What is next for Multifamily Real Estate with Charlie Farnsworth

Welcome back to The Underwriting Podcast. I'm Christian Osgood, your channel host. Today, joined by Charlie Farnsworth. Super excited to have him on. He has an awesome backstory, started out in flipping homes. He's been through the real estate thing for a while now, into lending. His journey is really exciting. He's going to have a whole bunch of takeaways. He's seen the market when it is good, when it's smoking hot, when it is absolutely in shambles. You've seen a lot, you've done a lot. I'm excited to have you on the podcast. I'm actually really curious about what some of your takes are for where we're going in this current market cycle. So everyone hold onto your seats. This is going to be a great podcast. Charlie, welcome to the pod.

Thank you. It's good to be here.

All right. For those who do not know you yet, give us a little bit of backstory on what your initial starting point was in real estate. Where did you start? How old were you and what was the goal of where you wanted to go?

I think I started, so I, started not knowing what I was going to be doing. I started in college. I was, I was doing some demolition work for a guy who was, who I ended up working very closely with, who was fixing and flipping when it wasn't fashionable. But this is back in college. So maybe around 1989 when I first started demoing things and I was in college, wanted to get my degree, my parents happy. Didn't know where it was going to take me. But while I was in college, started getting really interested in real estate. I saw what other people were doing. I thought, well, hey, I can do that. And bought my first house for sort of tail end of college and was fixing it up. Yeah, got into one, got into two, did all the classic mistakes of overextending, running out of money, what are you going to do? And so yeah, started a long time ago.

The running out of money, I noticed almost everyone does that on their first few projects. The mistake that I, I was guilty of this too. The mistake I see a lot of people make is you buy enough to, or you raise enough to close the deal, or you raise the exact budget you need. There's no overage. Like on a flip, you're like, hey, this is our budget. We're going to raise just to that, or I'm going to bring just that into the deal. Or on buy and holds, I see people come in, hey, I'm going to raise the cost to close. We're going to renovate out of cash flow, which is a great way to say, hey, I'm going to take a 3-month project and make it a 3.5-year project. And I've seen that done 100 times. That's a mistake that a lot of people make. But you made it through. How long did you do the house flipping piece of the real estate?

I mean, I don't flip so much anymore. I'll build some new houses a couple times a year. Largely helps me stay abreast with what's going on in the market and what my clients have to go through, where the cost of construction is going so I can underwrite a little bit better. But I can't put a number on how many I've done over the many years. I wish I held on to all of them. Yeah. But you know, when you're starting, you just need cash flow, right? So I'm I remember my first deal I got, I didn't even know what a mortgage was. I picked up from a wholesaler. And then I thought, well, another deal came up. I figured I could do that one too. Being young, hubris is a dangerous thing. You think you figure it all out. And so those are the big lessons you learn when you're young. You don't know everything. And, you know, standard real estate statement is, you know, it takes twice as long, costs twice as much. So, you know, always, always be safe. And I think it's like poker. I always tell people, right, you're all in. Right? So you mess up, it's hard to start the game again. So it's careful. Be careful.

That, that is the one of the best pieces of advice anyone can ever receive too, is you do not want to— it's hard to build a business. You don't want to build it twice. There's so many people online that are like, oh yeah, no, I did this and I got wiped out and then I'm rebuilding now. And it's just like, it's much easier.

I think emotionally it beats— you make a big mistake like that, fall down. Some people get up fast, some people don't, some people never get back up.

You know, so, but if you can eliminate the amount of falling down that you do, it is very helpful. There's many times where I'll look back, I haven't been wiped out before, but there's many times I look back, I'm like, oh man, if we knew what we knew today and we applied it back then, what would we do? We'd be so much farther.

That's constant.

Yeah. I started at 29, so I was later in life really investing. And I have people who I've like, I have people in my mentorship group who joined at 18 And here they are with hundreds of rentals and living like a tower in downtown Dallas. I'm like, I could have done that.

Didn't do it in 2008. If I was better positioned to, oh yeah, it would've been very different. But I got wiped out 2008. I had a mortgage company and a couple branches, had 50 people, and one day everything was going great. The next day the spigot just shut off. And so it was a matter of bailing out., fending off lawsuits. Everybody, banks are suing everybody for no good reason. Mm-hmm. So it's tough. Don't wanna make big mistakes if you can avoid it.

Yeah. And, and for, and for context, so that was your starting point. Where are you today and what are you doing today?

Yeah. So what it look like when you deal for, yeah, I'm sorry.

