A Private Lender on Where the Real Estate Money Is Going Next

Original automatic captions. Names, numbers, and punctuation may contain transcription errors.

0:00 Welcome back to the Owner Reading Podcast. I'm Christian, your channel host today. Joined by Charlie
0:05 Farnsworth. Super excited to have him on. He has an awesome backstory. Started out in flipping homes. He's been through
0:11 the real estate thing for a while now into lending. His journey is really
0:17 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.
0:23 You've seen a lot. You've done a lot. I'm excited to have you on the the podcast. I'm actually really curious about what some of your takes are for
0:29 where we're going in this current market cycle. So, everyone hold on to your
0:34 seats. This is going to be a great podcast. Charlie, welcome to the pot. Thank you. It's good to be here. All
0:40 right. For those who do not know you yet, give us a little bit of backstory
0:45 on what your initial starting point was in real estate. Where did you start? How
0:51 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
0:57 was going to be doing. I started in college. I was I was doing some demolition work for a guy who was who I
1:03 ended up working very closely with who was fixing flipping when it wasn't fashionable.
1:09 But this is back in college. So maybe around 1989
1:15 when I first started demoing things and I was in college want to get my degree. My parents happy. Didn't know where it
1:22 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,
1:29 well, hey, I I can do that and uh bought my first house for sort of tail end of college and was fixing it
1:36 up. Yeah. Got into one, got into two, did all the classic mistakes of we're
1:41 extending, running out of money, what are you going to do? And so, yeah, started a long time ago.
1:47 The running out of money, I noticed almost everyone does that on their first few projects. The mistake that I I was
1:53 guilty of this too. The mistake I see a lot of people make is is you buy enough to or you raise enough to close the deal
1:59 or you raise the exact budget you need. There's no overage like on a flip. You're like, "Hey, this is this is our budget. We're going to raise just to
2:05 that or I'm going to bring just that into the deal." I on buy and holds. I see people come in. Hey, I'm going to
2:12 raise the cost of clothes. We're going to renovate out of cash flow. Which is a great way to say, "Hey, I'm going to take a three-month project and make it a
2:17 three and a half year project." And I've seen that done a hundred times. That's a mistake that a lot of people make. Uh but you made it
2:23 through. How long did you do the uh the house flipping piece of the real estate?
2:29 Uh I've all I still I mean I I don't flip so much anymore. I'll build some new houses a couple times a year. Um
2:35 largely helps me stay a breast of what's going on the market and what what my clients have to go through where the cost of construction is going so I could
2:42 underwrite a little bit better. Mhm. But I can't put a number on how many I've
2:48 done over the many years. cuz I wish I held on to all of them. Um, but you know, when you're starting, you just need cash flow, right? So, I remember my
2:55 first deal I got, I didn't even know what a mortgage was. I picked up from a wholesaler. And then, uh, I thought, well, another deal came up. I figured I
3:02 could do that one, too. Being young, hubris is a dangerous thing. You think you you figure it all out. And so, those
3:07 are the big lessons you learn when you're young. You don't know everything. And, you know, standard real estate is
3:12 statement is, you know, it it takes twice as long, costs twice as much. So, you know, always always be safe. And I
3:18 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
3:24 again. So careful, be careful. That that is the one of the best pieces of advice anyone can ever receive, too.
3:31 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
3:37 like, "Oh yeah, no. I I did this and I got wiped out and then I'm rebuilding now." And it's like, it's much easier.
3:43 The hard thing is I think emotionally it beats you make a big mistake like that fall down. Some people get up fast, some
3:50 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 uh it is
3:56 very helpful. There's there's many times where I'll look back I I haven't been wiped out before, but there's many times I look back, I'm like, "Oh man, if we
4:02 knew what we knew today and we applied it back then, what what would we do? We'd be so much
4:07 farther." That's constant. Yeah. I started at 29. Uh so later in
4:13 life uh really investing and I have people who I've like I have people in my
4:18 mentorship group who joined at 18 and here they are with hundreds of rentals and living in like a tower in
4:24 downtown Dallas. I'm like that could have could have done that didn't do it in 2008 if I was better
4:30 positioned it. So yeah, it had been very different. But I got wiped out. 2008 I I had a mortgage company.
4:37 I had a couple branches. I had 50 people. And one day everything was going
4:42 great. The next day the spot just shut off. And so it was a matter of bailing
4:48 out um fending off lawsuits. Everybody banks are suing everybody for no good reason.
4:53 Mhm. So tough. Don't want to make big mistakes if you can avoid it.
