Why EVERYONE Should Invest in Apartments with Chad Zdenek

I was working full time. I got two master's degrees while working full time and just doing everything I could to kind of improve myself and, and like, like I was getting like a 3% raise.

Welcome to the Next Level Income show where it's our goal to take your income, your investments and your life to the next level. I'm your host, Chris Larson. If you haven't yet, get a copy of our book for free at our website, Next Level Income.com. that's www.nextlevelincome.com. just click on the book link and I'll even send you a copy if you put your address in. On today's show, we have Chad Zedenik. Chad is the founder and CEO of CSQ Properties. He's a rocket scientist turned entrepreneur turned real estate guru and his career spanned 25 years. But the last seven years, he's built a multifamily and self storage portfolio to over $85 million through syndication and personal investing. Today, Chad's not only going to share his story, but he's also going to share how you can get a free copy of his book, why Entrepreneurs Should Invest in Apartments. Chad, welcome to the show.

Thanks, Chris. Thanks for having me on. Super excited.

Absolutely, man. It was great to see you in person last week. And here we are, virtually. We should have just figured out a way to do it live last week, huh?

Next time, Next, better planning.

Yeah, I'm really excited to have you on because you really bring a really overlapping not only skill set, but experience in being an engineer, being an entrepreneur, being a real estate investor. And we have a lot of listeners that are going to be able to relate to the 1, 2, or maybe even all three of your experiences here on the show today. So as some people heard in the intro, they heard about, you know, your, your engineering background, but I'd love for you to share firsthand, Chad, a little bit about your background and how you ended up where you are today.

Cool. Yeah, yeah, yeah. And we also have the, the MBA and cycling in common too.

So absolutely.

We got a lot to talk about if we get bored with real estate, but I don't think that'll happen.

That's right, man.

So, yeah, so I started out as a engineer, actually working on the space shuttle, main engines of all things. So technically a rocket scientist. Did that for seven years and went into business with my brother. We owned a lighting business. I was also in construction for a bit for a couple years. Construction management. Got my general contractor's license and my professional engineer's license. And then did the lighting business for over 15 years before. Before I sold it, and. And then went in full time as an investor, general partner in real estate, and been doing that ever since. And that was in. In 2018.

Awesome, man. Awesome. Yeah. I always. I always like to say, like, I always felt stupid because I was. I was in engineering school, and here I am in, you know, with these PhD candidates, and we did a very. I did a very theoretical kind of base program, engineering science and mechanics, and then end up working in the medical device industries. I'm in the room with neurosurgeons. And now, you know, you kind of put me in the same spot, Chad. Here I am with a rocket scientist. You know, so I, you know, again, I'm. I. I like to be. I like to be the. The least intelligent person in the room. You know, it always kind of. I feel like it elevates your game. So. Yeah, I guess, first off, tell us about how and why you transitioned, you know, out of, you know, that role, that W2 role into being an entrepreneur. I think a lot of people think, hey, this is, you know, this is sexy. I want to do this. But, you know, there's. There's pluses and minuses to that.

Yeah. Look, and I think. I think it's different for everybody, whatever they're, you know, drawn to. But, like, for me, I've always been an entrepreneur at heart. I've helped found or start six different businesses. But I'll tell you what, when I was working at Boeing on the spatial main engine, like, super, you know, flashy, elaborate, you know, like, I was proud of where I worked and what I was doing. Right. It was amazing. And you briefly mentioned be, you know, work. Be in a room with people than you. That was me. Like, these guys were, like, super smart. You know, I started working there when I was 21. I didn't know anything.

Oh, wow.

Yeah. And these guys have been there for, like, 30 years, just, like, super, super smart people. And. And it was great. And. But the thing was, is, in corporate America, at least where I was at, you know, I was really. I felt like I was really busting my chops. I was working full time. I got two master's degrees while working full time and just doing everything I could to kind of improve myself. And. And like, Like, I was getting, like, a 3% raise, and like, the. The. The total slackers were getting, like, 1% or 2% raise. And I'm like, I'm busting my chops to, you know, do the best I can. And I'm getting 4% and they're getting 1 or 2%. Like it just, it didn't make sense. Right?

Yeah.

