Air Date: 02.23.2021
From getting the most out of your mentorship to building a successful syndication business, making it big in real estate is about showing up and getting the work done. Today we speak with Sterling Rhino Capital CEO and long-time investor Chris D. Roberts about why his work-centered approach has been his top asset throughout his career. Early in the episode, we chat about how valuable his mentor was in kick-starting his real estate business. After reflecting on why being mentored involves actively adding value, we dive into what Chris appreciates about multi-family over other asset classes. He unpacks how multi-family can set you up for exponential growth before sharing his advice on overcoming common multi-family barriers. Later, Chris discusses his investing strategy, market expectations, and why COVID hasn’t severely impacted his business. Listeners hear about where he buys property along with insights into the new value-add features that he includes in all of his multi-family buys. We wrap up our conversation by asking Chris about his most important lessons and to share his keys to success. Tune in to hear more about the value of showing up and getting it done.
Key Points From This Episode:
- Introducing today’s guest, Sterling Rhino Capital CEO Chris Roberts.
- How working with a solid mentor helped Chris realize his potential.
- What attracted Chris to multi-family investing.
- Comparing multi-family with other investment avenues.
- Chris’s advice on overcoming common multi-family barriers.
- Top tips on how to learn the ins-and-outs of multi-family investing.
- Insights into Chris’s investing strategy and the properties they look for.
- Why COVID hasn’t hugely impacted Chris’s business.
- Chris shares his market predictions with a special focus on inflation.
- Where Chris aims to purchase property.
- Value-adds features that Chris has started including in all of his properties.
- Reflecting on the biggest lessons that Chris has learned.
- Chris discusses the keys to his success.
- Hear about the books that have most enriched Chris’s business.
“When you hear the word ‘mentor,’ many people see them as gurus who will drive you to success. But they’re busy people. It’s about learning from their knowledge while adding value to their lives.” — Chris Roberts [0:03:43]
“In life, we have all of these fears. And some of us live behind our fears while others live on the other side of fear. Fear can be a driver — it doesn’t need to hold you back.” — Chris Roberts [0:12:34]
“The value of any syndication group is in the purchase. If you buy it right and execute your plan, then you’re going to be okay. COVID has just been a bump in the road.” — Chris Roberts [0:18:39]
“The number one key to my success is that I show up and I get it done. I put in maddening hours and my people can always reach me, no matter what.” — Chris Roberts [0:39:44]
Links Mentioned in Today’s Episode:
Sterling Rhino Capital Text — 668-66
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—Full Transcript Below—
“KR: First thing someone has to do, whether I’ve started many businesses and obviously, we’re buying lots of real estate and whatnot. I think, what anyone has to do first, is understand themselves. They have to understand where their comfort levels are. Like, “Am okay with a high-risk emerging market stock, or do I want to buy a local stock or a bond that doesn’t return me much?” Some people get into a fund, where just it’s controlled by a broker and they go.
Property is the same. It’s like, “Do I want to be an A, B, or C? Am I okay losing $50,000?” Whatever you invest and whether it be multifamily, or be the stock market. Because that can change the circumstances on which how you invest as well.”
[00:00:35] KR: Welcome to Ritter on Real Estate, the show about how to passively invest like a pro. On each episode, I interview real estate experts who give their top investing advice, strategies, and tools that break down the insights into practical steps to avoid the pitfalls and make better investments. I want to help you passively invest like a pro. This is Ritter on Real Estate, and I’m your host, Kent Ritter.
[00:00:58] KR: Hello, fellow investors. Welcome to Ritter on Real Estate, where we teach you how to passively invest like a pro. Today, my guest is Chris Roberts. As always, I’m your host, Kent Ritter. We’ll jump right into it. Hey, Chris. How you doing?
[00:01:12] CR: Kent. I’m fabulous, man. Thanks so much for having me. I appreciate the opportunity to share some value with your listeners today.
[00:01:19] KR: Yeah, I’m really excited to get into this. Let’s start at the top. Chris is a CEO of Sterling Rhino Capital. He’s a full-time entrepreneur and investor. He’s been doing that since 2007. A lot of good experience that we can draw from today. He owns and operates a multimillion-dollar sales and marketing company, and also has a property management company that manages his own rentals. Looks like, Chris has done just about everything within real estate, from flipping, to single-family rentals, to raw land. Now he focuses on multifamily. Excited to talk about that, too and what drew his focus there.
Chris. Again, thank you so much for coming on and why don’t you tell our listeners a little bit more about yourself?
[00:02:01] CR: Absolutely. Thanks, Kent. My entrepreneurial life started at a pretty young age. I was on my own at a very young age and had to cut my teeth, just learning things on my own. I was fortunate to come across a mentor around the age of 18, 19, after being on my own for several years. He just taught me a lot about the value of the work ethic and just putting your head down and grinding and getting things done.
That built a good foundation for obviously, building a sales and marketing career, as you alluded to at the beginning. That made me a little extra money. As a result of that, I realized, “Hey, instead of buying fancy cars and Rolex watches, I needed to figure out where I can put this money to make it work for me.” Started diversifying, like stocks and other little things and bought my first piece of property, had a great conversation with a friend and he set a fire in me, man, when he was talking about just a rental and spreading out your risk.
