Chris Larsen, Founder of Next-Level Income, joins us to discuss his journey starting with his first real estate investment project at age 21 and his “Make, Keep, Grow” financial philosophy that has allowed his family to achieve financial independence and invest in large multifamily real estate projects today.
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Transcript
Devin:
Chris, hey, welcome to the show. How are you?
Chris:
I’m great, Devin. Great to be here.
Devin:
Awesome. Thanks for jumping on. So we’re going to dive in and talk about some real estate here, obviously. But before we get into all that, love to learn a little bit about your background and what got you interested in real estate and headed in that direction.
Chris:
Yeah, so I started as an investor when I was 21 years old. Actually, I started as an investor before that. I was day trading in college. I got interested in the stock market when I was 18. And this was pre-Rich Dad, Poor Dad. So everybody’s got that story when they first read Rich Dad, Poor Dad. I was given a Money Magazine by a family friend. And it was talking about how to get started with a Roth IRA, which were kind of new at the time. And the big thing that caught my attention was that curve of compound interest. And I thought, “Oh, I can do this.” So I started investing. And then that was in the late ’90s, so kind of like today, the stock market was crazy. It was to going to all-time highs at that time. And I started to learn how to day trade.
Chris:
So I was day trading in college. I was making some months $5,000 as a junior in college. But I was also not sleeping well a lot of nights, I was laying there in bed.
Devin:
Oh, yeah, pretty exciting.
Chris:
Oh yeah, exciting. I would just say stressful. So one of those nights, I’m laying there and I’m thinking, “Okay, is this really what I want to be doing in 20 years?” So I was about 20 years old thinking, “If I’m 40, do I really want to be dealing with this?” And the answer was a sharp no. So I started thinking about other investment opportunities. Ultimately, went on to get an MBA, but in the process, I took a lot of courses, read a lot of books on real estate, bought my first single-family rental at 21, built a portfolio. And I talk about this in my book, by the way, which I’ll tell your audience how they can get a free copy here in a minute.
Chris:
But I did that for 15 years, and then ultimately got disenchanted, was sick of the phone calls, dealing with problem tenants and turning units, and ultimately sold all those properties, starting about seven, eight years ago. Six years ago now sold the last one, and all that money got rolled into commercial deals and mostly multifamily. And that’s what we focus on now. So we’ve been not only investing in multi-family since 2013, but we’ve been syndicating deals since 2016.
Devin:
Outstanding. Yeah, very natural progression going from the single family houses, realizing some of the limitations, transitioning into multi-family. That was my journey along with countless others. On that first house, 21 years old, was that a hard money loan? Was it a family loan? Was it a regular loan? How’d you get into that project?
Chris:
Yeah. So at the time you could do a… I’m trying to remember the name of the loan, but you could do a 3% down loan. So it was a 90,000-
Devin:
FHA?
Chris:
Yeah. It was FHA, 3% down, so that $90,000 townhouse I bought, I had just a few thousand dollars. I had my mom co-sign on the loan for me. And I rented out two of the three bedrooms. I ended up buying the place next door. So I had a little mini six-unit multi-family, if you will, two side by side. Rented out five of the six bedrooms that I had there, and I was not only living for free in the one, but I was making money off the one next door. So I was like, “Okay, I can do this,” got my real estate license, and just started, started doing more and more of that. But ultimately, after a few years, I didn’t have a lot of money. So I went into medical device sales. I did that for 18 years, was fairly successful in that. And I tell a lot of people my role was I saved 50% of what I made. So once I was making a good healthy six-figure income, I didn’t increase my lifestyle. I just increased my investing, and we were financially independent by the age of mid-30s, about 38, I think it was.
