Chris Larsen Shares More Investing Tips At Exit Coach Radio

Hi everyone, it's Bill Black, the Exit coach from the Exit Coach Radio show. You know, one of the biggest questions I get on the show is what exactly goes into a business exit plan and when should I start creating mine? Well, I always tell people that the best time to start was five years ago, but the next best time is now because you never know when you might need it. So we put together a free report that describes what an exit plan is and what you should know. You can get it free by texting exit plan with no spaces to 44222. That's exit plan to 44222. Again, text exit plan to 44222. Welcome to the Exit Coach Radio show, the show for baby boomer business owners who are looking for cutting edge information as they plan their three to ten year business succession and exit. Every week we interview top professional advisors for their best tips, strategies and precautions so you can be well planned. And now here's your host, the Exit coach, Bill Black. Well, thanks again for being with us. I appreciate you joining me today. It's always a pleasure when guests come back on so we can continue our conversation. And my next guest is Chris Larson. He's been on with us before. He's a founder and managing partner of Next Level Income. And Chris has been investing in and managing real estate for over 20 years. Get this, while he was a college student, he bought his first rental property at age 21. And from there, Chris expanded into development, private lending, buying distressed debt as well as commercial offices and ultimately syndicating multifamily properties. And he began syndicating deals in 2016 and has been actively involved in over $225 million of real estate acquisitions. So Chris is really passionate about helping investors become financially independent. We asked him to come back and share some more tips and ideas and strategies with us. Welcome back, Chris.

Bill, thanks for having me back on. Always great to talk to you.

Yeah, my pleasure. I think it was very interesting where we talked about a lot of concepts last time about how you believe multifamily real estate is the holy grail of real estate investing and using a concept called infinite banking and what metrics are most important when evaluating investments. So I think it'd be very interesting for our listeners if we go a little deeper on those topics. But first, if you would just share a little bit of a recap on your background and what you do with people that work with you.

Yeah. Thanks for the opportunity, Bill. And if you're listening today and you want to learn a little Bit more. And I don't cover it in depth. You can get a free copy of my book. We'll talk about that here at the end. But yeah, I've been investing since I was actually younger than 21, but that's when I bought my first piece of real estate. And it was a little single family townhouse in Blacksburg, Virginia when I was in college. And I will tell you that real estate is a get rich slow game. I put less than $3,000 down and that investment has turned into several hundred thousands of dollars in equity and several thousands of dollars in cash flow a month. And so that's just what the power of compounding and a good plan can do. You know, after starting that and managing my own portfolio of single family rentals for over a decade, really about 15 years, I ended up specializing, transitioning into commercial real estate, which is what you mentioned, Bill, multifamily specifically. And we also do some other things like self storage, commercial office, and a couple other different areas. But as I talk about my book and I talk about kind of the first segment when I was on, I'm a demographics guy. I spent 18 years in the medical device industry. I went into that industry because of the strong demographics that the baby boomers had for needing surgery. And what I saw going into multifamily almost 10 years ago was the Millennials were renting, they needed places to live. And what's interesting as we enter this decade is that the age group that has eclipsed the millennials in terms of runner growth is actually baby boomers.

So.

So I think if you learn anything today from our conversation, it's follow the demographics and put a good long term plan in place.

Excellent. You know, a lot of our listeners, of course, Chris, are business owners. And I just was talking to a fairly young business owner the other day and he said, I've accumulated some money and I'm going to buy some property. And I said, well, what's your thought? And he said, well, I was thinking about buying, buying an office building for my business because I got to pay rent to somebody. And you know, I've talked to a lot of owners who tell me that are older owners that have said, one of the best things I ever did was bought the building that my business is in because, heck, it's worth as much or more than my business is now. At this point, however, this gentleman was saying, you know, I talked to someone else and they said, you know, you're probably better off going into residential. And I wasn't sure if you if you what your take would be on that, and if that's been colored by the COVID situation where a lot of people are wondering whether workers are going to be using commercial office space as much, what's your take on the office building? If someone just had, you know, saved up some money to invest in real estate and they own a business, should they buy their building or should they, or should they look at a multi family type of real estate project?