Single-families turned into to duplexes and multi-families and things of that sort. Now we’re into larger syndication. That’s the real short story. Most of it was just educating myself and being driven by what others had done in the space and the success they were having and just figuring out how can I take all of that, extrapolate the good from them, and then build my own model to have my own success, if you will, in that space. It’s worked out extremely well.
[00:03:15] KR: That’s awesome. Man, congrats on all the success. You mentioned that you had a mentor early on. I think that in my own life, mentors have been extremely impactful and have catapulted my career and where I would be. Obviously, I understand the impact. Tell us a little bit more about that mentor relationship. I mean, what was it about that that helped you, like you said, get to the next level and really drive you?
[00:03:39] CR: Yeah, absolutely. Thanks, Kent, for asking that question, because I think mentors, there’s this broad term that you hear the word mentor, and you think, “Oh.” I love that Tony Robbins says, “I’m not your guru.” Mentors are not your guru either. They’re not going to drag you to success. Mentors are extremely busy. No matter what, it’s a life coach, it’s a mentor in multifamily real estate, you name it. I’ve had a few throughout my life now.
What’s great about this particular mentor was I worked for him, and he just basically, mentored me as I worked for him. The more I worked for him, and the more I volunteered my time and gave of myself to help me and just be part of his world, the more I learned, and his knowledge just literally rubbed off on me. I just couldn’t get enough of it. I can’t guess, overstate how important it is to really add value to other people’s lives. You will be shocked at how much value comes your way.
In other words, you may have to volunteer hours of working on someone’s property, or on a project, or just helping out and just offering a lending hand. I mean, literally, you might have to change sewer lines, or you might have to empty garbage, or do something maybe that you don’t like. The way that’s going to look to the mentor is extraordinary.
As a result, they’re going to realize that you have the work ethic and the foundation, the mindset to then be worthy of their knowledge, and they’ll share it with you. If you don’t have that in the beginning and you just have this, “Well, no. I want to learn this.” It doesn’t work that way. You have to give, give, give, and then you’ll start to get eventually, if you do it right. Early on, I had a life mentor, if you will, that pointed me in the right direction, thankfully. Then throughout my life, I’ve hired other mentors for specific skill sets, whether it be speech coaches, or real estate mentors, or whatever.
[00:05:18] KR: That’s a great point. You’re looking to give back firs and add value first, rather than just showing up and saying, “Hey, I’d like to pick your brain, or can I ask you about this? Can I take some of your time?” Right?
[00:05:31] CR: Yeah. I think, Kent, that’s really important, because here’s the way I see it, the way I see it is, when you hire a mentor, you’re not hiring a mentor to drag you through the mud, or drag you to success, if you will. You’re hiring a mentor, so that they can guide you and point you and push you and give you an education and let you go and lead the way, if you will, and they keep bumpers on you.
I find that oftentimes, we can’t get out of our own way to understand that. We can’t put in enough hustle for the mentors to see our potential and then put the lanes on us to guide us in the proper direction. We just go in there mindlessly thinking, “This person is going to drive me to success.” That’s a huge mistake I see a lot of people make.
They’re just waiting for that thing, for that mentor to give them that thing that’s going to take them over the finish line. Just doesn’t happen. Anyways, I open a lot of people’s eyes when I talked to them about that. It’s like, “Well, yeah. I guess, I didn’t think about how I could get out of my own way. Actually, this person isn’t just going to make me successful. I’ve got to actually think through this thing and put in the work.”
[00:06:33] KR: Yeah, a 100%. You look at it at the look at it at the mentor as, “Okay, I’ve signed up for this thing.” It’s like with a new technology, or even I would equate it to you go and you buy a treadmill for your home. Just buying it, is it going to get it done? You got to put in the work. You got to set it up. You got to get on the thing. You got to actually make it happen. It’s the same thing with a mentor. The mentor is there to, I guess, help you along your journey to propel you, to help you get through roadblocks and avoid potholes and stuff.
You’re the one that has to be driving the car. You’ve got to be pushing yourself to do that. I think that’s a great point. It’s really good perspective, because I think mentors can be really valuable, but it’s all about how you use it. They’re a tool, like anything else.
[00:07:27] CR: Right on.
[00:07:29] KR: What was it that I guess, when you talked a little bit about why real estate, you saw people getting wealthy, you wanted to follow that model. What was it specifically about multifamily that has you now focusing in that space?
[00:07:43] CR: In anything that I’ve done throughout my life, there’s always been something that has internally inspired me. I say that, because I’ve had some challenges throughout my life when I was growing up and stuff. When I was younger, there were certain things that inspired me to really want certain things. Some people see fancy things and they want those and they think they’re going to make them feel better. Some people are inspired by wanting food, as simple as that seems, or shelter. Others, they want to be part of a group. They do silly things, because they want to be welcomed into that group, or whatever it is.
Multifamily. I know this is off on a tangent slightly, but when you think about multifamily or any investing, it’s like, okay, you start and you put your money in. Why are you inspired to do that? Why do you put your money in? We put it in, because there’s that promise, if you will, of, “Well, hey. If I put my money in the stock market, then I get, let’s just say 6%, 7%, 8%. That money is going to grow. Then when I turn 70, I’ll have a $100,000 in my account. Yay. I made it,” or whatever.