So that like, pretty irritating for me and I, for me, I wasn't gonna like slow down how hard I worked. I just wanted to be compensated a little bit better. So went back to my entrepreneurial roots and started a business with my brother and, and we grew that, you know, we grew that from Nothing to about 75 people and three different warehouse locations in LA. It was a good sized business. We were, you know, doing really well and but one thing, like we had always wanted to get into real estate, like maybe on a side business then, but because we'd known so many clients that were really successful in real estate and you always hear about, about the tax advantages and the leverage and stuff like that. Such an advantageous industry to be in. But we just never did it because we were so busy working on the business. Yeah. So then when I finally exited, it gave me the opportunity to finally go after it and, and I almost, I just got kind of tired of myself saying I need to get into real estate, I really should be doing real estate. I got tired of telling myself that story. So I just jumped in, I jumped in with both feet and, and it's been amazing. I, I, I love it and for a lot of the things I'm sure we'll talk about in this, in this podcast, but it's been an amazing journey and super rewarding.

Yeah, that's awesome. When was that first deal that you did? Tell us about the first real estate deal that you did.

So, yeah, so it's a bit unique actually. So my first deal was in 2019 as an active GP, but I did it solo GP, so I did everything from A to Z. It was a 10 unit building in Long Beach. It was like a 2/2 million dollar deal. So it was like a big deal. For my first syndication by myself, I raised 1.2 million. And it was definitely stressful, definitely stressful. Even though like I had, you know, a lot of real type of experience, business experience. But when you start working with other people's money and you know this better than anybody with everything you've done, it's, it's a big, it's a big responsibility. So I probably like overdid it on everything just so I could make sure that I, I left nothing behind. As, and like you and I, we just saw Jesse Itzler. Right. At our conference last weekend and what did he say? He said, make sure you don't Leave anything in the tank, right? In the tank. And if you do that, you won't have any regrets. And that's kind of like how I lived my life. And I know you're the same way with bike racing in common and you don't leave anything in the tank and then you don't have anything to regret. And I could face my investors, good, bad or indifferent, I could face my investors know that I gave it everything I could. Because at the end of the day, these are investments, there are risks. Right. And in today's world, we're starting to see some of those risks pop up more than we've seen in the last several years. So with that I was able to, I did well, you know, got it across the line. We own, own the, the asset today. It cash flows every month and we're doing really well with it. But man, it was, it was a little nerve wracking first time around.

Yeah. So that was your, that's, that's a pretty good sized deal for your first deal. Did you invest in anything else as a passive investor? Did you buy any like, residential properties before that, Chad?

Yeah, yeah, so I did do a bit of that. Gotcha. Passively.

Yeah.

And then, and then I did own properties, investment properties on my own, so. So yeah, I did know some of that. But again, when you're working with other people's money and they move fast, these deals move fast. You know, back in 2019, like, like you had, there's no contingency, right? No appraisal contingency, no financing contingency. Like you basically had 10 days for inspection and that was it and then you're off to the races. And like all my EMD money, that was hard on the deal already. So a little, a little nerve wracking. I was the biggest investor on the deal, which is fine. But I still, still raised 1.2 million and it was, it was very interesting. So I did, I've done like solo general partner deals.

Yeah.

Which I think is pretty rare, especially early on in this space. But I learned a lot, so super grateful. And now I'm, I'm co gping on larger deals. But it's nice to have that background of, of being. I've done everything from A to Z. Yeah.

I think it's important to be able to understand that. And you know, I think, you know, you don't have to go from. I was at a meeting a couple weeks ago and did a, did a talk with a friend of mine and we talked about kind of like the continuum you know, starting with a single family property, maybe moving up to a small multi family property, moving up to like a value add property and then kind of scaling from there. I don't, you don't have to necessarily do that, but I think it is important to, to wrap your hands around the process of, you know, a, like you said, like a 10 year, that's a great size, to get the feeling of all the different aspects, you know, from, you know, the initial due diligence period, raising the capital, you know, implementing what. When was that property built? Was that a value add property you did with that, John?

Yeah, it was a value add. And it was, it was old. It was, yeah, 1930.

Oh, wow.

Yeah, yeah, it was old, but yeah, I mean we fixed it up really nice. We had maybe a half million dollar construction on it.

Yeah.

