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Ep 91: Scaling from Single-Family to Commercial Real Estate with Chris Larsen


Each stage in the real estate market cycle presents a variety of opportunities to shift the acquisitions thought process and the ability to add various asset classes to our portfolios, but how can we acquire better quality assets and get higher cashflow? There are a number of things we need to consider, and today’s guest has some valuable advice. Chris Larsen is the Founder and Managing Partner of Next-Level Income, which helps investors become financially independent through education and investment opportunities. Chris has been investing in and managing real estate for over 20 years, buying his first single-family rental at 21 while completing his degree at Virginia Tech. During his career in the medical device industry, Chris went into development, private-lending, buying distressed debt, and commercial office, ultimately expanding into syndicating multifamily properties. He began syndicating deals in 2016 and has been actively involved in over $150 million of real estate acquisitions. In addition to real estate, Chris has invested in equities, oil and gas, and small business lending, as well as being active in VentureSouth, one of the nation’s Top 10 Angel Investing groups. Tune in today to find out more about how Chris has scaled his business from single-family to commercial real estate!

Key Points From This Episode:

  • Chris shares a bit about his background, getting into real estate, and his business.

  • Chris has been syndicating deals since 2016, but he always had a value-add strategy.

  • Moving into higher quality, cashflow positive assets in fast-growing markets.

  • His steady career in the medical device industry allowed Chris to start investing passively.

  • The time for scaling – Chris recommends finding a mentor to help speed up the process.

  • Chris got into commercial to increase his IRR, and pay less tax as a high-income earner.

  • Chris explains shifting from C to A-assets after learning about the life-cycle of real estate.

  • Getting better quality assets and higher cashflow – higher occupancy equals better cashflow.

  • As competition for value-add properties drives cap rates down, there are different opportunities for forced depreciation.

  • Going up an asset class and considering replacement costs, delivery, and adding amenities.

  • Chris looks at median income and the affordability gap in an area to determine max rent.

  • Regarding amenities, Chris is drawn to technology, like Amazon Hub and high-speed internet.

  • Is it worth having a gym in the building? Chris argues it’s safer now during COVID, but it doesn’t really make sense from a numbers perspective.

  • The value of careful underwriting and building relationships with management companies.

  • Due diligence in the time of COVID – Chris has baked in higher vacancy rates and is closely considering collection rates.

  • The value-add discussion Chris had with his investors going into COVID.

  • Looking at debt – Chris uses Fanny Mae Freddie Mac-quality debt and has fantastic rates.

  • Chris’s capital stack or waterfall – lenders get paid first, then class A and B investors.

  • If you’re an investor, make sure you know what you’re getting into and you’re comfortable with the break-even numbers.

Tweetables:

“I was looking for ways to increase my IRR on my equity, and pay less tax as a high-income earner, and that’s why I started looking at commercial.” — Chris Larsen [0:11:47]

“Things we look at are how far below rents are we for a new product, what have the deliveries been, and do we have the ability to add amenities that are not there in the new product that is coming out?” — Chris Larsen [0:21:46]

“I think the answer is, you can make any of the asset classes work, it just depends on what your choices are and your sweet spot is.” — Chris Larsen [0:28:52]

“If you’re an investor, ask what the leverage is, own to value, ask what the break even numbers are for the lender, for the property, also for the investors if it’s split, and make sure you’re comfortable with those numbers.” — Chris Larsen [0:39:20]

Links Mentioned in Today’s Episode:

Chris Larsen on LinkedIn

Chris Larsen Email

VentureSouth

The Secret Life of Real Estate and Banking


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