Then all of a sudden, someone comes along and says, “Wait a minute, there’s a little bit better vehicle where you can probably get slightly higher returns in that, plus you can get cash flow and you can offset your risk if you go here and do this.” Same thing with single-family. It was like, well, what’s the benefit of buying a single-family rental, let’s say, versus putting that same amount of money in the stock market? The difference was the freedom of cash flow and having the flexibility to play with that asset.
I’m going to get to the multifamily part, just sec. As it started, it was okay, I’m inspired to take money that was working okay for me in the stock market, or in a savings account working very little. I’m going to go put it in this little asset, where I can get a little bit of cash flow, but I’m also building a little bit of equity. If I decide to rent this thing, this is great. It’ll appreciate, because historically, real estate does. I’ll have someone else pay down that debt, then I’ll just do it every six months or so. I was doing that for a little while and it was great. I just wasn’t growing exponentially.
When multifamily was introduced, it was interesting, because I looked at it and thought, I could put a little bit more effort in, maybe even bringing a team that can help and assist in some of this use larger tasks, the underwriting and bringing in attorneys and things of that sort. I can offset my risk. I’m not swinging the hammers as much. I’m not only increasing the cash flow, but also, increasing the equity that I build up quite fast and a lot better than a single-family rental. It was about exponential growth. What inspired me mostly was, I wanted to create that, Cory Peterson’s great about this, his legacy wealth thing. I wanted to create wealth that could go beyond when I’m not here.
Whether it’s the trust, the charities we work with, or family, I wanted to make sure I set myself up so that I was independent of the system. I know, everyone has a different terminology for that, but the system, working for corporate America, or relying on social security, or whatever. I wanted to be free of that system. That’s really what inspired me to want to exponentially grow. Then obviously, the type of returns and just mitigating the risk was really enticing to me as well.
[00:10:34] KR: That’s awesome. I like how you brought it back to the bigger why, the reason around it, the ability to build your – you said, legacy wealth, but also to contribute. I mean, I know you do charity work and other things and you’re able to give back, so I think that’s awesome.
I mean, for me, it was the thing that got me really excited was just this idea of like you said, you find this vehicle, it’s like, you’re driving a Toyota Corolla your whole life and all of a sudden, somebody pulls up in a Ferrari and is like, “Hey, get in this one. We can go a little faster.” That’s how it was for me. I was like, “Oh, wow. I wish I would have known about this 15 years ago.” That’s when it got exciting for me of yes, I can set myself and my family up and that’s going to be great. The impact that I can have on my own community by having friends invest, relatives invest and just build wealth, and that whole community, that’s when it got really excited for me. That was the genesis of this podcast is like, wow, more people need to know about this stuff.
[00:11:33] CR: Absolutely. I couldn’t agree more. It’s pretty amazing.
[00:11:36] KR: Obviously, we’re fans of multifamily. You can tell. What are some of the barriers, though, that it seems like, if you’ve done your research like we have, it’s a no brainer. It’s why we both dedicated our lives to doing these investments. When you talk to investors, I mean, what are the main barriers that you hear? Or what are the questions, or concerns that people have, that maybe it’s just a lack of education?
[00:12:01] CR: Yeah. Let me ask you, specifically, Kent, would you say on the passive investor side, active investor, or both, the fear?
[00:12:08] KR: On the passive investor side, on the people that are just unfamiliar with real estate, or with multifamily and are used to the 401k and their stock market?
[00:12:21] CR: Yeah, I think it’s interesting. I’m big on this whole fear concept. I did this little video that talks about overcoming your fear. I use a quote from Jack Canfield. It’s everything you want is on the other side of fear. I love that, because I think in life in general, we all have all these fears. Some of us live behind the fear and some of us live on the other side of fear, like Jack says. We push through and we figure it out and we go.
I love the Navy SEALS. I think they’re a perfect example of that. Fear is a driver. It doesn’t hold them back. They just go. It’s part of the environment. Things just suck and they just know it and they just go. That’s amazing to me and that’s how you have to be in life. You have to go, “Hey, there’s great things. There’s things that suck and are going to be challenging, but you have to push through. You have to see what’s on the other side.” How do you do that?
Well, you have to put certain things in place. One of them is educating yourself. You have to educate yourself. You have to get out there and ask others. Well, hey, what’s your experience with this syndicator group? Did they pay you on time? What are the pros and cons? Did you like the flexibility? Here’s what I’m doing over my IRA, or whatever. Because it’s deceiving, because when you look at your screen on the IRA, it says you got all these returns, but that’s not the real number. There’s management fees and other things, that you oftentimes don’t see. It’s not as transparent.
Whereas with multifamily, there might be some fees, but you’re still getting your returns, regardless. The fees aren’t taken out of your returns after you see your returns, which again, is pretty transparent, easy to understand. I think, I would say for passive investors, you got to educate yourself. You’ve got to feel real comfortable with the sponsor. You got to resonate and synergize with them. I know it sounds silly, because oftentimes, and by the way, I’m passively invested in 2,300 doors. I deal with a lot of syndicators, in addition to my own deals.