And we got everything, you know, leased up afterwards and it turned out really well. Going back to that continuum theory that you mentioned earlier, I think, I think part of that is like, like you and I could share this, right? As engineers, like we were very analytical and, and there is this risk mitigation that we do just very naturally in our heads, right. Like we can numbers, we can understand risks, make kind of decisions based on that. And the continuum mentioned or kind of just scaling up over time, like that's good for engineers, right? Because you take this, I get this, okay, now I'm ready to do this and you keep moving. But like not everyone's that, like some people would jump into that. Like I had a lot of experience, so like I felt more comfortable doing, you know, solo gp, my first deal. Yeah, but some people that don't, don't do that. And the risk level is really high. And I think those are, those types of deals, you gotta be careful. Just you have to understand the risk level you have. It may work out fine, but there's probably some, some risk there that you're taking if you, if you don't move along that continuum, as you mentioned.

Yeah. And I think like our first big deal was, or first syndicate, it was 100 units, it was about 9 million dollar deal. And we did partnership with the original group that we were investing with my, my first partner and I. And that was nice because again, like you said, I think it's hard for people. Like risk is not something statistics, it's not something that our human brains naturally grasp. And I think when you're, when you're used to dealing with kind of numbers and you know, not being emotional about things and for me, you know, being in The OR and kind of being forced to kind of push aside emotion and just deal with things on a regular basis as well as being trained as an engineer. Right. We're just constantly looking at numbers and a lot of engineers aren't even good with people. Right. Like, they have a hard time talking to people. So, yeah, it's something that probably comes more naturally to us. But, you know, getting back to that point, I think human beings, we're just not good at evaluating risk, you know, or especially looking at risk to reward. Right. I don't know if you have any additional thoughts on that. No.

But it is hard to wrap your arms around. I think some of that comes from experience, you know, understand risks and, you know, once you go through some cycles and you see some things, then you understand risk a lot better. Like, oh, there's that risk that I didn't really was there initially. So it comes with experience. But what's interesting, and you probably saw this on your first deal. I know you started a bit before me, but, you know, when you co gped on a really large deal, like, it wasn't all on your shoulders. Right. So you knew there's some risk there. Maybe, you know, you really fully understand the risk. But you got a good team together that you probably knew, like, and trusted. And they were an expert in this area. You were an expert in this area. They were someone else an expert over here. And by the time that team is all together, like, you guys had a really good handle on the risks. And I'm familiar with the deals that you're investing in, and you guys do a great job of mitigating that. But it's not all you doing the mitigation, but by the team. And when you look in its entirety, you guys have it pretty well locked up.

Yeah. No, I appreciate you saying that. Yeah, I think it's important to kind of know where, you know, where the holes are. So, I guess, Chad, how has your team grown since that first deal? You know, where. What have you kind of added as you scaled? Because I know we were talking here before the show, and you're going to eclipse 100 million here in. In the near future with your portfolio, which is s a huge, significant milestone. So what. What does your team look like now? How is it different than when you first started?

Yeah, so. So going back to one of those risk factors for me starting up was I had to do a deal that was near me that I could be at, and. And I did a lot of construction and value add on it. So that was Important for me. So I did it like in my backyard. I live in LA and I was doing my syndications in Long beach, you know, hour, hour and a half drive from me. So that was because I could be there, right?

Yeah.

But then with, with all the eviction moratorium stuff going on, which, you know, we're here we are January 2023 and we still have an eviction moratorium here in LA, you know, that to me was an increase in legislative risk. And how do I underwrite to an eviction moratorium? Like you can't, there's no way you can, you can't underwrite it to. Because it's not a, it's not a market thing. Right. It's a, it's a legislative political thing. And so, so to me that was too much risk. So I actually stopped, stopped buying properties in, in California. They also initiated statewide rent control two years ago. And, and again like you just, you can't, you can't let, you can't underwrite to something like that. Underwriting for those listening is like all the numbers, the financial analysts analysis of what you're doing, which includes looking into the future known as a pro forma. So, so anyways, there's a lot of risks there. California was introducing into my deals that I wasn't comfortable with. So, so then what I started doing is like what you do and partnering with people out of state to do larger deals and rely more on a team instead of me doing everything. And right now we're doing deals in Florida, St. Petersburg, Orlando, Jacksonville, a thousand people a day moving to Florida. And it's a great, it's a great investment environment. It's a great growth environment for population growth, job growth and any. So we've been doing that. My first CO GP deal if you in Florida was a $53 million deal, so which now I'm on the asset management team for and kind of navigate, you know, rising interest rates and all this stuff now. So it's, it's a great learning experience on working with a big deal. But there's you know, five other, five other gps that have a lot of experience in their own right. But when we put our minds together and we're doing great things with the asset, so it's pretty exciting. It's totally different than, you know, running a small deal on your own, but very exciting and a lot of, lot of upside to do something like that.