4:58 Yeah. And for and for context. So this is your starting point. Where are you today and what are you doing today?
5:04 Yeah. So like what do you do for Yeah. I'm sorry. Yeah. Just tell us talk about your
5:10 portfolio, your business. Yeah. Want to hear about what where did this all end up?
5:15 So you know, I've been doing this a long time. Um and over the past 15 years, fix
5:20 and flips have become a big market. When I was doing it,
5:26 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
5:32 blew up. Everybody ran away. All you could get was conventional, super clean, super difficult money.
5:39 But as you've seen it over the past 15 years, just evolve quickly. It became evident to me that I needed to adjust
5:47 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
5:53 competition. There was like two guys in our town that were doing it. And I' I'd talked to somebody said, "Well, this
5:58 other guy's going to do the deal for me." And I'm like, "I ke hearing about this other guy." And so I went to go meet him. We became friends. But it seems like small balance real estate
6:05 funds then sort of hit the radar. They got wiped out in 2008, too, cuz banks pulled their lines of credit and they
6:10 started reappearing again. And then you start seeing ancillary businesses build up around we'll build a fund for you,
6:16 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
6:22 deals to us. But what I quickly started seeing was a commoditization of a business that was very artisal to begin
6:28 with, right? You know, everybody starts on writing the same. Wall Street's now saying what we'll buy. So everything on
6:34 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
6:40 don't we're not investor based. It's the family's funds. The Corless family is a development family. They started in sand
6:45 sand and gravel business. Fifth generation, ended up getting out of it about 2 or 3 years ago. have large
6:51 developments now and and ask me to come on board to the lending side. And what I enjoy is that we don't have investors.
6:56 We don't have banks. It's it's the family's money, which allows us to literally look for credit gaps in
7:02 lending opportunities where I don't need to compete. There's just a need, right? So,
7:08 if you can lend to a need, you don't have to compete. For example, when when interest rates went up, you know, there
7:14 was a there was a fairly mature private credit structure out there. There were
7:20 vertical money. There was land money. There was quite a bit of money and all over the places. But when rates went up, most people in most funds that were
7:27 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
7:33 land." Right? So all of a sudden this big wave of money went to like vertical construction, but then there's no money
7:40 down here. Saw an opportunity to play in that space and feed all this vertical money, right? Right. So, I made relationships with other lenders who who
7:47 literally wanted to lend to the vertical lots when they're ready. And so, we started filling that gap. Now, the gap's
7:52 starting to fill up again. Single family money is now starting to move to new construction, you know. So, it's the lending landscape is fascinating.
8:00 And, you know, I got back into real estate. I was in private wealth management for 10 years. It just fast
8:05 and furious changing business. I got back in real estate cuz it was slow and, you know, it's the same, but it's not.
8:11 It's fascinating. It's changing so fast. the speed of of acceleration in every business now is is so fast. It's
8:17 amazing. It's it's fun to be in it. Yeah. What are you excited about right now? Because you you've had the you had
8:23 the privilege here of like, hey, we get to look for gaps in the market. I get to have you get to be more creative with
8:29 the deployment of capital than a lot of investors have the opportunity to be creative with.
8:36 For you, what do you find the most exciting right now? Looking for the opportunities.
8:41 It goes back to your my roots, right? Looking for the deal, looking for the great place to be, not where everybody
8:47 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 would do.
8:54 Like, I don't go as high loan to values. I won't go as high as loan to cost. Um, because I've been I've seen what happens
9:01 in a black swan event. I' I've seen what can happen, right? And a lot of the new money that
9:07 has showed up over here, some of it's new or hasn't been through an8 before, right?
9:12 So, the exciting things I see right now are we're, you know, we I saw an opportunity in bridge loans when I saw
9:18 banks pulling back, big private institution money coming in, regional banks sort of pulling back when
9:24 rates went low, when rates got when rates went up. There seemed to be an opportunity for properties that weren't
9:30 that were coming out of construction that weren't they needed pre-stabilization time. because banks were lying there wasn't
9:36 money there you know you finished the project now you got to stabilize it and construction lenders not interesting to
9:42 go any further project probably took longer because co or for a host of other reasons could also be just rates went up
9:48 so it's an opportunity to sort of chase that we generally do short-term what I call opportunistic money you know we
9:53 don't do long-term stuff we don't sell our loans so we hold on to everything which means we have a different look at
9:59 it you know and so yeah we're fac we're chasing a lot of bridge stuff commercial deals larger deals,
10:06 deals where there's a gap between like five and 15 million, there's a bit of a gap. You get to 20 25 then the bigger
10:14 guys come in and 5 million and below, you know, a lot of guys can't go above 5
10:20 million. So there's the regional banks are filling that slot, but but they do seem to be coming back now. I'm seeing
10:25 more of them show up. Um so I'm again looking for where the next opportunity
10:31 might lie. M but there's a lot of business out there, you know, and being that we are a smaller, call it a fund. We don't seem
10:39 to have a problem staying full, which is kind of what we like, you know, we're not a volume base. We got to do a lot of
10:44 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.