I said, yeah, just tell us, tell us about your portfolio, your business.

Yeah.

Wanna hear about what, where did this all end up?

So, you know, I've been doing this a long time. And over the past 15 years, fix and flips have become a big market. When I was doing it, we were getting much higher returns for lending the money. There weren't— there was nobody playing in the space. Wall Street certainly wasn't here. Subprime blew up, everybody ran away. All you could get was conventional, super clean, super difficult money. But as you've seen it over the past 15 years just evolve quickly, it became evident to me that I needed to adjust the way I looked at credit. Started— I didn't realize that I was operating in a space where there's not a lot of competition. There was like 2 guys in our town that were doing it and I'd, I'd talk to somebody, said, well, this other guy's going to do this deal for me. I'm like, I kept hearing about this other guy. And so I went to go meet him. We became friends. But it seems like small balance real estate funds then sort of hit the radar. They got wiped out in 2008 too, because banks pulled their lines of credit and they started reappearing again. And then you start seeing ancillary businesses build up around, we'll build a fund for you. Teaching people how to get funds, lending the money. Then Wall Street shows up saying, we'll provide lines of credit for everybody if you sell those deals to us. But what I quickly started seeing was a commoditization of a business that was very artisanal to begin with, right? You know, everybody starts on writing the same. Wall Street's now saying what we'll buy, so everything on the street looks the same. And so it was at that point where the family that I'm working for, what I appreciate is we don't, we're not investor-based. It's the family's funds. The Cordless family is a development family. They started in sand and gravel business. Fifth generation, ended up getting out of it about 2 or 3 years ago. Have large developments now and, and asked me to come on board to the lending side. And what I enjoy is that we don't have investors, we don't have banks. It's, it's the family's money, which allows us to literally look for credit gaps in lending opportunities where I don't need to compete. There's just a need, right? So if you can lend to a need, you don't have to compete. For example, when when interest rates went up. You know, there was a fairly mature private credit structure out there. There were vertical money, there was land money, there was quite a bit of money in all over the places. But when rates went up, most people in most funds that were levered or had investors were called and said, you need to mix up your portfolio mix and we don't want you doing any more land, right? So all of a sudden this big wave of money went to like vertical construction, but then there's no money down here. Saw an opportunity to play in that space and feed all this vertical money, right? So I made relationships with other lenders who, who literally wanted to lend to the vertical lots when they're ready. And so we started filling that gap. Now that gap's starting to fill up again. Single family money is now starting to move to new construction money, you know, so it's the lending landscape is fascinating. And, you know, I got back into real estate when I was in private wealth management for 10 years. It just fast and furious changing business. I got back in real estate because it was slow and, you know, it was the same, but it's not, it's fascinating. It's changing so fast. The speed of acceleration in every business now is so fast. It's amazing. It's fun to be in it.

Yeah. What are you excited about right now? You've had the privilege here of like, hey, we get to look for gaps in the market. I get to have you, you get to be more creative with the deployment of capital than a lot of investors have the opportunity to be creative with. For you, what do you find the most exciting right now?

Looking for the opportunities. It goes back to your, my roots, right? Looking for the deal, looking for the great place to be, not where everybody else is. So, you know, I still do single-family stuff with some clients, but I won't, I won't meet what the other guys will do. Like I don't go as high loan values. I won't go as high as loan costs. Because I've been, I've seen what happens in a black swan event. I've seen what can happen, right? And a lot of the new money that has showed up over here, some of it's new or hasn't been through 2008 before, right? So the exciting things I see right now are, we're, you know, we, I saw an opportunity in bridge loans when I saw banks pulling back, big private institutional money coming in, regional banks sort of pulling back when rates went low, when rates got, when rates went up. There seemed to be an opportunity for properties that weren't, that were coming out of construction that weren't, they needed pre-stabilization time because banks were lying. There wasn't money there. You know, you finished the project, now you gotta stabilize it. And construction lenders not interested in it go any further. Project probably took longer because COVID or for a host of other reasons. Could also be just rates went up. So it's an opportunity to sort of chase that. We generally do short-term, what I call opportunistic money. You know, we don't do long-term stuff. We don't sell our loans. So we hold onto everything. Which means we have a different look at it. You know, and so yeah, we're facing, we're chasing a lot of bridge stuff, commercial deals, larger deals, deals where there's a gap between like $5 and $15 million. There's a bit of a gap. You get to $20, $25, then the bigger guys come in and $5 million and below, you know, a lot of those guys can't go above $5 million. So there's the regional banks are filling that. Slot. But they do seem to be coming back now. I'm seeing more of them show up. So I'm again looking for where the next opportunity might lie. But there's a lot of business out there, you know, and being that we are smaller, call it a fund, we don't seem to have a problem staying full, which is kind of what we like. You know, we're not a volume-based, we got to do a lot of, we have to do volume, we have all this money we got to put out. We're governed by different objectives, which is principal protection for the family.