Yeah. So I wrote my book. Oh man, I got to think about right around 2019, I think I wrote the book right before yeah, right before COVID hit this one. Yeah, that one. Awesome. Hey, man. And we're talking about your book here shortly, so stay tuned.

I just read it for a second time. Brush up on things.

Thank you.

Thank you very much.

I appreciate that. And I bring that up because I want to highlight that you really exemplify that value add strategy with the properties that you're buying. Chad. So share a little bit about kind of where your sweet spot is with the properties you're buying. Properties that are typically kind of being repositioned into the B, which is just such a huge need. I was just reading this morning, we're still housing starts, apartment starts. Like, even though there's a lot of supply that's being delivered here in the next year or so, we're still not keeping up with demand. So how. How are you taking advantage of that with your strategy? And what's kind of your sweet spot? How. How you're focusing on targeting and then acquiring and improving these properties?

Yeah, so. So I focus, you add, which basically means we'll buy a distressed asset or something that's a. Either older or just weathered, maybe some deferred maintenance, and, and we fix it up and do what, what we call forced appreciation on the asset. So if, let's say I might be rent out for, you know, 900 bucks a month for a one bed unit that's really kind of beat up, we're able to fix it up and then. And then lease it out for maybe, you know, $1,100 or, or $1,200, something like that, once we improve it. And what's, what's nice is as you kind of methodically go through the building, you never do everything at once. Right. You just, you slowly go through the building for a variety of reasons. But a lot of times what happens is your tenants will like move down the hallway or move to another floor because they want that nicer unit. There's virtually no moving costs. Right. It's super cheap. You already know the tenant, so it's like a win win. And, and they get a much nicer unit than they were getting before. And you know, we're not, we're not taking advantage of people. These are just market rates for a nice unit and people want nice places. So. So from that standpoint, that's the value add. We call it like a C class type building. And after our improvements, interior wise, and also on the exterior, common area type stuff, we can get it to like a B class apartment. And then for what we're doing on Improving the community. We're rewarded for that as investors. So that's kind of like the 10,000 foot level of we're doing from a macroeconomic standpoint. I totally agree with you. I mean it is what it is. Like we're under supplied housing in the U.S. right. And that's happened since the 08 crash when development basically came to a standstill and then really just slowly creeped up and, and it took 10 years to get back to our 40 year average for, for housing builds. Right.

It's amazing. Inventory.

That's a, that's a big lull and it's going to take a long time.

Supply. It's incredible.

Yeah, yeah, it's huge then. And then when you put onto that now you put on supply chain issues, you put on top of that inflation issues, like we're not going to get out of that hole for a long time. And if you combine, if you combine the huge interest rates for single family home purchases, like single family homes unaffordable for a lot of people and those people are now going to be renting a lot more than they would have otherwise. It's, it's, it's, it's a big issue. And so anyway, so I think with, with that inventory issue that we have, it's multifamily, the holy grail as you mentioned in your book. Right.

It's not gonna argue with that.

I did read it twice. Low risk and higher reward for that asset class. And multifamily is continuing to be the holy grail in my opinion. And I know in your opinion of investments right now.