I have to be comfortable with those sponsors. I have to feel there’s a good synergy going both ways. Not just their deal, because deals are deals. There’s not gigantic swings in these deals. I mean, the returns are very similar. It really does boil down to that operator and how I feel about them. Do I really understand myself? This is a piece of advice I would give any passive. Do I really understand myself, the numbers that are in those PPMs? Do I understand how to underwrite this deal myself, so I can see, did they miss something, or are they doing this thing right? Are they actually going to hit their markers and such?
I would encourage anyone to just educate yourself and just talk to a lot of sponsors, and just make sure that you resonate well back and forth, and that you feel good about who you’re giving your money to, especially with this day and age with the Internet, and how everything is so tied together socially and whatnot.
[00:14:46] KR: That’s great advice. That’s a common theme that’s run through this podcast, is a bad sponsor can kill a good deal and vice versa. It all starts with who that person is and their level of integrity, right? You mentioned, you have to educate yourself. What are ways that people can do that? I mean, if they’re starting from scratch, how can you get to the point where you know what those numbers should be, that you said in the PPM, for example?
[00:15:10] CR: Yeah. I think, the first thing someone has to do, whether I’ve started many businesses and obviously we’re buying lots of real estate and whatnot. I think, what anyone has to do first, is understand themselves. They have to understand where their comfort levels are. Like, am I okay with a high-risk emerging market stock? Or do I want to buy a local stock, or a bond that doesn’t return you much?
Some people get into a fund, where it just it’s controlled by a broker and they go. Property is the same. It’s like, “Do I want to be in an A, B or C? Am I okay, losing $50,000?” Whatever you invest in, whether it be multifamily, or be the stock market, because that can change the circumstances in which how you invest as well.
Now, fortunately, full disclosure, you want to always talk to your CPA, Real Estate Attorneys, but full disclosure, most real estate doesn’t generally just fail miserably, unless the operator does something shady, which it’s federally regulated for the most part by the SEC. That’s difficult, because there’s a lot of risk there for an operator to do that. They could ruin their lives, doing something silly.
In general, real estate holds its value pretty well. In my opinion, which is why I love this space, it’s a little bit more secure than what you might see in the stock market, especially with timing. If you’re trying to get out, say at 60 and get your money, well, you can’t really just take it all. Whereas with multifamily, you’ve got cash flow going constantly, and then you just exit when the time is right.
I think the person getting into this space has to understand themselves and their risk tolerance. They have to understand, “Do I need cash flow? Or do I need equity? Or do I need both?” In other words, “Do I need money upfront in payments? Or do I want a bigger payout, maybe at the end, or a combination of both?” Then figure out those numbers. Then start finding operators and/or deals that fit those numbers, so that you can be in your let’s say, comfort zone, and not have a buyer’s remorse, or stress yourself out. I talked to investors, lots of them every week. It’s amazing, the spectrum of people that come in, and the roles and goals they have and where they want to be in life. It’s pretty amazing.
[00:17:06] KR: Yeah. No, awesome. Let’s talk a little bit about Sterling Rhino and what you guys are focused on. There’s a lot of different spaces in multifamily, as you said. Specifically, what is your guys’s strategy?
[00:17:18] CR: Yeah. We like to buy the value-add assets B and C, which are pretty common. There’s A class as well. There’s even D, which those are tough. CMB, where you can add a little value, force the appreciation, so that you can kick out your returns. In my opinion, in an asset where you can force appreciation, you’ve got almost a failsafe in a few different ways you can slice the pie, so you’ll have this cash flow in the beginning.
Oftentimes on a value-add, it might be a little bit lower, let’s say, than a Class A, but your equity on the back-end might be a little bit higher, because you forced that appreciation. Whereas on a nicer asset, there may not be as much work to do. You might get a little better cash flow right out of the gate, but you’re not going to perhaps in some cases, get as much of that larger kick back at the end when we force all that value up.
We like that space, because it gives us a lot of flexibility, and ups and downs. We bought a few properties during COVID and found that those were outperforming performa, which, again, is an indicator of a value-add asset, even during a real significant challenge none of us saw coming. I would say that that’s a good space that we focus on and we like that. Not that we may not diversify some data to other things, but that’s where we are today.
[00:18:25] KR: Yeah. No, I like that you brought up just COVID and the impact. How has your portfolio done overall? Have you seen much of an impact? It sounds like, you guys have done well.
[00:18:35] CR: Yeah. I think the reason we’ve done well, and let’s put it this way, and the syndication group, really, the value is in the purchase. Of course, you have to execute the plan, but it’s always in the purchase. That was the way it was in single-family land, everything else. If you buy it right and you execute your plan, you’re going to be okay.
Now, I know COVID was a very significant challenge, none of us saw coming. All, most of us did that are successful at it is got a little more conservative in our underwriting, okay. As long as you don’t run out of money, you’re in pretty good shape, because ultimately, it’s going to figure itself out. That’s just how it’s worked historically. Short of the world ending, real estate will thrive at some point, even if it has a bump in the road.
I would look at COVID as a bump in the road. There was a little bit of extra vacancy, a little bit of extra bad debt, but there’s also government assistance that’s come in, people still need a place to live and we’re still under inventory for where we need to be, for all the way back from 2008, pretty much construction stuff for four or five years.