Yeah. Oh, that's awesome. That's awesome. And when choosing projects, like what projects have you guys been doing the most of in the last, let's say in the last 3 years? Where do you see a majority of the projects that have gone well? Interesting. Really? Just tell us a little bit about like what has been active for you recently.

Yeah, so we've done single-family bridge loans. Plat's almost finished, they're going to sell it. You know, we had one that was 66 lots that's now going to be taken to market or they're going to try to develop it, but they needed some hold time money there. We've done vertical construction on plats where we provide like a line of credit to them to a certain extent where they, where they'll use the money to buy the lots and then they have a certain amount that they can then rotate to build. But that caps out at around 10 to 15 homes because we don't want them to overbuild. We want to be sure they absorb properly. So we construct deals like that. We've done single construction loans, just, you know, single family home for spec builders who on infill lots still do, still do fix and flips every once in a while. But you know, that market's pretty difficult now.

Mm-hmm.

Crowded space type market. Yeah. Again, doing more commercial stuff now, moving more into, I would say more commercial stuff.

Nice. Nice. And commercial's where I see it personally. That's where I see a lot of the opportunity in the next few years is, is commercial development, especially for the type of stuff that you like to, what I've seen a lot of recently, especially 'cause I invest in Texas and in Central Washington. Sure. Is commercial infill and commercial redevelopment has had some amazing opportunities. One of my favorite personal opportunities is I'm in downtown Ephrata, Washington, and if no one's heard of that, that's what I would expect. It's a little town just north of Moses Lake, which also a lot of people haven't heard of.

Oh yeah, I know exactly where that is.

Yeah. So it's a good, it's a good be— if you go to Moses Lake, which is right off I-90, if you drop a pin like the middle of Washington State, that's about where it is. And you go up about 20 minutes, you're in Ephrata, and there's this beat up retail building with multifamily on top, right across from City Hall. And I happen to own the 5-plex with the right above the barbershop, right downtown across from the bookstore. Nice. And the guy with the hotel next door goes, hey, I'd also sell the hotel, which has ground floor retail. And I'm looking at these things and they're all beat up. They're all way underutilized and they're in an excellent location in a market that has stable population growth and multiple jobs. It's the capital of Grant County is Ephrata. So you have the government jobs, you have the agriculture, and it's where Microsoft decided to build its massive data centers, which don't provide a lot of jobs, but a multibillion-dollar data center in a small town does actually bring in some employment.

Yeah, it doesn't take much.

Yeah. And the jobs that do come in there are higher paid. So you have a lot of development that comes in. You have a lot of infrastructure, you have agriculture. So you have this diverse little town. It's the projects on the 9-plex downtown or the 25-unit, revitalizing a hotel or converting them into multifamily. There's amazing, I mean, it's not ground up infill, but it's these, it's basically infill.

It's saying like, yeah, they're like value add opportunities, right?

And they're all over the place right now. There's a lot of underutilized real estate in markets all over the country for mid-size stuff.

Yeah, that, you know, I think there's a good, you know, so I, that's where I started my career, right? Which is in the stuff that nobody really, really wants or can see the opportunity, which is more, you know, there is a gap in that space for a lender that will fill those types of opportunities. Mm-hmm. Right. We, as a fiduciary to the family, I have to prescribe to the idea that I may have to take any of these things back if I have to. Mm-hmm. And so the question then becomes, do we want to take back.

Yep. And that has to do too with investor profile, how you want to manage it. It has all sorts of infrastructure.

And so, you know, the family is pretty strong and, you know, we're, we're building 100-unit multifamily where, you know, we have storage complex, we have all these larger things, right? And so there's always this. So the hard part in what I do is we, you won't, if something were to go terribly wrong, we want to be sure we're okay if we have to own it, because that's what could very well happen. Yep. Whether it be land, we gotta develop it, or whether it's something we gotta take back and how does that fit into our existing structure? Right. And then there's deals that fall into this category, like you're talking about, you know, I'm not sure we want to own 'em, but likelihood of us owning is very low. That's if it went to foreclosure, it's gonna sell. It's a great opportunity, but it does add a layer of risk because if you don't mind owning it, then there's no, it's, there's almost no risk.