No, I appreciate you saying that. Yeah. And it's, it's, you know, it's one of those trends that it's unfortunate for somebody that might be on the other side. Right. They want to buy a house, they want to do that. But also this is, and you know, as, you know, as I talk about kind of early on in the book or demographics, like if you want to be successful, just follow the tide, follow the rising tide. Follow those areas of opportunity which you guys are doing. I love the markets you're in, Chad. Florida, Texas, the Southeast. You know, we're going to continue to see this migration there. Especially as states like California imply some of these onerous, whether they're taxes or restrictions, you know, it's, it's an unfortunate reality that if you look at, you know, some of these cities and states that imply, I'm sorry, apply rent restrictions, it widens the gap for those that are trying to find a unit. And I Think there's, you know, there's other ways to go about that that, you know, don't kind of hold down those people that are trying to move up. I was talking to Tom Wheelwright at, just about two months ago, we were at a meeting, I pulled him aside afterward and we were talking. I said, hey, like, like what? And for those that, that aren't, aren't familiar, he's one of kind of Robert Kiyosaki's kind of inside, you know, inside circle. And so he, you know, he's dealing with, with not only investors but also politicians at a very high level. I said, hey, how do we solve this? And he said, the only way to solve it is increase supply. Like you just can't, you can't really do it any other way. And it's, you know, so that's what I feel like we need to do. So you're really increasing the supply of these, you know, affordable, you know, or workforce housing product. Chad, which, which I think is fantastic. Real quick because it may have been a while since we kind of touched on this. So if you would, for the audience, you know, tell us, like, what's the difference between what we would call C class, B class and A class, like, how would you define that for the audience?

Yeah, I mean, look, there's a few different factors that would help determine what class it is. And I'll start saying it's very subjective, right? There's no very clear level of what it really is. But in general, you would look at the age asset and the state of the asset and location of the asset. Those are like the three big factors that go into what class be. So C class, you know, would be workforce, maybe lower, lower end workforce. Housing tends to be older buildings, you know, minimal amenities, if any, and some deferred maintenance like that. All those three things would, would put it into a C class. And, and you might think of it, you know, I would say like a D class would be like a slumlord of property. So like we might have in our mind, like what is a slumlord property? Look like that would probably be like a D class property where like you would not, you know, you would not go visit a D class property. You're only there if you really have to be. A C class is, is kind of nice, but it's, it's. There's not, like I said, no, these, it might be a really older building, maybe it's an up and coming area. But the, the main thing is the building's just a bit distressed. A bit tired. So, so, but you can, you can move that C class to a B class which would be like, let's say just say like a much newer building. They're in a less desirable area, but a nice building in a less desirable area. Or maybe it's an older building and it might have like low ceilings or entryways. Like it's just like designed not to today's standards from an aesthetic standpoint. And that could still make it a B class building even though it's fixed up nicer. You know what I'm saying?

Yeah, absolutely.

A class. A class is like what you might see like on brochures, like, wow, like a lot of glass, a lot of high flames, nice finishes, nice gyms, you know, that sort of thing. Storage lockers for like Amazon lockers, like a lot of stuff. Like, wow, I'd really like to live here. So that's kind of the A class. And so that's generally the spectrum. You have C plus, you have B minus, you know, so you can get into some of these nuances. But, but you know, whether you call it a B minus, call it a C plus, like, we can't argue who's right on that. It's just what the feeling is. But generally, you know, like, I like to move from a C class type property to the B class.

Yeah, we, you know, I will, I will disagree with you. I would say we can argue that because I argued really hard with the C plus in college and I got from a C plus to a B minus in my English class. But I mentioned your book, Chad, and I love it, why Entrepreneurs should Invest in Apartments. And this is something that I think, whether you're an entrepreneur, business owner that's listening, or whether you're a salesperson, as I was, I think there's a lot of overlap there. But there's some lessons in your book that I think everyone can wrap their brains around and apply in their lives. So if you would share some of the things you talk about, like why everyone needs, especially entrepreneurs need passive income. Talk about from your experience, you know, what you've seen, what you've lived as an entrepreneur and ultimately now as a real estate syndicator. And you know, what you really learned and what people are going to learn when they see you and read your book.

Sure, yeah. So. So entrepreneurs are my, those are my people, my tribe, my affinity group. I'm actually a 10 year member of the entrepreneurs organization which has been really helpful in supporting me in my entrepreneurial journey. And in a nutshell, and you're right, it can translate a bit to let's say a W2, like you were doing a high end medical sales. A lot of these concepts do translate. I would say in a nutshell, putting too many eggs in one basket, whatever that one income stream is your main income stream. Putting all your eggs in that one basket and it could be like for a W2 person, what if you get fired medical sales, what if you have like a bad year because of the FDA or whatever and like your, your commissions go way down? Yeah, entrepreneur like we, we focus so much on creating and growing our business that that, that's all we focus on and that, that helps give us the success that we have. But it comes at a cost.