I think, there’s still a lot of demand and people don’t want to move out of a B and C class, because the next step down is a D, or a mobile home park. They’ll fight to stay in there. We found that really, it affected us slightly on bad debt, but actually allowed us to clear a few units and renovate a little bit more efficiently, because generally, people won’t leave. Sometimes, they’ll even stay at a higher rate, because they don’t want to move and you can’t even renovate the unit.
Or in our case, actually, when all this hit, some people just panicked, I guess. They thought, “Okay, I can’t pay my bills after a few months,” and they just left. That opened up the units to renovate. We were also able on our units, because we bought them at a pretty substantial amount, lower than market rent, able to just go into the existing classic units and raise rents pretty quickly. That also offset some of that bad debt that we had, or extra vacancies, because we had escalated rents a lot quicker than we thought.
There’s just so many variables, as you know, that go into a deal. I think it’s all about how you buy the deal and how conservative you underwrite the deal. During COVID, we all had to step up and get very conservative, which really limited deal flow, because you had to have an extra $200,000 in lender reserves, and all these other things that you had to put in there. Yeah.
[00:20:44] KR: Still do. We’re still operating in that environment. Yeah. I mean, our own personal experience, I mean, we’re putting close to double the cash into a deal, that we would have pre-COVID. Whether it’s working capital, whether it’s extra reserves for capex items. Yes, you have your COVID reserved from the lender and all those things. I think, like you said, it’s how you buy it. If a deal still works with that extra cash in it, then you know it’s going to be a good deal and you know that you’re going to be able to get through the ups and downs.
I like what you said about that macro view. I mean, if you go back to supply and demand, no matter the bumps in the road, at the end of the day, there’s just not enough affordable housing for people in the US. We’re millions of units short. At the end of the day, because I’m a big econ guy, supply and demand will win out. That’s why we like this investment. At the end of the day, I mean, you can’t fight supply and demand.
[00:21:39] CR: Right. Well you know, Kent, also, I mean, think about the inflationary situation that’s about to happen. I mean, smack us all upside the head, right? I mean, there’s so many variables that you could see coming even before COVID. Then if you just got a little more conservative and protected yourself, you’d be okay. I think, I’ve talked to several operators that have been in the same boat. Some pulled back and didn’t buy during COVID. We’re working our third deal during COVID, which a 100-plus unit deals. I mean, those are challenging. At the end of the day, I think, if you just put your head down and follow your principles, and just get a little more conservative, you find them. They’re just harder to find.
[00:22:14] KR: Yeah. You mentioned, inflationary environment. I think, we are in a really unique time right now. I mean, rates are extremely low. The Fed has said that they’re going to let inflation run, which is the first time they’ve said that in quite a while. We expect rates to stay low for at least the next couple of years, is what we’re seeing. Understanding, I guess one, your perspective of what the future holds. Then based on that, how have you adjusted your strategy? Are you doing different hold periods? Have you changed anything else related to your strategy, based on what you think will happen?
[00:22:50] CR: Yeah. That’s an interesting question, that I think, most people will answer a completely different way. The way that we do it is, first of all, we don’t run from any of these challenges. We don’t step back and say, “Well, let’s just wait till next year.” I mean, we really dig in and analyze the data. There are some syndicators that are really focused on data. Neal Bawa and there’s others that are like, “No, I just go in and I do this, and this is how I do it.” There’s not as much of the strategy that goes into it.
For us, we analyze everything. We analyze all the data, the market growth, the trends, the migration to the south, all the stuff going on out there and try to figure out what’s the best place for us. Then, we also look at, well, how will inflation affect things? I mean, put it this way, Kent. This is amazing. To ship a container from overseas, a container of anything, Target, Walmart, you name it. Might have run you $2,000, or $2,500 just nine months ago, okay? Those same containers coming to the West Coast, now we’re just talking freight. Those containers would cost you anywhere from $8,000 to $10,000 today, okay.
Now the materials in that container might cost you $5,000 to $8,000. Your freight has now exceeded in some cases the product that’s in the container coming over. When those land, those drywall sheets, and the OSB sheets, and the washers and the furniture, you name it, those prices are going to have to go up. What does that do? That forces a lot of other prices to go up. Employers, obviously start forcing wages up. They have to. You can’t stay. It’ll crush the economy.
Everyone, the tide, if you will, will start raising it. It’s not fun. It’s not friendly. There’ll be higher taxes, likely. At the end of the day, there’s going to be more money flowing. Yeah, of course, there’s going to be more taxes. You can’t dwell on that stuff, right? We look at that, and we say, okay, so what do we have to do? How do we have to model things?
Well, first of all, we don’t run from it. We go in and we execute our plan. Actually, we got more aggressive during COVID. We actually raised our rents. We didn’t, “Well, let’s slow roll it.” We were lenient on late fees and things like that. Like, “Yeah. You know what? We’ll work with you. We’ll waive these. We’ll do this. We’ll do that.” We didn’t shy away from actually going and aggressively raising rents, because and these properties’ rents were lower than market. Why should we leave them there?
I mean, we have one building. We raised 56 units within four months, a $100 a month, which was a 19% increase in rent. We did that for months. We only had I think, six tenants move out of those – I mean out of the 112 units, or whatever it was. We also put money in the building. We’re cleaning it up. We’re doing all these great things, and they love it. They would rather have a safe, clean place to live and pay a little bit higher rent. The bad tenants that probably shouldn’t have been there anyways, they left, because they don’t want change.
