Tyler Chesser, CCIM, is an experienced multifamily real estate investor. Tyler is the Founder of The Chesser Companies. He’s also the Co-Founder of CF Capital, a real estate private equity firm, which focuses on acquiring and repositioning multifamily assets in the Southeast United States and provides institutional-quality services to its residents and outsized returns to its investment partners.
[00:01 – 17:00] Tyler Chesser, CCIM
- What is a Certified Commercial Investment Member (CCIM)?
- Tyler talks about his real estate journey
[17:01 – 23:07] Remember Your ‘WHY’
- Tyler’s core behaviors and how he measures his effectiveness
[23:08 – 37:03] Tyler’s First Deal
- Tyler walks us through his first real estate deal
- The most important concepts a new investor should master
[37:04 – 41:24] Risk Management
- Tyler shares tips on how he approaches risk management
- Book recommendations that tackle risk management. Links below
[41:25 – 45:48] CF Capital LLC
- Tyler talks about CF Capital LLC
[45:49 – 54:04] Closing Segment
- The worst investing advice Tyler has ever heard.
- Financial Advisors ask, “When do you want to retire?”
- Tyler’s best book recommendation for the week:
Tweetable Quotes:
“If you really want to do big things, you really should consider going all in and really focusing. Because it takes a ton of time and effort to be successful in this business.” – Tyler Chesser
Resources Mentioned:
- Rich Dad Poor Dad
- Tony Robbins
- The Go-Giver
- The Black Swan
- Antifragile
- Fooled by Randomness
- The Bed of Procrustes
- How To Get Rich Without Getting Lucky
- Tony Robbins’ RPM system
You can connect with Tyler on his personal website. Visit the CF Capital LLC website. Listen to his podcast, Elevate with Tyler Chesser.
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DAN KRUEGER (00:15):
Welcome to multi-family investing made simple. I am one of your hosts, Dan Krueger here as always with my co-host Anthony Vicino. We’re a couple of real estate syndicators out of Minneapolis area in Minnesota. And our goal is to take the complexity out of real estate so that you can start investing today and today helping us take the complexity out of real estate is Tyler Chesser. Thank you for coming Tyler. I’m going to read your bio real quick here. Tyler is a CCIM. And for those of you that don’t know that stands for certified commercial investment member. He’s experienced multifamily investor actively and passively, and has witnessed first-hand the successes and failures of building a real estate portfolio. Tyler is co-founder of CF capital LLC, a private equity real estate company. Welcome to the show, man. It’s nice to have you.
TYLER CHESSER (01:04):
Absolutely. Dan and Anthony. Thank you guys for having me on the show and I’m super excited about it. I enjoyed our conversation before the show and you know what, that always leads to a good conversation during the show. So I’m looking forward to it and I appreciate you having me. Yeah. I think this is going to be one of our better episodes. There’s a couple of things already that I want to point out here is you explained what the CCIM is, but I don’t know if we’ve ever had a CCIM on the show before. I don’t know if we’ve ever talked about it at length. What exactly is the CCIM designation? Why is it important? Yeah, no, I appreciate that. And I do think it’s important because it’s the certified commercial investment members, what that stands for. And it is an Institute it’s a global basically organization and it really fronts towards education as well as networking for commercial real estate investors, commercial real estate vendors, you know, brokers, service providers, you name it really across the entire spectrum. And it’s, you know, it centres on being the gold standard of commercial real estate. It’s really the PhD of commercial real estate. So if you see anybody with the designation of CCIM, what that means is that they’ve, you know, heavily invested in their own education. They’ve heavily invested in their commitment to commercial real estate. And when I say commercial real estate, I mean all asset classes, whether it’s multifamily, industrial office retail, you name it. And it comes from the perspective of, hey, how do we, you know, how do we analyse a deal from not only just the financial capacity, but also from the market metrics also from how can we get a detailed view of what the user looks at this asset, you know, and what sort of risks do they profile the asset and how can we make a comprehensive, you know, bet based on all of these figures and these metrics and some of the intangibles as well. So it’s a, it’s a pretty comprehensive view in looking at being successful in investing in commercial real estate. So it’s really the gold standard and a PhD of commercial real estate very well.
DAN KRUEGER (03:00):
I think it’s really important that you know, that exists because one of the great things about real estate is the barriers to entry are fairly low, right? You don’t need to have a certain degree to get in. So that’s a great thing, but at the same time, being able to set yourself apart from the others in the industry and say, hey, I’ve actually taken this extra step. And I didn’t just, you know, go and get a brokerage license to be able to sell. Like, I really know my stuff. That’s pretty cool. I agree that I don’t think it, like you said, we haven’t anyone on the show.
TYLER CHESSER (03:28):
Yeah. I think it’s less than 10% of folks who are active, you know, have that designation and yeah, to your point. I mean, I didn’t have family in the business. I didn’t grow up in the business. I didn’t go to school for real estate. I went to school for marketing and management and, you know, I had a good baseline understanding of how to be a leader and how to grow in, you know, a business capacity, but I didn’t know anything about real estate. And when I got involved in real estate, I said, well, how can I learn? How can I, how can I do this? And, you know, obviously you learn by doing, but also you can make huge mistakes just by doing that can cost a lot of money. So it’s the question of how can I invest to, you know, avoid some of those mistakes and capture more opportunities. And so I saw CCIM as that opportunity. And one of those opportunities, obviously there are many other, as it relates to coaching or, you know, investing in mentors or books or, you know, conversations like this or podcasts. I mean, you name it, but CCIM is really a great program to start.