Devin:
Love it. Yeah, there’s that kind of invest till you’re broke mentality, which I have subscribed to too. It’s like if there’s cash laying around, I’m putting 50 or 100K in somebody’s deal, if it’s our deal, if the timing works out. I kind of kept this philosophy over many years. I really don’t keep a cash around beyond kind of what I need for a required reserves for a loans and stuff. But I like to get that stuff out, get it out of my hands, go put it in a real estate deal, and just keep it moving and growing. That’s a fantastic approach. So it’s very tempting, and pretty much everybody raises their lifestyle to their income level almost immediately. That’s just kind of the standard for how it goes. For you living on half of your income, what were some strategies to make that happen? Because you’re obviously working hard for that money. You’re getting promoted. Med device sales can be a stressful gig. How did you maintain the discipline to stay at 50% of your income?
Chris:
Yeah, so Devin, I think that’s a great question. I think the key is you have to go into it very consciously, right?
Devin:
Right.
Chris:
So let’s say you’re listening and you make $50,000. So I say this a lot, my rule’s save 50%, and I get pushback. People are like, “I make 50 grand. How can I save 50%?” I’m like, “Well, slow down. Let’s take a step back. So if that’s the goal, you don’t have to do that today, but let’s make that your goal.” So that was my goal when I started out. So my first job, I think I made 18 grand, you know?
Devin:
Yep.
Chris:
So it’s like, “Okay, well, how do you save 50%?” Well, you could save by paying down a mortgage. You could save by putting it in your 401k. You could save by investing in a real estate deal. There’s a lot of different areas. So look at all those things, and you’re probably saving more than you think, if you’re consciously doing it. But let’s say you’re making 50 grand, and you say, “Hey, I want to save $50,000 a year.” How do you do that? Well, I talk about in my book, “Make, keep, grow.” And I said I’d tell you how to get a free copy. So if you go to nextlevelincome.com, you can click on the book link and you can put your email address in there. You get a free ebook. If you put your address in there, I’ll send you a copy for free. So nextlevelincome.com, click on the book link.
Chris:
So I talk about, “Make, keep, and grow.” So first you need to start out and think about how can you make as much money as possible. I think that’s key if you’re starting out. So if you’re making $50,000 a year, figure out a way to increase your business. If you have a business, figure out how to improve your business. If you have a career that you’re topped out at 50 or 60 grand, maybe you need to think about switching careers, or maybe you need to think about having a side hustle. That could be in the real estate field, where you’re working with somebody to help them find real estate deals, and you’re getting a cut of the equity. Maybe you’re getting a finder’s fee for doing that.
Chris:
Maybe you drive Uber, and you use your Uber dollars. I actually met an Uber driver, and it was his second job. And he was working in a pharmaceutical plant, and he would drive Uber in the evenings and the weekends on his days off. And he was taking his money, and he was buying his first short-term rental. So he lives not too far from me in Asheville. And he’s telling me the story. I’m like, “I love this story. I’m going to retell this story,” because here’s a guy who figured out how to make more money, how to keep more of that money, which is what we talk about, and then how to grow it by buying a property that he could turn into a short term rental. And he was already telling me how he was going to buy a second one. So it’s really mindset. Figure out how much you want to save, how you’re going to do it.
Chris:
And then if you say, “Hey, I’m going to live the $50,000 lifestyle until I get to a $100,000, and I’m saving 50%.” Now, once you go over a hundred, let’s say, make 120, well, let yourself spend half of it. Spend $60,000, that way you’re rewarding yourself. And if you do it early on, and you figure that out, it doesn’t take a lot of years of sacrifice before all of a sudden your lifestyle is increasing. But if you make an extra 100 grand, don’t spend 100 grand; spend 50.
Devin:
I love it. Thank you for elaborating on that because that’s a really important concept to break out of the orbit or the gravity of kind of the standard deal, which is college, job, retire, which is not going to make you wealthy in general. Now, there’s some folks that get stock and get lucky or something happens in the career. I was in my 30s, and I realized none of that was going to happen for me. If I’m going to be wealthy, I going to have to go build it. I’m not getting a lightning strike here. And I wouldn’t count on that. Anybody listening, I wouldn’t count on lightening striking. But there’s a gravity and an orbit to that steady paycheck that you’re going to have to break out of. And it’s going to require a massive force, but it’s not forever. It’s not live on beans and rice, rice and beans forever.