[00:25:23] KR: Sure. Yeah. Exactly right.
[00:25:25] CR: I hope I answered your question, kind of. Did I answer it?
[00:25:27] KR: Yeah. I think you did. It’s interesting. I mean, just so many different perspectives out there. I just like to hear where people are at and the approach. I mean, I think it sounded like you guys just, you’re rolling with the punches. You’re not pulling back and just adjusting strategy based on what you’re seeing. Based on all the analysis that you’ve done, I mean, what markets are you investing in? Which ones are you liking right now?
[00:25:51] CR: We use really love the south. There’s a lot of folks going to the south. We look in other areas, like, I say, South East. We like other areas. We go in Texas, Virginia, looking at Alabama a little bit Carolinas, and there’s some other pockets of deals that have come up. There’s some other hot emerging markets for retirees, Idaho and others. We try to focus on areas where we can have a little bit lower rents, where we can push those rents up a little bit. Then good job growth markets, like normal and population growth, if possible. Sometimes that’s a little difficult with people migrating all over the place right now. Since most are moving to the south and southeast, at least, statistically, that’s a little easier to fulfill.
Yeah, just basic variables. You asked me earlier about our strategy in general. Just like our markets, we’re looking at markets and looking at shifts in trends in where the population growth is going and trying to feel that out. Retirees are huge. I mean, there’s 10,000 baby boomers a day retiring. Wherever they’re going is interesting as well, although they are in more the senior centers and such. It does obviously affect everything else. That’s what we’re doing.
[00:26:51] KR: Got you. Is there a specific strategy, or something that you’re doing within your properties that has provided excess value for you guys, or been a homerun? Is there something that you’re doing that you’re just doing across every property now, because it’s working so well?
[00:27:06] CR: Yeah. I think well, some of the heavier value-add, we realize, because the rents are so low, like in one instance, we added a trash fee, because we found the tenants just were disrespecting the property. We were paying for trash, but they were just throwing trash and it was becoming an issue. We implemented a trash fee on top of it. It wasn’t a common fee that we saw out there had we done before, but we added it. Nobody even complained about it.
Then we just hired a cleaning crew, which absorbed about half the garbage fees. The other half brought the expenses down, which was interesting. It seemed simple, but it really didn’t crossed our mind, because we thought, we’ll just clean up the property. We got tired of doing it after three months and thought, “Well, let’s implement a fee and that’ll stop them.” It did slow it, but it actually made us more profitable and they didn’t even really care. That was interesting. We obviously were looking at rubs and all the other things that most deals that you’ll do on most deals. For the most part, that was a surprise.
Another thing we did during COVID was we put clauses in our contracts, where it protected us if the owners got a little lackadaisical and maybe didn’t collect rents as aggressively, or had higher vacancy, up until leading up into closing. That would give us bonuses. It’s not common, and a lot of sellers may not sign off on it on the PSA, but they did on ours. It got us a pretty good chunk of change at the end. Because in true form, especially with owner operators, they tend to get a little lackadaisical at the end there. That protects you and gives you a little money, if they do get lackadaisical. There’s some unique things that we’ve done that have been very helpful.
[00:28:37] KR: Yeah. I like that you brought that up. I mean, we’ve taken a similar approach, I think, and especially when buying from more, like you said, owner operators, or what I would call, more of a mom and pop owner. You can one, yeah, I mean, things can get a little loose at the end when they’re going through a sale process. Two, I think, at times, they can be more willing to agree to terms, the PSA, for example.
I mean, we had a similar example where we were acquiring a deal. We had concerns over the amount of month-to-month leases, which was, I guess was the previous owner’s strategy with the eviction moratorium was to let people go to month-to-month, so that he would have the flexibility to still evict if you needed to. The problem is, when you’re trying to get a loan, they don’t want to see a bunch of month-to-month people, because they’re worried that half their property is going to leave if you take over.
We had to do a similar thing, where we worked with them and created an addendum and put protections in place, where we actually had bonuses, or payments for every month-to-month that still existed. We were able to align incentives to get him incentivized, to get people on full-term leases and protect our downside. You can do creative things like that. This was after the fact as we really got into due diligence and really understood the lease environment after our lease file audit. We were still able to go back and negotiate in that way. Creative ways to protect your downside, especially during COVID. I mean, it’s just important to be thinking outside the box a little bit. I’m glad you brought that up.
[00:30:04] CR: Yeah, absolutely. I’m glad you actually shared your story, because we had a similar situation month-to-month, which became a challenge with a notice to vacate and then evictions, and then oh, wait a minute, you can’t evict. Now, they file CDC forms that freeze everything and then, okay, now what? Then you go to court.
Thankfully, in the last year we did a 112 units, we only had, I think, two that filed these forms that we really can’t do much with them now at this point. We’re sitting there trying to work with them, but it’s been four months and they haven’t paid rent. There’s only two of them. That’s fine, because our performa, I mean, more than absorbed plenty of that. It’s a challenge, because you want to work with people and you want to win together. You don’t want adversarial stuff going on. It’s like, you just want to – Anyway, that’s interesting. I’m glad you shared that. Thank you, because we went through the month-to-month challenge as well.