10:51 Yeah. Oh, that's awesome. That's awesome. And when choosing pro projects, like what what projects have you guys
10:57 been doing the most of in the last let's say in the last three years? where where do you see a majority of the projects
11:03 that have gone well interesting relive for you recently?
11:10 Yeah, so we've done um single family plat bridge loans
11:17 plat's almost finished. They're going to sell it. You know, we
11:22 have one that was 66 lots that's now going to be taken to market or they're going to try to develop it,
11:28 but they needed some whole time money there. We've done vertical construction on plats where we provide like a a line
11:35 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
11:40 certain amount that they can then rotate to build but that caps out at around 10 to 15 homes cuz we don't want them to
11:45 overbuild. We want to be sure they absorb properly. So we can structure deals like that. We've done single construction loans just you know single
11:52 family home for spec builders who on infill lots still do still do fix and flips every once in a while but you know
11:58 that market's pretty difficult now. Mhm. Crowded space type.
12:03 Again, doing more commercial stuff now. Moving more, I would say, more commercial stuff. Nice. Nice. And commercial is where I
12:09 see personally, that's where I see a lot of the opportunity in the next few years is is commercial development, especially
12:14 for the type of stuff that you like to what I've seen a lot of recently, uh, especially because I invest in Texas and
12:20 central Washington. Sure. Is commercial infill and commercial redevelopment has had some amazing
12:27 opportunities. One of my favorite personal opportunities is I'm in downtown Afraid of Washington. And if no
12:33 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
12:38 haven't heard. Oh, yeah. I know exactly where that is. Yeah. So, it's going to be if you go to Moses Lake, which right off I90, if you drop a pin like the middle of Washington
12:44 State, that's about where it is. And you go up about 20 minutes, you're in a freight. And there's this beat up uh retail building with multif family on
12:51 top, right across from city hall. And I happen to own the fiveplex with the right above the barber shop right
12:56 downtown across from the bookstore. Nice. And the guy with the hotel next door
13:02 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
13:09 and they're in an excellent location in a market that has stable population growth and multiple jobs. It's the
13:15 capital of Grant County as a freight. Mhm. So you have the government jobs, you have the agriculture, and it's where
13:20 Microsoft decided to build its massive data centers, which don't provide a lot of jobs, but a multi-billion dollar data
13:26 center in a small town does actually bring in some employment. Yeah. It doesn't it doesn't take much.
13:32 Yeah. And the the the jobs that do come in there are higher paid. So it's you have a lot of development that comes
13:38 in. You have a lot of infrastructure. You have agriculture. So you have this diverse little town.