Yeah, that's an excellent question. There's a lot in there actually. So we talked previously about using high cash value life insurance for this infinite banking concept that you mentioned to fund these deals. And utilizing that concept, you end up using your own life insurance policy as collateral when you, when you pull money out of those policies. So it's kind of, it's kind of the same thing. What better collateral for a life insurance company than the policy that they own? That's on, on you. Right? So it's, it's kind of similar. I did this. My wife and I both have our own businesses and we bought a property in downtown Asheville, which I can almost see here from my office window of my house. And we did it because we were looking for a place to rent. So I think it's a fantastic idea because as your, as your business owner said, hey, I got a rent from somebody. What better business owner to collect rent from than yourself? It also, if you talk to a proper tax strategist, they're going to tell you you have a lot of options when it comes to owning your building because now you have two different entities that you can move both revenue and expenses through. So it's going to give you potentially some more optimized tax solution. And then the simple answer to your question is do both. I think that if you're a business owner and you own your own property, and we have a lot of investors that do this, they have properties that they own that they have income coming in from, typically from themselves, sometimes from others as well. And then they also invest in passive real estate deals. And when you do that, and I can't really get too deep into it in the short segment today, but it's certainly something. If you want to reach out to me, we can kind of go through, I can put you in touch with some resources, you can end up achieving a higher blended return between the two. They actually complement each other. So an active piece of real estate that you own and a passive deal, properly structured that you invest in combined together can actually have higher total returns, which surprises a lot of people. And again, I'm not an accountant. I'm certainly not your accountant, if you're listening. So you'd have to verify all of this information. But I think it's a fantastic area to explore.

Excellent. So under the guise of, like you said, tax planning, we encourage you to talk to your tax planners and pencil all this stuff out. But the concept of business office real estate, let's talk about that for a second. Where do you think that's what should you stay away from these days in that marketplace?

Yes, I gotta gaze into my crystal ball here. So I'll start off by saying I own commercial office property. I do not think that offices are going away. I think contrary, I think people crave the experience of being together again to collaborating and doing this. But I do think it's going to change. I think people are going to work from home more. I just mentioned that I'm sitting here in my. For standing in my home office instead of my office downtown. So there's a good example of it. But that being said, I think it's all regional. So if you're interested in buying a piece of commercial property, especially an office property, you need to consider where it is. And you have to look again at the demographics. People are moving from high cost, high tax, low business friendly areas like the Northeast to places like the Southeast. They're also moving to the Midwest and lower cost areas and businesses are moving to suburbs in a lot of cases, or Florida is a big beneficiary of a lot of this. So I think you have to be very careful when you look at commercial office today. You have to make sure that you're not putting a blanket statement on it and saying it's all good or it's all bad. And you have to make sure that if you're looking in an area that it's growing a lot quicker than the national average is and it has good long term trends when it comes to that.

Okay, let's switch gears to multifamily because as you mentioned, there are a lot of trends going on with people moving to different areas right now, driving up some prices in some areas. But if I'm in California, and let's say, boy, I really would love to get involved in a project in the Southeast or in maybe even Austin, Texas or somewhere like that. Maybe some. Somewhere that's not quite up to its prime like maybe Austin is yet, how do I start getting involved in those areas? From where I sit, what's the process to get involved? California real estate is very expensive Right now, but I'd love to diversify and get into some other areas. How did you do that?

Yeah, so there's three areas, Bill, that I tell investors they should look out for when they're evaluating a deal. Number one that you mentioned is geography. So the first thing you want to do is decide where you want to invest. And we like to invest in areas that are big cities that are growing faster than national average. So the Southeast is chock full of these cities like Charlotte, Raleigh, Greenville, South Carolina, Orlando, Florida, which is a surprise to a lot of people because it got hit pretty hard last year. But we're actually acquiring a property there right now. We're going to be closing just in a couple weeks on that property. Orlando is one of the top five markets in the country right now for multifamily because companies, hedge funds, even from New York are moving to Florida. And it's really got some outsized growth. Phoenix, Dallas, Houston, Texas. Those markets are all really, really nice markets as well. So once you've decided on a geography that makes sense for you, maybe you start talking to some operators that work in that space. This is a challenge for some people, but you want to talk to operators like ourselves, learn about what projects they have, have they invested in those areas before, and then ask them those questions. Hey, Chris, why are you buying this property in Orlando? What is it that you like about the Orlando market? And then after you're comfortable with the geography and the operator, then start looking at the deal. I know investors, they flip right to the returns and they say, hey, what is this property going to produce? Well, if you have a bad management team or you're in a geography where it's, instead of thriving, it's dying like a lot of the old cities up in the Northeast or, you know, some of these tax, these higher tax states like California, where you're having a lot of exodus of people leaving, it's you're going to be swimming upstream when it comes to that. So again, pick your geography. Find an operator that operates in that geography that you're comfortable with, that can answer your questions and educate you. And then at that point, you can start looking at these deals. And that's exactly what we specialize in. Bill, is working with investors that maybe they don't have the time or they're not in that geography, but they want to own and be a part of an investment there.

Excellent. Now, what impact do you think we're sitting here doing this interview in April on tax day, or what was tax day? April 15, 2021 tax law changes are being talked about daily. What impact do you think that will have on the mig of people from say, high tax states like New York or California to zero state tax kind of states?