[00:30:51] KR: Yeah, absolutely, absolutely. You’ve got a wealth of experience from starting businesses, to running multifamily and doing syndications. I mean, what are some of the biggest lessons learned you can share with our listeners, so maybe they can avoid some of those missteps?
[00:31:06] CR: Well, a couple of things. In general, in syndication, one, make sure you’ve got your capital ready, because I think a lot of folks get into this space thinking, “Oh, if I find a deal or something, I can go and make it happen.” You really need capital. You have to have usually, a little thought leadership, or a great team, or a track record to raise that capital. Just be ready and make sure that you’re raising your capital. Make sure that you put systems in place. Again, systems could be part of your team. It could be your team is a system. It can be automations, CRMs and tracking and such.
Then, the number one thing I would say is, you have to have a strong work ethic if you’re going to be in this space. If you don’t, your partner better. Because it’s gritty, it’s difficult, it can be very challenging and stressful as well. If you’re not mentally prepared for that and ready to put in those hours, then you could fail in this space.
I think most of all, at least for me, I’m very accessible to my clients, my investors, my partners. Whenever something’s going on, they know they can get me and we solve problems very efficiently and quickly. I think, that’s probably our number one key to success is just really staying on top of things and holding each other accountable to get to that finish line.
[00:32:15] KR: That’s awesome. That’s awesome. Any other big lessons learned? Any big issues with a deal? You’ve had to overcome anything like that?
[00:32:22] CR: Yeah. Well, specifically, that one of the deals we had was the documents were all basically manual. There was no digital records. It was a value-add, 35-year owner, 35-year original owner selling. I eventually ended up dealing directly with him. The biggest challenge I found was the what the brokers were telling me really, half of it wasn’t accurate. I had to go in there and spend 10, 12 hours just in one day, going through stacks and stacks of documents, and then actually helped this guy to build T-12s and rent rolls and have an accountant come in and do. It was unbelievable.
It took, I’m not exaggerating, hundreds of my own personal man hours to get through this process. I would say, don’t underestimate this process. Be ready. Get everything in writing and make sure you give yourself plenty of time, especially in this day and age to get to the finish line. In other words, you might need extensions, you might need a little extra room for closing. Money hard, not hard. That was popular before COVID. Went away during COVID, things like that. Just be ready for all of those challenges that could come and give yourself extra room.
[00:33:27] KR: Yeah, great advice. Very good. As we wrap things up, we like to go to our keys to success section. To start off, what is the one question that every investor should be asking their deal sponsor, if they only get one?
[00:33:41] CR: I hear the question all the time about failures and successes and things like that. That doesn’t mean much to me. What I want to know about a sponsor – this is me. What I want to know is, I want to know about them personally. I don’t really care that they have a big team, or that they’ve done a 100 deals or whatever. I want to know about them personally. Obviously, having some experience is important. You want to know, have you actually bought some of these properties and things like that, which you can usually get the data on their website.
Me personally, I like to have conversations with people to get to know them. I would ask them some personal questions, things about their personal credit, their personal net worth, their business experience, their values in general. Why are you doing this? Do you want to retire early? Do you want cash flow? I just like to understand the person I’m investing with. That’s me personally.
[00:34:26] KR: Man, that’s really good. I never get asked those questions.
[00:34:30] CR: I rarely do as well.
[00:34:32] KR: Yeah. I mean, I think those are super important. I was just thinking about that as like, “I don’t think anybody’s ever asked me any of that stuff.” It’s always just right into the deal. I often find myself trying to back out and say, “Well, let’s start. Let me understand you a little bit.” I think it’s the first time anybody said that in all the 30 some times I’ve asked that question. I like digging into the personal side. I think that’s really important. I guess, without being asked the direct question, like as a sponsor, how do you help people understand who you are and why you’re doing it and all that?
[00:35:06] CR: Actually, Kent, I think the challenge is, especially today, we’re not people-people anymore. We’re a facade of who we actually are. It’s crazy. When you get on social media, or even in a Zoom room.
[00:35:19] KR: Oh, yeah. Social media. Of course.
[00:35:21] CR: I grew up talking to people. The way I built my wealth and my life is being a people person and spending time with people and being on teams and going out and doing things together. I enjoy that. I want to know about you, and I want you to know about me, and then hopefully, we can do some business together, as a default or a result of that relationship. Not, what’s the return? Seven? Okay, this guy is giving me seven and a quarter, so I’m going over here.” Okay.
I mean, that’s what, unfortunately, a lot of these business is. I don’t think, for me, that’s not as important. I would take half a point, honestly, half a point less to note, I would go to battle with that guy on the other side, or I could go have a beer with him, or I could go hang out. You know what I’m saying? I think we’re just missing that. You could wear a three-piece suit. I could wear jeans. I could wear a three-piece suit, you could wear jeans. We could still do business together and be friends if we know each other and we understand each other. I guess, that’s my overlying 30,000-foot point to that.
[00:36:16] KR: No, I like it. I love the perspective. I’ll say it. I think it’s great. What are you most proud of in your career?
[00:36:21] CR: Most proud of being able to not only give back to my family. My mother had me when she’s very young and struggled and just didn’t really have much. She fought, which is how I do it. I fight to get through things. It’s nice to be able to give back and give her a little bit better life. I’m probably most proud of beyond my family and my wife and the things that I do for them in their lives.