13:44 It's the projects on the the 9plex downtown or the 25 unit, you know,
13:49 revitalizing a hotel or converting them into multif family. There's amazing I
13:54 mean it's not ground up infill, but it's the it's basically infill. It's saying they're like value ad opportunities,
14:00 right? And they're they're all over the place right now. There's a lot of underutilized real estate in markets all
14:06 over the country for midsize stuff. Yeah. You know I think there's a good you know so I that's where I started my
14:13 career right which is in the stuff that nobody really really wants or can see the opportunity which is more you know
14:19 there is a gap in that space for a lender that will fill those types of
14:24 opportunities right we as a fiduciary to the family I have to prescribe to the idea that I may have to take any of
14:30 these things back if I have to [Music] and so the question then becomes what do
14:36 we want to take back Yep. And that has to do to with investor profile, how you want to manage it. It
14:43 has all sorts of infrastructure and so you know the family is pretty strong and you know we're we're building
14:51 100 unit multif family where you know we have storage complex we have all these larger things right
14:57 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
15:03 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 got to develop it or whether something we got
15:09 to take back and how does that fit into our existing structure right and then there's deals that fall into this
15:17 category like you're talking about you know not sure we want to own them but likelihood of us own is very low that's
15:22 if it went for it's going to sell it's a great opportunity but it's it's it does add a layer of
15:28 risk because if you don't mind owning it then there's no it's there's almost no
15:33 risk and that's the thing with lending is if you're not going to get out of person who is least able to take it back has a
15:38 better leverage point of it's like okay well our our downside is now covered by the ability to operate this asset in the
15:45 event of ultimate failure and so those that investor classes will then that kind of money to those types of deals is
15:51 weird animal right because generally it's a fund you know you got a handful of guys who know and believe what you're
15:57 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 a $2.5 million with a $750 rehab
16:04 or something doesn't quite fit in what we do, it's a good deal, it's likely
16:10 going to do well. But, you know, if I had to choose between that or a deal that I really don't mind owning, I sleep
16:15 much better at night in that deal because if something goes wrong, I don't have to worry about what how I'm going
16:21 to dispose of the asset or what's going to be ultimately what's going to happen. And that's a lesson in operating uh infrastructure. There's deals like I'm
16:28 based so I live in Dallas. I used to be in Seattle and so okay for me I owned a property management
16:33 company that's based in Grant County Washington. So my risk profile is amazingly different buying a 100 unit
16:40 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
16:46 company in Texas. Like my our current acquisition, we're raising we're well actually we just finished our raise. Uh
16:53 it's in Abalene, Texas. It's 144 units. It's right next to Funny. I don't know why Day Centers. It's not intentional
16:58 thing, but right next to Project Stargate, which is a 500 billion dollar development. Sure. Uh we're on the same street. We're like
17:04 five blocks down. Uh again, they don't add a lot of jobs, but the construction of them adds a crazy amount of jobs,
17:10 which is absolutely if you're right in the front end of a project that's uh 875 acres of real
17:16 estate. That's crazy. I know. It's to be a nerd for a second. They're finally using modular nuclear
17:24 reactors to power this thing, which is awesome technology that we've had Sigma
17:29 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
17:36 so I'll put myself in the shoes of the lender do I mind's a little bit out there but
17:41 you're talking like 180,000 person MSA three colleges military base tech
17:48 medical how do I feel about taking back 144 units at a great leverage point
17:56 I'm willing to go farther out of my box for that cuz I'm going to what am I going to do if
18:02 with the default? I need to make sure that I establish strong on-site management. It has an office there. Easy to operate.
18:09 You can have management, right? Yeah, exactly. It all depends on the systems that you
18:15 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 you're
18:21 a larger family office, you're like, "Hey, I'm going to be looking at things that are larger and easier to run remotely."
18:26 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
18:32 past when in my in my private banking days was a family that had thousands of multif family units. They had hundreds of employees just managing that and then
18:39 one day they're like we're just going to go into wareh you know um Midwest large
18:45 warehouse clip coupons get not have all these people and all these problem. It's just again yeah it depends where you
18:50 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
18:57 and a lot of people just think of it as bricks and sticks and but it's it's it's fascinating.
19:02 No. Well, it's the same reason that a deal for me might not look like a deal for you and vice versa is that the
19:08 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
19:13 would have no capacity to make money on and the price that will work for you will be different than me because you're
19:19 holding a different deck of cards. And I think that is that is a lesson for all investors.
19:24 You should know what your pieces are and where you have competitive advantage because that is where you're going to really get the highest yield and the
19:32 least amount of risk. I think that's good advice and a lot of people don't really understand that because unless you understand the the
19:38 minor and all these little intricacies, it's hard to you don't really know what your dashboard looks like, right?
19:44 It's hard to make some of those decisions. Yeah. As someone who's as someone who's starting in the business. So, so let's
19:49 go on the let's go on the borrower side. So, we'll we'll say, you know, I'd say this podcast probably like 80% are
19:54 investors and we have a whole bunch of other people in there. But if you were on the starting side of building your
20:00 business, you're looking for projects that you're going to attract capital to. What things would you recommend that
20:07 they focus on first? So, let's let's set the stage. I'm an investor. I've done like one single family property. I'm
20:14 trying to figure out how I want to build my business. I'm interested in getting in commercial What things am I looking to do and what
20:20 projects do I think that I'm going to be able to attract capital to? That's a big question because I see
20:25 deals all across the board, right? I I have a client who's pretty well experienced who's trying to raise close
20:31 to $70 million, right? And that's tough, right? You have to have a
20:37 you have to have a a resume for that. So, what steps would you take I'll make the question even simpler. What steps
20:43 would you take to start building that resume to become the person who you want to lend $70 million to?