And that's the thing with lending is if you're not gonna get out of it, the person who is best able to take it back has a a better leverage point of— it's like, okay, well, our downside is now covered by the ability to operate this asset in the event of ultimate failure.

And so that investor class is one of them. That kind of money to those types of deals is weird animal, right? Because generally it's a fund, you know, you got a handful of guys who know and believe what you're doing. You're going to chase asset class. You got to put a bunch of people together because maybe it's a $2 million deal or $2.5 million with a $750,000 rehab or something. Doesn't quite fit in what we do. It's a good deal. It's likely going to do well. But if I had to choose between that or a deal that I really don't mind owning, I sleep much better at night in that deal because if something goes wrong, I don't have to worry about how I'm going to dispose of the asset or what's going to be ultimately— what's going to happen.

And that's a lesson in operating infrastructure. There's deals like— I'm based, so I live in Dallas. I used to be in Seattle. And so, okay, for me, I owned a property management company that's based in Grant County, Washington. So my risk profile is amazingly different buying a 100-unit and a 9-unit. I'm okay taking back either of those if I was to lend on those, right? Because I owned the property management company. In Texas, like our current acquisition, we're raising, we're actually, we just finished our raise. It's in Abilene, Texas. It's 144 units. It's right next to, funny, I don't know why data centers, it's not intentional thing, but right next to Project Stargate, which is a $500 billion development. Sure. We're on the same street. We're like 5 blocks down. Again, they don't add a lot of jobs, but the construction of them adds a crazy amount of jobs, which is absolutely— if you're right in the front end of a project that's 875 acres of real estate, that's crazy. I know.

It's—

to be a nerd for a second, they're finally using modular nuclear reactors to power this thing, which is awesome technology that we've had a stigma around for far too long. And I'm, but when you're, when you have that proximity, my risk profile, I'm like, wow, do I, if so, so I'll put myself in the shoes of the lender. Do I mind? I got a little bit out there, but you're talking like 180,000-person MSA, 3 colleges, military base, tech, medical. How do I feel about taking back 144 units? At a great leverage point. I'm willing to go farther out of my box for that because I'm going to, what am I going to do if with a default? I need to make sure that I establish strong onsite management. It has an office there, easy to operate.

Yeah. Does that mean units you can have onsite management, right?

Yeah, exactly. It all depends on the systems that you want to build for your business. If you have a PM, you can take on smaller stuff and you can do this. If you're a larger family office, you're like, hey, I'm going to be looking at things that are larger and easier to run remotely.

Yeah. Because we also, you know, we'll hire third party because we don't, we don't, we haven't taken that on. I've worked with families who have in the past. One of my, in my private banking days was a family that had thousands of multifamily units. They had hundreds of employees just managing that. And then one day they're like, we're just going to go into warehouse, you know, Midwest large warehouse clip coupons, get— not have all these people and all these problems. It's just, again, yeah, it depends where you want to go. And that's what's fascinating about real estate. There's so many facets when you're in it at a certain level and you see there's so many facets and a lot of people just think of it as bricks and sticks. And but it's, it's, it's fascinating.

No, it was the same reason that a deal for me might not look like a deal for you and vice versa, is that the pieces that you have in your business dictate what is a good deal. Some people can make a ton of money on a deal that I would have no capacity to make money on. The price that will work for you will be different than me because you're holding a different deck of cards. And I think that is a lesson for all investors. You should know what your pieces are and where you have competitive advantage 'cause that is where you're going to really get the highest yield and the least amount of risk.

I think that's good advice and a lot of people don't really understand that 'cause unless you understand the miner and all these little intricacies, it's hard to understand. You don't really know what your dashboard looks like, right? It's hard to make some of those decisions.

Yeah. As someone who's starting in the business, so let's go on the borrower side. So we'll say, you know, I'd say this podcast, we're probably like 80% are investors and we have a whole bunch of other people in there. But if you were on the starting side of building your business and you're looking for projects that you're going to attract capital to, what things would you recommend that they focus on first? So let's set the stage. I'm an investor. I've done like one single-family property. I'm trying to figure out how I want to build my business. I'm interested in getting into commercial. What things am I looking to do and what projects do I think that I'm going to be able to attract capital to?

That's a big question because I see deals all across the board, right? I have a client who's pretty well experienced who's trying to raise close to $70 million, right? And that's tough, right? You have to have a resume for that.

So what steps would you take? I'll make the question even simpler. What steps would you take to start building that resume to become the person who you want to lend $70 million to?