Devin:
My wife cried when I told her in 2008 I read Dave Ramsey’s book, Total Money Maker. I said, “Hey, we’re going to sell your car.” We just got married, right? “We’re going to sell your car. I’m going to sell my car. We going to live on beans and rice.” She’s like, “What did I sign up for marrying this guy?”
Chris:
Till death do us part, baby. Yeah.
Devin:
But it was a couple years. And now we live like this fantasy life, right?
Chris:
Oh yeah, yeah.
Devin:
Which in retrospect, it’s like, “It wasn’t that hard.” But at the time, it was difficult. So that kind of like do-anything-sacrifice mentality I think is really important for a period. Eventually, you talk about, “Make, keep grow,” you’re not scrounging pennies forever, but you have to have some capital to work with so that your assets can start working for you. And if you’re not working with a lot of capital in the beginning, like I wasn’t and lots of other people weren’t, you got to do whatever it takes to, to build it. If that means driving Uber, that means cutting your expenses to the bone, man, I love it. I’m all for it. You’ve got to sacrifice somewhere.
Chris:
Yeah, if you’re listening to this, you’re already invested in yourself, you’re already doing something, but at some point you need to convert that to action. So yeah, that’s, that’s spot on Devin.
Devin:
I love it. I love it. Well, we’ll link to the book in the show notes for people to get a download there, for sure. I want to pivot a little bit. We talk a lot about multi-family on this show to how you guys got into multi-family in 2013. And then why the switch to syndications? And what did that look like? What was the motivation? What were some challenges? Why did you move it in that direction?
Chris:
Yeah, so a great kind of step-by-step process here. So I went to school for biomechanical engineering, worked in med device sales, but I got an MBA and in finance and portfolio management. And investing is kind of my hobby. So some people work on cars. Actually, I raced bikes for a lot of years too. So I’m a numbers guy, but I also talk about how I’m a demographics guy. I got into medical device, because if you look at the baby boomers, you could tell that, “Hey, they’re going to have more surgeries. They’re more active. They’re living longer. They’re going to need knee and hip implants.” I thought, “Okay, this is cool.” When I learned about the space, I thought this is going to be a space that’s going to be supported for a lot of years. It’s going to be stable.
Chris:
So I like long-term stable trends, Devin. I like something I can bank on for 10, 20 years. So I buy these properties, and my plan was simple. I was like, “Buy enough properties to have $10,000 coming in after expenses, before debt service, so after expenses.” So if they’re paid off, that’d be $10,000 a month that was coming in, and I’d just pay them off. And I was like, “If I can do that in 15 years by using the money I’m making, that’s pretty simple. I’m 25; I got these properties. I’m 40, and I’m financially independent.” So I start down that process, and after about seven years, I get to the point where I’m like, “I’m getting 300 bucks coming in a month. I’m paying down the mortgage.” It’s like, “Oh, it’s 500 bucks a month.” It’s like, “Okay, it’s not a ton of money from these properties, but it’s getting there, but it’s kind of slow.”
Chris:
And I’m looking at the equity in these properties, and it’s growing. I’m thinking, “Man, I got like $100,000 of equity in this property now, and I’m getting 6,000 bucks a year. There’s got to be a better way.” And I was in a meeting with my wife. We were helping her grow her business. She’s an architect. And this was nine years ago now. And we’re talking about investments in real estate, and I was telling this guy about my portfolio. And he goes, “You should look into multi-family. I got a friend that does syndications, and you could invest with them. And I was like, “Yeah, it’s kind of the same thing.” I’m like, “But I’ll talk to him.” So I talked to him, and he starts telling me about it, and it was like he was speaking the same language about the demographics that got me into medical device.