20:50 Have you done a bunch of them? So, like, how do you get to that point? Right. I I
20:55 think I I I find the people that have a tendency to grow the fastest are the
21:02 ones who will have the ability to establish investor. Like, they've been able to establish a relationship with
21:07 some oddball investor who's been in real estate. He's kind of retired, got a pile of money, has a specialty of some sort.
21:14 You've plugged into that specialty. He trusts that you see you guys see the same things. And you're out doing things
21:20 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
21:26 look at, yeah, let's do it, right? 50/50. Let's do the deal. Right. And some 50. Well, 50/50. If you don't have
21:32 to put up any money and you bring the deal, that's not a bad deal. Especially great deal, especially if they're willing to get
21:37 into finance to get into some sort of longerterm financing, right? Which there's stuff out there right now to go
21:43 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
21:48 hike, right? But there's now capital in those spaces might be a little costly, but once you
21:53 season it, it gets cheaper. And so, you slowly you slowly build that. Um, so how do you get to that? How do
22:00 you get to how do you and that requires you to build a certain amount of knowledge to get to that or an odd
22:05 unique relationship. I mean people don't I think people undervalue
22:10 um relationships and networks. You don't ever know who you meet, what's going to
22:16 happen, what's going to come out of it, right? I always pe I always tell people, you
22:21 know, give everybody the benefit of the doubt. Pay it forward. Be kind. Be helpful. Well, even if you not get paid
22:27 for it, if you love what you do, it shows. Um, and that's kind of what got me here
22:32 today with Coral. I knew one of the brothers for 15 years. We never did any business. We became friends. We were
22:37 talking about a deal and over became friends and next thing you know, the opportunity presented itself and here I
22:42 am today. I would never 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 then
22:49 full circle coming back there again. Right. So, you know, I think developing those investor relationships
22:55 are critical. People always think it's I want to go get a good deal. Well, when you have investors and they believe in
23:01 you and they trust in you, you can do all sorts of things with that. You could blend their money. You can use their money in deals. You can bring them into
23:07 the deals. They might have the strength you need to get the longerterm financing. You do a couple does well.
23:13 What I find investors are you treat them well, you act as a good fiduciary, they don't want to go anywhere else. So
23:20 they'll keep staying with you and they'll as they see it grow and they grow, they'll take more risks with you.
23:25 If you can find somebody who already knows that, then you don't have to sell any of that and they'll then it's do
23:31 they believe in you? Do they believe your person of integrity of good character? Do you say you're going to do what you're going to do? I I mean I grew
23:36 up my dad raised me and the only thing he said is you're only as good as what you were. Mhm.
23:42 That's it. And if you if you can't and I've worked in places where I I wasn't
23:48 able to carry that integrity forward and I didn't like it, you know. And so, um, if you're out there on your own, you
23:55 know, establish those relationship with investors, try to find one, keep looking. Always be helpful cuz something
24:01 will present itself. You know, if you groom enough doors out there, you
24:06 can't control which ones are going to swing open. But the more you have laid out properly,
24:11 the more likelihood one will. And then when it does, that one generally opens up to more doors. And you also find in
24:16 that investor class, as you work with more investors, they know more investors, right?
24:23 And so I think there's two parts that I think of the deal that that are helpful. And especially if you want to
24:28 accelerate, if you want to all those borrow and you got a couple bucks, you can do it that way. But I don't know,
24:34 that's that's what I see most. And and it's largely because those those guys who had investors who found interesting
24:40 deals, who kept pushing and who were very careful and good fiduciaries, it's the typ it's the standard like rule
24:48 of thumb for real estate, right? Always hit for singles cuz then you're a performer, right? But every once in a
24:54 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
25:01 you a million bucks, right? And a million bucks can propel you quite a bit further in the things that you are
25:08 trying to accomplish. And so if I'm if I'm going to summarize the path here, it it really starts with
25:16 making, building, and maintaining relationships. I mean, that's the by the way, you may notice it's called the owner meeting podcast by multif
25:22 strategy. Uh meet the other people who've done the thing you want to do. That is the the core the core thesis
25:29 that we have is that you can learn anything by working with the people who've already built the business. You there is nothing in real estate that has
25:34 not been done for the most part. It's a people having buildings and owning them has been around for a while.