Have you done a bunch of them? So like, how do you get to that point? Right? I think I find the people that have a tendency to grow the fastest are the ones who will have the ability to establish investor— like they've been able to establish a relationship with some oddball investor who's been in real estate. He's kind of retired, got a pile money, has a specialty of some sort. You've plugged into that specialty. He trusts that you see, you guys see the same things and you're out doing things that he doesn't want to do anymore. Right? And so one, you bring a deal and you don't have to like sell it. They'll look at it. Yeah, let's do it. Right? 50/50. Let's do the deal. Right? And some of them 50/50. Well, 50/50, if you don't put up any money and you bring the deal, that's not a bad deal, especially if it's a great deal, especially if they're willing to get into finance to get into some sort of longer-term financing. Right? Which there's stuff out there right now to go do that. There wasn't a lot of that before, so that was part of the problem. What am I going to do? Go to a bank? Bank's going to tell you to take a hike, right? But there's now capital in those spaces. It might be a little costly, but once you season it, it gets cheaper. And so you slowly build that. So how do you get to that? And that requires you to build a certain amount of knowledge to get to that or an odd unique relationship. I mean, I think people undervalue Relationships and networks. You don't ever know who you meet, what's going to happen, what's going to come out of it, right? I always tell people, you know, give everybody the benefit of the doubt, pay it forward, be kind, be helpful, even if you're not getting paid for it. If you love what you do, it shows. And that's kind of what got me here today with Quartermaster. I knew one of the brothers for 15 years. We never did any business. We became friends. We were talking about a deal and over— we became friends. And next thing you know, The opportunity presented itself and here I am today. I would never have thought that would happen in a small town where I'm at. I got out of wealth management to kind of get away from that and yeah, and then full circle coming back there again. Right. So, you know, I think developing those investor relationships are critical. People always think it's, I want to go get a good deal. Well, when you have investors and they believe in you and they trust in you, you could do all sorts of things with that. You could lend their money, you can use their money in deals, you can bring them into the deals. They might have the strength you need to get the longer-term financing. You do a couple, does well. What I find investors are, you treat them well, you act as a good fiduciary, they don't want to go anywhere else, so they'll keep staying with you. And they'll, as they see it grow and they grow, they'll take more risks with you. If you can find somebody who already knows that, then you don't have to sell any of that. And they'll, and then they'll, then it's, do they believe in you? Do they believe you're a person of integrity, of good character? Do you say you're going to do what you're going to do? I mean, I grew up, my dad raised me. The only thing he said is you're only as good as what your word That's it. And if you, if you can't— and I've worked in places where I wasn't able to carry that integrity forward, I didn't like it, you know. And so if you're out there on your own, you know, establish those relationships with investors, try to find one, keep looking, always be hopeful because something will present itself. You know, if you groom enough doors out there, you can't control which ones are going to swing open. But the more you have laid out properly, the more likely one will. And then when it does, that one generally opens up to more doors. And you also find in that investor class, as you work with more investors, they know more investors, right? And so I think there's two parts that I think of the deal that, that are helpful. And especially if you want to accelerate, if you want to always borrow and you got a couple bucks, you can do it that way. But I know that's, that's what I see most. And it's largely because those guys who had investors, who found interesting deals, who kept pushing and who are very careful and good fiduciaries, it's the tip, it's the standard like rule of thumb for real estate, right? Always hit for singles because then you're a performer, right? But every once in a while, if you're positioned at the right place, the right people, right deal, you can hit a home run. And that home run, if it's in the right thing, could make you a million bucks, right?, and a million bucks could propel you quite a bit further in the things that you are trying to accomplish.

And so, okay, so if I'm going to summarize the path here, it really starts with making, building, and maintaining relationships. I mean, that's the, by the way, you may notice it's called the Owner Meeting Podcast by Multifamily Strategy. Meet the other people who've done the thing you want to do. That is the core thesis that we have is that you can learn anything by working with the people who've already built the business. There is nothing in real in real estate that has not been done for the most part. It's people having buildings and owning them has been around for a while.

Yeah.

People need housing. People need buildings. People need offices. People need re— all the things in real estate are things that have been established. So you don't have to reinvent the wheel on any of this. You need to be around the people who have already been successful building the business that you want to build. And good people.

And you will find that's hard to do when they have a motive. Yeah, when you have motivation because you need members or you need something, sometimes you overlook certain things. And my experience is if you connect with the wrong people, it attracts other wrong people. It attracts problems. Doesn't take many problems in real estate to set you way back, right?