Chris:
And I started out like, “Have you read this author? Have you read this author?” And he goes, “No.” And it was, it was the exact same thing that I had read 5, 10 years before. I thought, “Wow, this is the exact same trend, but with the millennials versus the baby boomers this time.” And I thought, “All right, I got to get into this space.” And then, oh, by the way, the returns were twice what I was getting on my equity, and it was 100% passive. So I was like, “This is awesome.” So it was a no brainer. I started selling properties. And as far as syndications goes, I actually introduced my now-former partner to the same syndicator, to the same space, and he started investing. After a couple of years, he was able to leave his security sales job. Cyber sales is what he was doing.
Chris:
And he came to me. He said, “Hey, I want to start doing syndications. What do you think about being in my partner?” So we partnered up. We actually had more experience than the group we were investing with from a real estate perspective. And then from the numbers perspective, we had a good team mentality going into it. So it was just a natural transition to go from being active in the single family space, and my wife and I were building spec homes, to being active in the multi-family space. It was all the same skill set. It was just put together in a slightly different way.
Devin:
Yeah, that’s interesting. It is just kind of a transition of those skillsets. I love it. We talked about return on equity. There’s a lot of people that aren’t paying attention to that metric. And another one is kind of return on net worth. You may have done well, or some of us may have done well in growing a net worth, but what’s the return on that? And a lot of times that number is kind of shockingly low. And you talk about return on equity. That’s a great metric to look at. It’s a great metric to look at, and you want to maximize that as much as possible, while still being conservative and not losing your principal, things like that. Let’s talk about the first kind of foray into syndications and starting to raise capital from other people. How did you guys approach that? I know that’s kind of a milestone for some people in their businesses, when they start using more OPM, other people’s money. And it allows you to effectively have unlimited capital, essentially. What was that transition and journey like for you guys?
Chris:
Yeah, so we started off our first deal, we partnered with the group that we had invested with. And again, I think if you’re listening, you’re like, “Hey, I want to take the next step.” Whatever that next step is, find somebody that can be a mentor, find somebody that can be a partner to you, because you’re way better off hitting like a guaranteed single or double, or a really sure single or double, than swinging for the fences on your own and striking out. You want to get some consistency. And I think speaking specifically about syndications, if you’re asking other people to invest with you, it’s even more important, because you have got to build the confidence in a very predictable fashion. That’s one of the reasons I like multi-family, because it’s stable. It’s predictable, so it’s a great area to start in syndications, I think. It’s also a great area to invest.
Chris:
So that first deal we did, it was 100-unit deal, nine million dollar deal in an Atlanta submarket, And we raised a little over four million dollars for that deal, pretty heavy value-add property. And I’ll tell you what, people are like, “Oh, you raised four million dollars.” I’m like, “It was four and a half million,” because that last half million I’ll tell you what. When you’re raising money initially, it’s like you scratch and claw every single step of the way. If you look from the time we started, it was probably almost a full year that it took us to raise that money, whereas fast forward five years, that could be a week to raise that same amount of money. So it’s just amazing how it builds up over time.
Chris:
But I think the key is you want to have a team that knows what they’re doing, that can be predictable. You want to go into a deal that’s fairly conservative initially. If you think you can raise five million dollars, maybe go for a deal that you only need to raise three million. I would even say cut that number in half. If you think you raised ten million, raise five million. And then really over-communicate with your investors, communicate, communicate, communicate. Let them know what’s going on. That’s really going to be key as you build your track record and your confidence.
Devin:
Love it. Those are such great points. And really you just look at it from the investor’s perspective. What would you want to see as an investor? What experience do you want to have? And just build that for other people. Put investors first. And it’s that Zig Ziglar comment, “You can have anything you want in life, if you help enough other people get what they want.”
Chris:
Absolutely.