25:42 Yeah. People need housing, people need buildings, people need offices, people need re all the things in real estate
25:48 are things that have been established. So you don't have to reinvent the wheel on any of this. You need to be around
25:53 the people who have already been successful building the business that you want to and good people
25:59 and you will find it's hard to do when you have a motivation because you need members. You need
26:04 something. Somes you overlook certain things and my experience is if you
26:10 connect with the wrong people it attracts other wrong people. It attracts problems. Um doesn't take many problems
26:16 in real estate to set you way back. Right? So, and if you do if you do one good
26:23 successful deal even remotely publicly and you start talking about it, the the
26:30 right and wrong people will start finding you when when when there is money made in real estate and you're
26:35 like, "Oh, who are these who are these people to stay away from?" They will find you shortly after you start making money.
26:41 Yeah. And that's hard to know when you're young. That's what I mean. That's part you don't you don't it's hard to
26:46 understand. Yeah. Well, and honestly, what's probably going to happen is you're probably going to if you're listening to
26:51 this podcast, you're probably going to get into uh you're probably going to get into a deal and you'll you'll partner
26:56 with someone and go like, "Wait a second. I once it happens, you'll be like, I remember I remember this being
27:02 mentioned that these people are out here." It happens to almost everyone. Um I've certainly had plenty of people. I
27:07 partnered with uh someone briefly on a PM company that a completely wrong person uh came in on their their private
27:15 jet and was like, "Hey, I want to fund this thing with you." didn't make a whole lot of sense then make sense now why it didn't make sense. There are some
27:21 weird wacky people out there who will do a lot of damage. Yeah. You know, I remember when um 2008
27:29 happened and you know before everybody's making money easily and so I'd have different types of people coming in who
27:34 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
27:40 I 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
27:48 marriage. I have I have guys that I've worked with out of the 2000 where we all crawled out of a hole together.
27:55 Um and now we are today successful again fortunately. But those are guys I can hand 100 grand to on a handshake.
28:02 You know the the level of trust is so high. It's fun to work with. It's fun to
28:08 have that sense of safety and and to have achieved that you know.
28:13 No, I absolutely agree with that. Well, this is a great transition actually to our uh our my favorite question of all
28:19 time, the stupid tax. Now, traditionally, the dumbest you're ever going to be is at the beginning before
28:24 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
28:32 fortunate enough. Yeah. Yeah. You you saw 2020 2021, which was a if if nothing else an interesting
28:39 time in real estate. a lot of lot of takeaways from how the markets reacted to uh that I thought less predictably
28:45 than I would have thought actually to uh 2020 2020 or I guess 2019 2020 anyway.
28:50 Yeah. What was the highest stupid tax that you paid along the way through all the years
28:56 of building the business and being in real estate? This could be monetary. It could be social. It could be hey we we burned a friendship or had a wrong
29:02 partnership. But what was the lesson that you learned that someone else can save themselves a ton of time, money or
29:08 pain on? hubris. When you think you know it and you think you know it all, that's
29:13 when you need to check yourself at the door and black swan events do happen.
29:22 So, how do you do business with that mindset, right? You just you're just cautious back to swing, you know, go for
29:29 singles, have many outs in every hand. What you end up doing is you end up putting more on the table, putting more
29:34 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
29:40 great for investors because you can get a lot you can get money, right? And high loan to values and high loan to cost, but just because a lender is willing to
29:46 lend you the money doesn't mean it's a good deal. Mhm. So, yeah, handful of
29:52 things, but it's it's it's hubris thinking you know what's going on. Thinking your deal is great, thinking everything's awesome. Think you just you
29:58 have to you also have to look over your shoulder. It's different if you could make little mistakes all but in real
30:04 estate often you can't Yeah. You can't make mistakes.
30:09 I find the most successful people in business more often than not tend to be optimists. But when you take that
30:17 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
30:23 will not all always work. You will not get perfect dice rolls and if you make mistakes, you're going to compound them.
30:29 But there sometimes in real estate, you can play a near-perfect game and like
30:34 you black swan events happen. Something can still happen like I think the problem is you could do if
30:40 you're fresh into a market and you've never seen it, everything's gone up. you drop a dollar and you pick up $10 and anything that's going to hap it that
30:47 that's not always going to happen. No. No. Not at all. And that won't happen in there is no asset class or
30:52 business that that happens in. There is no business where you part of having a good partnership. Yeah. Part of having a good business and
30:59 people is on your advisory group. You do need developers are and real estate
31:05 people are internally. You have to be right. It's not a small undertaking. Mhm. But it's good to attach yourself to a
31:10 keel. have somebody you know that's your wet blanket that you talk to and like oh no and because they can help you
31:17 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
31:23 bit wet who's seasoned understands a little bit wet blanket you know and your willingness to acknowledge that and that
31:30 that is your role together you know I think that's that's helpful yeah I think I think having partners or
31:36 at the very least having mentors I mean finding someone it could be someone it could it doesn't have to be paid at all. But I mean there there are great paid
31:43 mentors. There are great free mentors there. And I've noticed that the mentor that you will find will change in
31:48 whatever season that you're in as you scale. That will change. And the more you do,
31:54 the more interesting people that you end up finding in your group. As I went through, I reference him on my channel
31:59 all the time, but like an investor who I really appreciate. He has a smaller portfolio than me, but unbelievably more
32:04 experienced. The guy named Matthew Hawkins out of New Hampshire of all places.
