to build up the savings to do the down payment either, typically, or it'll take a very long time. And so we can provide usually a 2 or 3-bedroom, 2-bath, nicely renovated property for $1,200 to $1,500 rents. And that's something that's a third of what they would pay If they were living in a house. And so they want to be able to access those schools. And so we tend to attract those families that really care about their kids' education. They, they tend to stay longer because once they're in that school district, there's no other real option for them so far as moving somewhere else. They might eventually move into a new home in that area, but they want to stay where they are, right? That's kind of the whole thing. And so we really— it ends up creating a sticky tenant base. And it also creates a family culture. And so the types of families that we get, or the types of people we get, tend to be good neighbors with each other. And so I think circling back to your question about, you know, what impact do we have, you know, our goal is to provide clean, safe, and affordable homes for everyday Americans. And I think that's something that goes beyond the financial returns. It really is about creating stability and making sure that we're investing in the middle of America in providing good shelter so that they can educate their children and provide them with the capital. I know we use the word capital as money a lot, but education and learning is way more valuable. They can't take away your brain. They can steal your money. Politics aside, You know, your brain is, and the education that you get is really, really important. And so that capital, you know, can go into that and it can create a better future for all of us if we can provide stability, safety for, you know, working-class families, which in the age of AI may be the only people with jobs left by the time everything is done. So that was just a happy accident. We didn't play, we didn't think, hey, The robots are going to take all of the lawyer jobs. And so we need more, you know, we got to, we got to house the plumbers and nurses. But I think we got lucky in that way that a lot of the tenants that we do have, they operate in industries that are very— I don't know if AI-proof is the right word. We may never— we may— none of us may escape it. But I think they've got a lot more time than maybe some of the rest of us who, like myself, talk or, you know, do analysis Well, yeah, I think that a lot of careers that we don't think are in danger are in danger.

I think that robots are, for one thing, are certainly going to be moving into plumbing and into nursing, but they're always going to need a human brain behind them. So I think you're right about the brain aspect of that. Well, for the high-income professionals that we work with and that tend to be our listeners, the people who are very successful in their careers, but they are in this aspect of exploring real estate investing, what is the one insight about building long-term wealth That took you the longest to understand. So what is that one insight?

Well, I would say that one insight is that as much as we— as much as robots are coming for now, and in my experience as a business owner and entrepreneur, it's the people that drive success. The people at the sites, the people in our property management organization. And we use a system called EOS to run our business. And so they have this concept, right person, right seat. And so, you know, really a lot of the business is about making sure you've got those, the right people doing the jobs. They have the right skills, they have the right, they have the right clarity on what their roles and expectations are. They have really good metrics. see, so they know how they're doing. And those metrics that they're looking at and the measurables they have actually are the ones that drive results. And so I think that's something that we initially underappreciated. And largely we started our business using third-party management, thinking we could think about this business a little bit more like an investment business. And we realized that once we took over those assets and treated this more like an operating business where we happened to raise money from investors in order to buy more property, but at the end of the day, the core business is actually collecting rent, fixing toilets, collect, you know, making units ready, making sure you have inventory to, you know, driving rent growth. making sure you're maximizing and protecting the capital asset. Those activities are actually what drive returns and other things that we can control, right? We can't control, like at the beginning, what cap rates are doing. I can't control if the government's going to change interest rates or drive inflation higher. All I can do is make sure that I have the right people in the right seats, and now we're providing a great product to our, um, our, our clients or our residents through the, you both the hard product of how the property looks and the soft product in our customer experience. So that's, I think, the biggest learning and something that's significantly improved operating results over the last 2 or 3 years in our company from moving from third-party management to vertical integration. Yeah.

Yeah.

Well, thank you for sharing those insights. Well, today's conversation highlights an important principle that often gets lost in the noise of modern investing. And that is that true wealth is not built by constantly chasing the next deal or the highest projected return. It is really built through trust, disciplined underwriting, and operational excellence, and a long-term ownership mindset. So the perspective that Michael shared with us today combines institutional finance, with 4 generations of real estate experience, and it offers a powerful blueprint for investors who want durable wealth rather than short-term wins. And so for our listeners who would like to learn more about Michael's approach and explore future investment opportunities with Carbon Real Estate Investments, you can visit them at www.investwithcarbon.com. And you can sign up for their newsletter. And Michael and his team typically bring 2 to 3 opportunities each year to the market for their investor community. And for those of you listening who are high-achieving professionals who want to stop trading your time for money and begin developing streams of passive income, I invite you to claim your complimentary access to Beyond the Paycheck: The Financial Clarity Compass. And you can access it here at www.go.stetucker.com/beyond-paycheck. Thank you for joining us today on Streams to Impact, where we explore the intersection of purpose, prosperity, and meaningful impact. Until next time, keep building the life and the legacy that you were meant to live. Thank you.

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