Right.

The cost is like that's your only income stream. And as we know, businesses go through cycles and you're so busy running your business, paying everybody else first. Right. Entrepreneurs always pay themselves last, generally speaking. And, and then, you know, whether you sell the business or let's say the business goes through a downturn or something happens, like that was your only income stream. And years prior to that issue where you were making a good enough money that you could have invested in something and created this passive income stream that will just grow and, and grow over time, you could have done that. But a lot of entrepreneurs, they've got their blinders on and they're super successful. What they do that they forget, take care of themselves in other areas or in the future. And so that's what I'm trying to open up people's eyes to.

Yeah, no, I love it. And I think you know what, what you're talking about there is something I've heard over and over again. And this, this is something I've heard from doctors, surgeons, you know what I did, medical device reps that were on call. You're earning such a high income, whether it's from your business or from your profession, but you say, I can't, there's no way I can do this. Another, say 20 years. So you're 45, you've hit your stride, you're doing great in your career, you got kids, you want to go see their games, you want to do things, but you continue to be pulled. And your financial advisor says, hey, you're on a great track, no problem. You're going to be able to retire by the time you're 60, 65, and you're thinking, I can't do this another 20 years. And that's why I say you're not really free unless you have passive income and that's what I love. The message you're talking about, Chad, is how do you create these passive income streams consciously? Early on we talk about using cash value life insurance to kind of build a base as essentially a private pension. And the beautiful thing is it's not either or. You can use that to invest in real estate and get the benefits of both of these things. But yeah, and if you're listening, you're thinking, well, I love what I'm, I'm doing. I'm happy to work till I'm 60 or 65. Yeah, but would you be better at what you do if you didn't have to work? And I think the answer is yes. I don't know. What are your thoughts on that?

Yeah, look, I mean, I generally I'd say yes 100, but even if someone. No, I really don't. I love my job. It's my passion. Blah, blah, blah, things happen. Like you could, you could, you know, health wise, let's say you're out of work for a long period of time, right. And you go on disability or something like that, like it's not going to pay your bills. You're gonna, you could be in a very, very difficult spot. And worse off, you could put your family in a really difficult spot. God forbid something happened. So even if you don't need the money or you know what I mean, you love what you do with the passion. That's great. But you know, and you and I think of this as engineers. It's always good to have a good plan B, right?

Oh, yeah, yeah. And I, yeah, as an engineer, you know, being in the or, it's like you always had to have a backup plan, A, plan B, plan C. And then I'd call it the, the shit hit the fan plan. You know, what are you gonna, what are you gonna do if all your, all your best laid plans, you know, go to waste? Like you gotta have something that's gonna, that's gonna save the day. So Chad, we're gonna have the link here. If you're watching on YouTube or if you're listening in the show, notes on how to get free copy of your book why entrepreneurs should Invest in apartments. What is the best way to, for listeners to get a hold of you, to reach out to learn more about what you're doing, you know, not only with your book, but also what you're doing on the investment aspect.

Sure, yeah. So the best way is just through all social media can be CSQ properties, so Instagram, Facebook, LinkedIn, you can see what we're working on. Also the website CSQ properties.com and yeah, the free ebook on there to download that kind of gives an overview of all this stuff.

Yeah. If you're listening, get a free copy of Chad's book. It's free. I don't know why you would not do that if you haven't got a free copy of our book. You can also get a free copy of our book@nextlevelincome.com just click on the book link. Chad, thank you so much for sharing your story, your experience and your free book with your audience today.

Sounds good. Thanks, Chris.

Thank you. Good to see you, my friend. Hey, Chris, here again. I hope you found this episode valuable. Now I have one more thing to give to you. We have a page for my coaching clients where you can get a free copy of my book as well as much more from previous guests on the show. Just check out nextlevelincome.com coaching to get a free copy of my book, audiobook and much more. I'll send you a copy of my book and cover all the shipping costs as a thank you for listening to the podcast. Also, please like share and take just 90 seconds to give us a rating on Apple Podcasts.