So, and if you do, if you do one good successful deal, even remotely publicly, and you start talking about it, the right and wrong people will start finding you when there is money made in real estate. And you're like, oh, who are these people to stay away from? They will find you shortly after you start making money.

Yeah. And that's hard to know when you're young. That's what I mean. That's part you don't, it's hard to understand.

Yeah. And honestly, what's probably going to happen is you're probably going to, if you're listening to this podcast, you're probably going to get into a deal and you'll you'll partner with someone and go like, wait a second. I remember once it happened, you'll be like, I remember this being mentioned that these people are out here. It happens to almost everyone. I've certainly had plenty of people I partnered with someone briefly on a PM company that a completely wrong person came in on their private jet and was like, hey, I want to fund this thing with you. Didn't make a whole lot of sense then. Makes sense now why it didn't make sense. There are some weird wacky people out there who will do a lot of damage.

Yeah, you know, I remember when, um, 2008 happened and, you know, before— everybody's making money easily. And so I'd have different types of people coming in who need to rebuild, right? And there's a guy who's like, I want to get going, I mean millions of dollars. And I'd be like, I don't want to work with you because I'm going to be working for you, right? And, um, yeah, you just— it's— and it's a marriage. I have, I have guys that I've worked with out of 2000 where we all crawled out of a hole together. And now we are today successful again, fortunately. But those are guys I can hand $100 grand to on a handshake. And, you know, the level of trust is so high. It's fun to work with. It's fun to have that sense of safety and to have achieved that, you know.

Oh, I absolutely agree with that. Well, this is a great transition actually to our, my favorite question of all time. The stupid tax. Now traditionally, the dumbest you're ever going to be is at the beginning before you have all this experience. So through all that you've seen, and you've been through all of it, right? You've seen, you've seen 2008.

You've seen, I've seen it.

Fortunate enough.

Yeah. Yeah.

You saw 2020, 2021, which was, if nothing else, an interesting time in real estate. There's a lot of takeaways from how the markets reacted to that. I thought less predictably than I would've thought actually to 2020, 2020, or I guess 2019, 2020. Anyway. Yeah. What was the highest stupid tax that you paid along the way through all the years of building the business and being in real estate? This could be monetary, it could be social, it could be, hey, we burned a friendship or had a wrong partnership. But what was the lesson that you learned that someone else can save themselves a ton of time, money, or pain on?

Hubris. When you think you know it and you think you know it all, That's when you need to check yourself at the door. Mm. And black swan events do happen. So how do you do business with that mindset? Right? You just, you're just cautious back to swing, you know, go for singles, have many outs in every hand. What do you end up doing is you end up putting more on the table, putting more on the table, having less outs looking. And that's what I feel is kind of going on in in lending right now, which are great for investors because you can get a lot, you can get money, right? And high loan-to-values and high loan-to-costs. But just because a lender is willing to lend you the money doesn't mean it's a good deal. So yeah, handful of things, but it's hubris thinking, you know, what's going on, thinking your deal is great, thinking everything's awesome. Think you just, you always have to, you always have to look over your shoulder. It's different if you could make little mistakes all along, but in real estate, often you can't. Yeah. You can't make mistakes.

I find the most successful people in business more often than not tend to be optimists. But when you take that optimism and pair that with hubris of like, oh, I feel like this is going to go great, it's all going to be great. It will not all always work. You will not get perfect dice rolls. And if you make mistakes, you're going to compound them. But there, sometimes in real estate you can play a near perfect game. And like you said, black swan events happen. Something can still happen.

Like, well, like regular— I think the problem is you could do— if you're fresh into a market and you've never seen it and everything has gone up, you drop a dollar and you pick up $10, and you think it's going to happen.

That, that's not always going to happen. No, no, not at all. And that won't happen in— there is no asset class or business that that happens in.

There is no business where you— part of having a partnership, people— yeah, part of having a business and people is on your advisory group. You do need— developers are, and real estate people are eternally— you have to be, right? It's not a small undertaking, but it's good to attach yourself to a keel. Have somebody you know that's your wet blanket that you talk to and like, oh no, and because they can help you. Yeah, especially if you respect what they have to say. And that's sometimes why it's good to have a partner. If you have a partner that's a little bit wet, who's seasoned, understands, a little bit wet blanket, You know, and your willingness to acknowledge that and that that is your role together. You know, I think that's, that's helpful.