Devin:
And this point, you’re helping dozens or hundreds of investors get what they want, and it works out pretty well for you by facilitating that, which is a pretty cool business model. There was some stuff when I was in corporate America, which I wasn’t thrilled about doing. I thought it wasn’t great. I actually liked the multifamily business. I kind of like all the aspects of it. It’s kind of a win-win set up there. When you guys were raising capital, because that’s a hurdle for people to get over, what were some things that worked well for you when you were trying to establish yourself? Now you push a button, you’ve got a track record, you got investors and all their referrals, and it gets really kind of easy. It’s like walking up a seesaw. It’s hard at first, and then it just tips over, man. And you guys can probably raise all the capital you want these days. But in the beginning, tougher, what were some things that were helpful to you getting that first capital raise done?
Chris:
Yeah, I mean, I kind of did it the old fashioned way starting out, Devin. Being in sales, I think you mentioned putting investors first, that’s on our website, putting investors first. And I took that from putting patients first in the OR. If you take care of the patient, everything else takes care of itself. The money follows that, certainly. So that’s kind of where that concept came from. But really it was a lot of one-on-one conversations, a lot of educating, and that’s really the first thing. So if you want to raise money, if you want to do that, I think you have to think about, “Okay, how can I educate people and give them the knowledge,” because knowledge is going to make them more comfortable.
Chris:
I just had an investor call earlier today, and you get it on the phone with an investor, or a Zoom call nowadays, and they say, “Oh, I’m sorry, I got another question.” I’m like, “Don’t apologize.” I get nervous when investors don’t ask me questions. I want investors to ask all the questions, give them all that information. So I think if you’re starting out, you want to think about building an education platform. And really, I did this backwards. I started off with these one-on-one conversations, and then I realized, “Hey, I’m having all these same conversations over and over again with people that aren’t even investors. How can I curate this information?” We started the podcast started, the blog, started the website. And that website actually became the platform that now is used to educate investors, along with the book and everything. But it wasn’t by initial design, even though that’s how we do it.
Chris:
So if you’re looking to raise money, I think the first thing you needed to do is figure out how can I enlighten my potential investors to the same thing that got me interested in this area in the first place. I think that’s a great place to start.
Devin:
Yeah, that’s right. It does kind of turn into the same kind of set of questions, which is great. It’s like you welcome all the questions, but it’s like, “I feel like if I had 12 videos explaining 12 concepts that would cover 90% of what people are asking.” I remember doing that years back when I was starting to raise capital, was like, “Let me just put some videos out, really kind of an FAQ, and build a content library over time in that way.” And that’s a good way to leverage your time to be in front of people. And then if they consume some of that content, then they come and have that conversation with you, there’s at least kind of a base layer, because you’re going to talk to all levels of people. Somebody’s brand new to it, you’re going to be answering some very basic questions. If they’re a little further along, you can have a little higher level discussion.
Devin:
But that content is very scalable. You can build some evergreen content, and that that content might serve you and your investors for years to come. And it’s pretty minimal investment on the front end to put it out there. On that first deal, you mentioned a year to raise the capital. How was that deal structured? You didn’t have to raise it all before closing? Or what did that look like?
Chris:
Yeah. And we didn’t say, “Hey, here’s the deal. We’re doing it,” and then it took us a year to close. We started talking to investors in November of the prior year. So started talking to investors in November of the prior year, and it was kind of like, “Hey, Devin, are you interested?” It was like, “Yeah, I’m interested,” getting like super soft reserves, just like, “Hey, yeah, I would appreciate a call back to let me know what you’re doing in three to six months.” And as we got closer to the deal, we got something under contract going into the following summer. We ended up closing the first week of August. So I’m trying to remember exactly when we launched that deal, but call it two months before that. We didn’t have all the capital raised at the time of closing. We still had to raise maybe a million dollars of that four and a half million as far as the reserves and some of the capital expense budget was concerned. It probably took us another month or two after that.