Yeah, I think we've, I mean we've seen this happening over the past decade and it's only going to continue. I think the pandemic has accelerated the trend because now, because you don't have. And we've kind of touched on this in previous parts of this conversation. If you're not tied down to an office, then you can live in an area that has a higher quality of life and a lower cost of living. And you're just going to continue to see that accelerate, I think faster and faster.

Yeah. What's interesting is I was just reading about Truckee, California, which is up by Lake Tahoe area out here, and they're saying that a lot of the local residents are now starting to move out of Truckee because so many people migrated there after Covid that they've ruined their quality of life. So things happen, migration patterns, create migration patterns, I guess on top of there. So you talked about the infinite banking concept and establishing a high cash value life insurance policy. Do you recommend that people do that early in life? Obviously you did. And to what extent, how do you go about designing something like that?

Yeah, so I was a licensed life insurance agent back in my early 20s, so I've had some experience with this over the past couple decades. And really the younger you are, the healthier you are, the lower the cost of the insurance. So it's always more beneficial and it's kind of like investing in general. The earlier you start, the better, the more compounds. It's the same within one of these life insurance policies. And a lot of people may be surprised to learn that these policies gain equity. Just like a piece of property that you have a mortgage on, which is pretty cool. So yeah, we actually have a resource on our page. So if you go to nextlevelincome.com, you can get a couple things here to help you out in your process. You can check out our banking page. We have some videos on a white paper that talks specifically about this. You need to work with a specific advisor who knows how to structure these policies. And what I mean by that is, is if you go out and you buy a typical life insurance policy, the agent is going to ask you how much insurance you want and they're going to build your policy around that. What the group that I work with does is we build the policies around how much cash value you want. So the benefit of that is you end up building cash value faster and the cost of the insurance is lower. So if this is, if this is a strategy, if this is something that is a good fit for you, I would recommend talking to a group that's experienced in structuring these policies to help benefit investors or business owners versus like your traditional typical insurance agent that might be down on the corner.

Yeah, I wholeheartedly agree. Life insurance, it's not just one type of product. It's multiple types of products with multiple types of funding strategies. And it's very important to work with someone who's looking out, you know, to achieve your objectives, not their objectives on a policy. So when you're working and helping people looking for the next projects, what are some of the most important metrics that you employ? We talked about this a little bit in our last interview, but I think it would help our listeners to hear that one more time. What metrics are most important when evaluating investments?

Yeah, so let's talk specifically about a piece of commercial real estate. So if you're a business owner, which I know you have a lot of listeners, or most of your listeners are, Bill, the great thing about multifamily, for instance, is that it's valued on net operating income, which is much like a business, right? So you have this net operating income figure. So when we're buying a property, the first thing we go from a high level. Again, we want to be in a geography that's a fast growing market that's growing faster than the rest of the country. So let's say we identify a market like Orlando, Florida, that we like to be in. We then want to target areas that are high income. So if we have a property that we're looking at, we want to say, okay, if these rents are going to be, say, $1,500 a month, we want to make sure that the average income in that area is about three times that per month. So that'd be about $4,500 a month. You know, call it 50 to $60,000 a year at a minimum. And the reason is, you know, if you have renters in the area that are earning $40,000, they probably can't afford a $1,500 a month payment. But if you have renters that are earning, say, 80, 90, $100,000, like in the area that we're buying the property in Orlando, then $1,500 is very reasonable and actually pretty affordable when you consider that. So from a geographic perspective, you want to identify the large geography that's growing in a very fast way. Lots of employers, you want to have high income locally. Then at that point, as you drill down into the property, what we like to look for is inefficiencies in management. So if you're looking at net operating income, you want to look for ways to drop the expenses. So if we can be better operators, we can lower the expenses. And then we also want to look for creative ways that we can actually raise the income. And so one of the things that we've been doing is we've been implementing Internet and becoming the Internet service provider. So we're looking for ways to not only increase the income by improving the property and increasing rents organically, but also look for creative ways that might also include installing washer dryers. So we're looking for ways to increase both the top line as well as decrease the bottom line. That's going to allow us to increase the delta drive the noi higher, which is going to allow us to predictably increase the value of the property over time, which means our investors get higher cash flow and ultimately a higher return.

Excellent tips, ideas and precautions for our listeners again. Once again, Chris, you came through Shining with great examples. I really appreciate it. The website is nextlevelincome.com get in touch with Chris and find out what he's up to, how he might be able to help you understand more about this. And again, I really appreciate you coming on and taking the time to have one additional interview with me and look forward to the next time we get to talk.

Chris. Likewise, Bill. It's always my pleasure. Thanks so much for the opportunity.

Thank you for listening to Exit Coach Radio.

Sam.