Yeah, I think, I think having partners or at the very least having mentors, I mean, finding someone and it could be someone, it could, it doesn't have to be paid at all. But I mean, there, there are great paid mentors. There are great free mentors there. And I've noticed that the mentor that you will find will change in whatever season that you're in as you scale, that will change. And the more you do, the more interesting people that you end up finding in your group. As I went through, I reference them on my channel all the time, but like an investor who I really appreciate, he has a smaller portfolio than me, but unbelievably more experience. The guy named Matthew Hawkins out of New Hampshire of all places. So it's like, invest way far away from me, but the way that he built his company, it runs at a lower cost and more efficiencies than the way that I built my business originally. And so when I get stuck, like, You access more and more people as you go.

And so there must be something though there that's beyond that, right? Like some sort of affinity, like, you know what I mean? We connect to people, we connect, they can know a lot of things, but the way you communicate, you know, I don't know if that's an intuitive thing over time after you deal with enough people. It's one of those things it's hard to measure, right? Yeah.

But when you have the right person, it's usually, I've noticed it's usually someone who's like, yeah, I appreciate what they've done. Like, like first it starts there, right? You've built something that I don't know how to build, or you have more experience. And it becomes like, also we tend to agree on ideologies and we have like, it's usually someone who you have an actual deep personal connection with where you're like, hey, you usually want to emulate more than just their business. Your real mentor's like, hey, I want to behave and act like them in business and around other people. Those tend to be the people you really want.

You share the same values, right? So you're value-driven. Because if you're not value-driven, you make decisions from different places, right?

So yeah. Oh, and you had mentioned earlier having the right board of advisors. It's putting together the right people. Who see your blind spots, build a team, and that's where you end up getting a business that really is much, much, much more resistant to things like black swan events or other things where if you can see more things and you move with caution in the right areas, you hit that ultimate goal that we mentioned at the beginning of the podcast, which is not having to build the business twice.

Yeah. Not making, yeah, avoiding mistakes.

I would rather be a quarter of the size that I could be but never have had to restart. Uh, and if that's you, you should follow the instructions.

No, I mean, I, it's funny because I can, I'm very blessed and fortunate to be where I am today because it's, I can, I can, it then, it then allows me to tolerate all the things that I went through to get here. Right. Yeah. I might be saying something different if I wasn't in a good place today, but everything that I've been through has gotten me to where I am.

Yeah. Now I did an interview recently with someone who had the opposite advice, which was crazy to me, but his name's Andrew Cartwright. He's a larger developer in Las Vegas. And I was talking to him and I'm at his house that has like bumper boats in his pool. I mean, just this massive, unbelievably wealthy individual. And when I asked him like, how'd you get here? He's like, oh, infinite risk tolerance. He's like, I've been out 4 times. I've rebuilt from scratch. I'm like, I'm not, I'm happy with the Toyota Tundra has been my dream car and I have my dream Toyota Tundra. I'm a happy guy. But he has the Paganis and the Lamborghinis and the Ferraris all in his podcast studio. And it's like, I'm like, you know what? I would take the, I would definitely trade the lack of stress that it took of being out 4 times in business for him to get there. I'm like, personally, I'd rather have 1/100th of his wealth, which is still a lot of money. He's a very wealthy guy.

Yeah.

No, but that's a good point, right?

Rebuild 4 times, knowing yourself, right? What you're good at, what— and to put yourself— yeah, because— and that's the other thing, you know, people look at other people and I want to be like that, but you don't really know how they got there, or— yeah, that's how they're really going to get to know. Sometimes you don't really ever going to know the story.

Yeah, yeah, you got to know who you are. Yeah. And if it means going slower, my vote is go slower. That's, you do not need to speed through everything. It doesn't take that long really to make money in real estate.

But I had to learn that. Yeah. When I was, I was like, let's go, you know, I'm going to take on everything.

And yeah, I share this probably too often on the podcast, but like early on first year real estate, I'd done a few seller finance transactions and someone was like, yeah, you should buy this $4.5 million resort seller finance. That when your portfolio, when you already, when you own like $5 million of real estate and you do a whole thing that you have no idea, no idea what it looks like to run a resort. And 50% of your assets are now a resort.

Oh yeah.

You have no idea how to run. That was brutally hard to figure out and recover. That was, that set me back 3 years. Yeah. Making one decision of, oh, let's go and let's build faster. Had I not done that and just slowly kept buying rental properties, I would've had this hyper-stable, basic boring business that made 3 times the money. Doesn't take that long. A little bit of patience goes a long way. This is not a 40 years to retire sort of business. You can build crazy wealth in 5 years, but you don't need to make it all happen in year 1 or 2. You just don't. And you don't need to say yes to every opportunity, which I get again.