Chris:
So from October, November of the prior year to, call it, September of the following year. I say a year, maybe 11 months, but that whole process. So the reason I say that if you’re starting out in this process, and you’re like, “Man, I feel like I’m not getting anywhere,” I think it’s even more competitive today, so you might even have to spread that timeline out even further. But don’t be discouraged. And then when it comes to building a platform, my coach, I was talking to him about this. He’s written a couple books, and he’s not specific to the real estate industry, by the way. He’s not even in real estate really, but he told me, he’s like, “Yeah, I found it took about two to three years to basically build up my platform, my list, and get people interested.” So there’s just some metrics. If you’re starting out, a year is a good timeline. If you’re building a platform, it might take you two or three years to really build up the content, the track record, and the interest in people before you kind of get to that. So you just have to be realistic in your head, put your head down, keep doing what you can control, week in, week out, and eventually the results have come.
Devin:
Yeah, I love it. Luckily we’re not playing a transactional game here. This is a longterm relationship-based game. So those investments that you’re making in your platform, in those relationships, that stuff’s going to be around for years and years to come. You’re right. That work in the first year is maybe going to look like it’s fruitless, and that’s okay. You’re building something here that can pay dividends potentially for the rest of your life here. So slog it out through the first year, and keep at it. I love it. At this point in your career, looking back on your particular journey, what is something that you would change in how you built it all, with the knowledge that you have now, if you could go back and change one thing?
Chris:
Well, first off I’d start in the commercial, in the multi-family space a lot sooner, without a doubt. I’m trying to think. I would also go into it more with a team aspect, build a more robust team initially. My initial partner, we really didn’t have a scalable model in mind. In the group I work with now, we’re built out for scale. We have a team that can manage a billion to two billion dollar portfolio. Initially, I was looking at, “Oh, this would be cool if we can get to $50 million.” That seemed like a big number, and I just wasn’t thinking big enough. So one, starts sooner; two, think bigger.
Devin:
Yeah. I love it. That’s such a great point. I’ve had similar experiences, where really busted my tail on a business model that just wasn’t built to scale in the single-family world. The multi-family world lends itself much easier to scaling. You hear a guy on a podcast, they’re buying a couple of hundred units, and you check in with them a few years later, and they have thousands. You go, “Wow. Okay, well… ” You don’t talk to the guy flipping three houses, and then he’s flipping 3,000 houses later. It doesn’t scale the same way. Yeah. So what is ahead for you guys? Looking into the next year, we’ve got COVID hopefully starting to be in the rear view, who knows what’s ahead, right? But I like what you said about control what you can. That’s where we put our focus. What’s on the horizon for the next year and beyond for you guys?
Chris:
Yeah, so our focus is still mostly in the multi-family space, but we’ve scaled into self-storage. So we’re doing some self-storage deals now. We just closed on our first deal just in the past month or so here.
Devin:
Excellent.
Chris:
So we’re looking to continue. We have two properties that are under contract that we’ll be closing on in the multi-family world over the next four to six weeks. And then I know personally, I’m starting to think about those demographics again. And I think that one of the trends that we’re going to see over the next decade is a real need for senior housing. So that’s not in the next year, but that’s certainly something that I’m keeping my eye on in the future.
Devin:
I love it. Yeah, I hear good things about that sector, and then about self-storage. So it sounds like you’re in a great spot. I love it. Well, we touched on the website earlier, Chris, but let’s just kind of wrap up with that. If somebody wants to reach out, connect with you and the team, what’s a good avenue for that?
Chris:
Yeah. So I absolutely love what you’re doing, Devin, helping get the word out there, spread these ideas that can help people achieve financial independence. And that’s our mission as well. So you can check out our podcast at nextlevelincome.com. We have the Next Level Income Show. We’ve got a blog, free book as I mentioned earlier. I also do some one-on-one coaching. The program’s full right now. And again, if you’re looking in the multi-family space, I work with individuals one-on-one to build the strategy out, really to be a passive investor for the most part, figure out how to make more money, keep more of your money through proper strategies, and then ultimately grow your money, working with people like yourself, Devin.
Devin:
Outstanding. We’ll link to in the show notes. Chris, thank you for jumping on, man. I appreciated getting to connect and hearing about your story. Thank you.
Chris:
Absolutely. It’s been my pleasure. Thanks so much for everything you’re doing.
Devin:
All righty.