32:10 So it's like vest way far away from me, but the way that he built his company,
32:16 it runs at a lower cost and more efficiencies than the way that I built my business originally. And so when I
32:21 get stuck, like you access more and more people as you go. And so there must be something though there
32:27 that's beyond that, right? Like some sort of affinity like you you know what I you connect to people, you connect, they can know a lot of things, but the
32:34 way you communicate, you know, I don't know if that's an intuitive thing over time after you deal
32:40 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
32:46 usually someone who's like, "Yeah, I I appreciate what they've done." Like like first it starts there, right? you you built something that I don't know how to
32:52 build or you have more experience and it becomes like also we tend to agree on ideologies and we have like
32:58 it's usually someone who you have a actual deep personal connection with or you're like hey you usually want to emulate more than
33:05 just their business that your your real mentor is like hey I want to behave and act like them in business and
33:11 around other people those tend to be the people you really want you share the same values right so you're valuedriven because if you're not
33:17 valuedriven you make decisions from different places right So yeah. Oh, and you had mentioned earlier having the right board of adviserss.
33:23 It's putting together the right people who see your blind spots, build a team, and that's where you end up getting a
33:28 business that really is much much much more resistant to things like black swan events or other things where if you can
33:37 see more things and you move with with caution in the right areas, you hit that
33:42 ultimate goal that we mentioned at the beginning of the podcast, which is not having to build the business twice.
33:47 Yeah. Not making Yeah. Avoiding mistakes. would rather be a quarter of the size that I could be but never have
33:53 had to restart. Uh, and if that's you, you should follow instructions. No, I mean I it's funny because I can
33:59 I'm very blessed and fort to be where I'm today cuz it's I can I can it then
34:04 it then allows me to tolerate all the things that I went through to get here. Right. Yeah.
34:10 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.
34:17 Yeah. Now, I I did an interview recently with someone had the opposite advice, which is crazy to me, but his name's Andrew Cartright. He's a larger
34:24 developer in Las Vegas. Yeah. And I was talking to him and I'm at his house that has like bumper boats in his
34:31 pool. I mean, just this massive, unbelievable, unbelievably wealthy individual. And
34:37 when I asked him like, "How'd you get here?" He's like, "Oh, infinite risk tolerance." He's like, "I've been out four times. I've rebuilt from scratch."
34:42 I'm like, "I am not. I'm I'm happy with it. Toyota Tundra has been my dream car
34:47 and I I have the my dream Toyota Tundra. I'm a happy guy, right? But he has the Paganis and the
34:52 Lamborghinis and the Ferraris all in his podcast studio and it's like
34:58 I'm like, you know what? I would take the I would definitely trade the lack of
35:03 stress that it took of being out four times in business for him to get there. I'm like, personally, I would rather
35:09 have 1/100th of his wealth, which is still a lot of money. He's very wealthy guy.
35:14 Yeah. No, but that's a good point, right? Rebuild four times. It's knowing yourself, right? What you're good at what and to put Yeah,
35:20 because and that's the other thing, you know, people look at other people and go, I want to be like that, but you don't really know
35:26 how they got there or what. Yeah. That's how sometimes you don't really ever going to know the story.
35:32 Yeah. Yeah. You got to know who you are. Yeah. And if it means going slower, my
35:38 vote is go slower. You do not need to speed through everything. It doesn't take that long
35:44 really to make money in real estate. But but I had to learn that. Yeah. When I was I was like, "Let's go, you
35:49 know, I want to take on everything." And yeah, I share this probably too often on the podcast, but like early on first
35:54 year real estate, I I'd done a few seller finance transactions and someone was like, "Hey, you should buy this $4.5 million resort, seller financed that
36:02 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
36:09 to run a resort and 50% of your assets are now a resort that you have no idea how to run."
36:15 That was brutally hard to figure out and recover. That was that set me back three years.