But again, like you said, that's dependent on everybody's drive, right?

What they want. Yeah, that's true.

I guess if you want to make like $6 billion and you're starting with zero, you probably need to say yes to everything and hope it goes well.

Yeah, exactly. But if you don't want to roll those dice, you can do— that's not my personality. Yeah, no, no, I'm saying, and it would, and you would be in the wrong field if you were. As a lender, you need to be very discerning on, you know, how do I think this is going to perform? What are our ultimate downsides? You know, you're protecting wealth that has already been created. It's different.

That is a different job. It's preservation of capital. We get good returns, but number one rule, Don't lose your fishing bait or your fishing rod. That's— we don't put those at risk ever. Yes.

This is actually really helpful for all capital raisers. What is more important, making money or not losing money?

Me? Yeah.

Not losing money.

Amen.

When you're pitching for capital, I— this drives me nuts when people start their pitch on like, hey, look at— let's start with the numbers. Look at the returns. I'm like, No one, the fact that the deal makes money is awesome and necessary.

And that's an assumption, right?

And it's my least interesting piece of the, I'm like, tell me 3 things. If you want, you guys, if you guys want to raise millions of dollars, this is, this is the key. Number 1, before you get into numbers, tell me what the heck we're doing. This is what we're buying. This is why we're buying it. And this is what I think the hurdles are going to be and how we're going to solve them at that point. I already know like internally, now I'm hoping, like hope the numbers on these are good because this is exciting. Yeah, I'm excited now. I'm bought in, right? I want it to work. Most important thing, that's 90% of capital raising. Tell me why you are excited about the deal and what you think is going to go wrong. Number 2, tell me how you're going to protect the capital. Why is my money safe here? If you can get me excited about a project and convince me that I'm not going to lose money, Almost definitely, I'm your investor. Yeah. 'Cause most people have achieved wealth. Lastly, why do we expect to grow money? And of course you need to have that, but that's like the last 5%. That's the icing on the cake that gets you to yes. Newer investors think it's about finding—

Well, the interesting thing, new investors are trying to make the money, right? Yeah. So there's a relationship's misaligned. So you have to cater to your audience, right? If you're really trying to make money, they already got money, they just don't want to lose it. So yeah, you're speaking to a different audience. Yes.

And remember that their objectives are not your objectives. You are trying to make money. You do not need to communicate that you need to make money. That is assumed, right?

Go through your presentation.

But this is true for everyone who has built wealth. It is critically important to not start over. We do not want to lose money. I love that analogy. We don't want to lose the bait. We don't want to lose the rod. No, I'm okay cutting a little bit of bait, but I'm also in the middle of my growth phase. My risk tolerance is I'll lose the bait, don't take my rod.

You have more to lose. When you have something to lose, your approach is different. When you're starting, you got nothing to lose and everything to gain is very different.

Yeah.

Yes.

But know who your audience is. And every time that you're pitching for capital, 90% of your focus is why is this a safe investment? Not why is this a high growth? You're not trying to promise them a 3x return. You're trying to promise them with a minimal amount of investment, This will be an exciting project that makes sense in your portfolio and is a responsible use of your capital. That is what you're trying to present.

Yeah. Because the multiple over time, their money will double, right? They're not living off that money, so they just want it parked somewhere where they can look back in 7 years and it's doubled. Yeah.

Charlie, if someone was trying to get a hold of you, had follow-up questions on the podcast, had interesting projects to lend on, how would someone get a hold of you?

Email me directly, charlesf@1892capital.com, where you can Give me a call. 253-592-3452. I like talking about deals. I like, I love the business. So I'm a bit of a nerd about it. Like I do investigate, get back to people as soon as I can. Often I give my number out and I'm trying to keep up, but I like to make myself available. I like to help people.

It's helpful. And I've noticed that that's so true of so many people who think once you were farther in their career, that is the most rewarding thing to get to play the game with other people, help bring other people up. And so I appreciate you coming on the podcast and sharing your—

Oh yeah, just fun podcast to be on.

Thank you so much.

Yeah.

Well, we appreciate you guys. We do the owner meetings so that you don't have to, if you're in the middle of your busy day, you're trying to break the 9 to 5, you can actually just listen on your drive to work and learn from people who've actually done the thing that you want to do. Charlie's a fantastic example of this. I appreciate you being on the pod, man, sharing your knowledge, and we'll see the rest of you on the next episode. Thank you, dude. Thanks for hanging out. That's fun. Yeah. Also, thanks for reflecting on this