I’m probably most people proud of the partnership we have and our charity work and how many people we fed and all that stuff. I wrote a book, we give it away. For me, it’s a great way to go back to the challenges I had and to know that I’ve made a difference in some parents’ life with the story I told, or fed somebody with the donations we gave. Because I was literally in that position, and that’s really meaningful to me. It means a lot, because this money thing, I could go buy the watch, I could go buy the car. That stuff doesn’t mean anything to me. It did when I first started and I was young. Today, that stuff doesn’t mean anything to me. I just want to go out and rock.
[00:37:19] KR: Yeah. Well, I guess, first of all, I mean, thanks for all the work you’re doing. What is the charity? Is it Feeding America?
[00:37:28] CR: Yeah. We partnered as an enterprise partner with them. Everything we donate goes a 100% our book and everything goes to them. We feed 10 people for every dollar, because they’re very efficient. Then Tony Robbins matches every dollar we donate, because he’s also an enterprise partner. You can imagine, he’s the enterprise partner.
[00:37:46] KR: Oh, yeah.
[00:37:47] CR: He matches. I think, I checked the numbers last week, we’re at 244,000 something meals we’ve served as a result of those donations.
[00:37:55] KR: That’s awesome. The other thing I was going to say, isn’t it funny how the priorities evolved. I was the same way. When I was a management consultant, and I got my promotion to director and it was early. It was early for somebody to get promoted. I was fortunate in that way. I went out, bought the nice watch. I had a nice car and everything. The funny thing is now, I drive a 10-year-old – it’s a Lexus SUV, 10-years-old, it’s fully paid off. I’m like, “I’ll ride this thing into the ground.” I just don’t care anymore. Priorities change. I think you realize what’s really important and what really gives you joy. It’s not those material things.
[00:38:32] CR: Absolutely. Kent, if I give your audience just one piece of advice, right along those lines, Stephen Covey has a saying. It’s, “Satisfied need no longer motivates.” It stuck with me forever, since I’ve read the book. It’s exactly that. It only motivates you until you have it. Then after a while, you just, “Oh, yeah.” Then eventually in life as you get older and your priorities change, they really don’t motivate you. Knowing you can pay cash for it is nice. It’s just not a motivation to go and buy it. When you have to finance it, there’s for some crazy reason, all this motivation to go buy it, but then when you can actually pay for it.
[00:39:06] KR: Right. Yeah, exactly, exactly. Cool. What books should everybody be reading?
[00:39:12] CR: I love books, man. I read a ton of books, podcasts, you name it. I just absorb everything. A recent one I read was Principles by Ray Dalio.
[00:39:20] KR: Oh, yeah. That’s great.
[00:39:21] CR: Yeah, I like that. There’s a bunch of TED Talks and How to Win Friends and all these other great books. That Dalio book was pretty cool. It really went in deep about building corporate America and Americana, what does he call it? Ameritocracy is what he calls it. He said that a 1,000 times in that book. Yeah. That’s one book.
[00:39:39] KR: Awesome. Then, what is your number one key to success?
[00:39:43] CR: My number one key to success is I show up, and I get it done. If you ask anyone in my life about me, they will just describe me probably with the word ‘work’. I put in maddening hours, seven days a week. It’s not an exaggeration. Most of my people can reach me very early in the morning, late at night. I take very few vacations, very few days off. Actually, I can’t tell you the last time I actually took a day off. It’s because I really love this space and because there’s so much work to do. I can’t quite explain it. I think, it comes from when I was younger, and the survival mechanism that was put in play. I just put in the work. If I can’t figure it out, I hire people, or surround myself people that can and we just get it done. That’s my number one trade to success.
[00:40:29] KR: Awesome. I love it. Chris, thank you so much for being on the show today. How can folks get ahold of you, if they want to learn more about Sterling Rhino, or more about your book and what you got going on?
[00:40:40] CR: Thank you so much for having me. It’s been a pleasure. I love jamming back and forth with folks who are doing this as well and just sharing the tips and tricks. Actually, if you want to, get into our system and just learn a little bit more, you can text the word Rhino, R-H-I-N-O to 66866. That’s just a really easy way to just jump right in and just learn. You can opt out, but it’s just free information. You can check us out at sterlingrhinocapital.com, or find me on LinkedIn, Chris Roberts, or Chris D. Roberts on LinkedIn, or on YouTube and all of that stuff as well. Yeah.
[00:41:13] KR: Awesome. You’re a man that’s easy to find. I like that. Easy to get ahold of. Cool. Well, we’ll make sure that’s all in the show notes, so that the folks listening can get ahold of you. Chris, thanks again for coming on the show and bringing a ton of value to our listeners and hope we get to chat again soon.
[00:41:29] CR: That’s awesome, Kent. Thank you so much for what you do. I appreciate it. It’s been a pleasure talking to everybody. Yeah, have a great day, man.
[00:41:35] KR: Awesome. You too.
[END OF INTERVIEW]
[00:41:36] KR: Thanks for listening to another great episode of Ritter on Real Estate. Hit the subscribe button and make sure you don’t miss out on the content that will make you a better investor. Also, visit kentritter.com for articles, videos, and tools curated just for passive investors. Until next time, this is Kent Ritter with Ritter on Real Estate. Now, go out and invest like a pro.