36:20 Yeah. Making one decision of, oh, let's go and let's build faster. Had I not done that and just slowly kept
36:26 buying rental properties, I would have had this hyperstable, basic, boring business that made three times the
36:32 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
36:38 business. You can build crazy wealth in five years, but you don't need to make
36:44 it all happen in year one or two. You just don't. And you don't need to say yes to every opportunity, which
36:50 again, like you said, that's that's depend on everybody's drive, right? What they want, you know? Yeah, that's true. I guess if you want
36:56 to make like $6 billion and you're starting with zero, you probably need to say yes to everything goes well.
37:01 Yeah, exactly. But if you don't want to roll those dice, you can do that's not my personality.
37:07 Yeah. And 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
37:14 this is going to perform? What are our ultimate downsides? You know, you're protecting wealth that has already been
37:19 created. It's different. That is a different job. It's preservation of capital. We get good returns, but number one rule, don't
37:27 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
37:34 all capital raisers. What is more important? Making money or not losing
37:39 money? Me? Yeah. Not losing money. Amen. When you're pitching for capital,
37:45 I this drives me nuts when people start their pitch on like hey look at let's start with the numbers look at look at
37:52the returns. I'm like no one the fact that the deal makes money is awesome and
37:58 necessary and that's an assumption right and it's my least interesting piece of the I'm like tell me three thing if you
38:04 want you guys if you guys want to raise millions of dollars this is this is the key. Number one before you get into numbers tell me what the heck we're
38:10 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
38:16 how we're going to solve them. At that point, I already know like internally now I'm hoping like hope the numbers on
38:23 these are good because this is I'm excited now. I'm bought in, right? I want it to work. Most important thing that's 90% of
38:29 capital raising. Tell me why you are excited about the deal and what you think is going to go wrong. Number two,
38:35 tell me how you're going to protect the capital. Why is my money safe here? If
38:41 you can get me excited about a project and convince me that I'm not going to lose money, almost definitely I'm your
38:47 investor. Yeah. 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
38:54 icing on the cake that gets you to Yes. newer investors think it's about finding
39:00 Well, the interesting thing, new investors are trying to make the money, right? So, there's a there's a it's there's a relationship's misaligned. So,
39:07 you have to cater to your audience, right? trying to make money. They already got money. They just don't
39:12 want to lose it. So yeah. Yeah. You're speaking to a different audience for sure. Yes. And remember that their objectives
39:18 are not your objectives. You are trying to make money. You do not need to communicate that you need to make money.
39:24 That is assumed, right? Go throughation. But this is true for everyone who has
39:30 built wealth. It is critically important to not start over. We do not want to lose money. I love that analogy. We
39:36 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
39:41 growth growth phase. My risk tolerance is I'll lose the bait. Don't take my rod. You have more to lo when you have
39:47 something to lose. Your approach is different. When you're starting, you got nothing to lose and everything to gain is very
39:52 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
39:59 this a safe investment? Not why is this a high growth? You're not trying to promise them a 3x on return. You're
40:05 trying to promise them with a minimal amount of investment, this will be an exciting project that
40:11 makes sense in your portfolio and is a responsible use of your capital. That is what you're trying to present. Yeah. Because a multiple over time,
40:17 their money will double, right? They're not living off that money. So, they just want it parked somewhere where they can
40:23 look back in seven years and has doubled. Yeah. Charlie, if someone was trying to get a hold of you, had follow-up questions on
40:29 the podcast, had interesting projects to lend on, how would someone get a hold of you? Uh, email me directly, charlesfat
40:35 1892cap.com or you can give me a call um 253-592-3452.
40:42 I like talking about deals. I like I love the business. So, I'm a bit of a nerd about it. Like I do my best to get
40:47 back to people as soon as I can. Often I get my number out and I'm trying to keep up. But I I like to make myself
40:52 available. I like to help people. It's so and I've noticed that that's that's so true of so many people who
40:57 think once you were farther in their career. is the most rewarding thing to get to play the game with other people,
41:03 help bring other people up and so I appreciate you coming on the podcast and sharing your Yeah, it's just fun podcast to be on.
41:09 Thank you so much. 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
41:14 day, you're trying to break the 9 to5. Uh you can actually just listen on your drive to work and learn from people who
41:21 have actually done the thing that you want to do. Charlie's a fantastic example of this. I appreciate you being
41:26 on the pod, man, sharing your knowledge, and we'll see the rest of you on the next episode. Thank you,
41:32 dude. Thanks for hanging out. That's fun.