ANTHONY VICINO (04:24):
We hear a lot of times from new investors wanting to get into real estate, wondering, should I go and get my brokerage license? Should I go and get my CCIM accreditation? What would you say to somebody that’s looking to get into real estate? I know a lot of it is going, going to depend on like their desired outcomes. Let’s say they want to be apartment syndicators in a five-year horizon. Do you think going in the brokerage route and the CCIM is something that would be advantageous for them in that pathway or not?
TYLER CHESSER (04:55):
I think it’s a good question. Obviously it’s unique for everybody personally, if I were to answer that question today, I would say, it’s not necessary. You know, and it’s not really going to further you on your goals for becoming a successful syndicator, in my opinion. And that’s from a much generalized sort of perspective. The reason why I got started in being a broker in this business is because I didn’t know anything about it. I had no idea really what I could accomplish their real estate. When I got into real estate, all I knew was houses. I mean, I look around the block and its like, Oh, there’s some houses, that’s real estate. I never had a perspective of the fact that, you know, commercial real estate are much less apartment complexes were real estate. And so obviously you got to pick a lane, you’ve got to pick a specialty, but if your goal is to become a syndicator or, you know, create a fund or whatever, I don’t think it’s necessary to be a broker first. It certainly is not going to hurt you. There are times where it’s, it is useful to have your broker’s license as an investor. But for the most part, you want to leverage brokers. You want to leverage the guys who are out there spending their time and spending their effort on developing a deep and vast network, because those are the guys who are going to find you the deals. And if you’re cutting them out of the deals, I mean, you may be missing opportunities. So personally, and from a very high level, I don’t think it’s necessarily make sense unless there’s a specific outcome. Otherwise, you know, specifically
ANTHONY VICINO (06:22):
You mentioned something that I think is really important for people to understand is, and contextualizes it, you can go get your brokerage license, but really the brokers are the experts. So the professionals that are living and grinding in that life every single day, and they’re always going to be the best resource. And so if you’re just dabbling in it so that you can try and save a little bit on fees, when you find a deal, like, honestly, it’s going to cost you so much more in opportunity, lost and time expenditure than it’s really worth. And one of the things Dan and I are really big advocates of is surrounding yourself with professionals that can execute within their specific niche way better than anybody else could. And so for you, Tyler, you started on the brokerage side now, and recently you started transitioning full time into the investment side. Can you walk us through that path for us?
TYLER CHESSER (07:11):
Yeah, absolutely. So when I got, I got started in real estate about seven years ago and I actually transitioned from the corporate world and it was interesting because the early part of my professional career, you know, I always, I always thought, hey, I’m going to go into, you know, a corporation and climb the ladder because I never had any perspective otherwise. And it was interesting because I started to become very dissatisfied with that sort of endeavour and that sort of career path. And it took me a while to really understand those feelings and start to get a bit frustrated and maybe, you know, come to terms with the fact that maybe this path that I always thought I was going to take wasn’t necessarily appropriate for me. So I started to make decisions on, all right, well, what other path could I take? And I got into real estate, long story short. And when I got into real estate, the only thing I knew was that I could sell real estate. I could get a license and sell real estate. So I actually started on the residential side very briefly and sort of bumped my toe, stubbed my head and kind of sniffed my nose around and found commercial real estate and actually got referred and built a real business by referral through selling commercial real estate assets, whether it was retail office land, industrial or multi-family. And I ultimately became known as the apartment guy ultimately became known as the guy who was doing most of the multifamily deals, kind of on the mid to smaller, large scale, larger scale you know, multi-family assets, whether it was, you know, 10 units up to 150 unit that was doing a lot of transaction velocity. And so I learned a lot about the business through that. And obviously through that process, I had to invest in my own learning. I had to invest in, you know, my own coaching, invest in, you know, books and all these things, because it was pretty stressful because I didn’t know what I didn’t know. And I was making mistakes and I was learning and I was certainly, you know, stepping into capacities. That was way outside of my expertise doing bigger deals. But as I continue to learn, you know, of course we all read rich dad, poor dad, right. And I read that book and I’m like, wait a minute. So I’m still trading my time for money while I’ve made a big leap from where I was, I’m still trading my time for money. So what else is there for me? And I was learning about investing in real estate through working with investors and I started to invest myself. So I started, you know, I bought a small multi-family deal, made every mistake in the book, had every single problem go wrong. The first deal. I mean, I think many of us probably shaking our heads here, listening to this right now and saying, I get that, but it was tough, man. It was like, it was honestly one of the hardest things I’ve ever done and ultimately time healed all the wounds and I was able to learn and grow through that. So then I continued to invest in the second deal was much better. It was much more profitable. It was much easier. And then the third deal was even better than that. And along the way, I continued to invest as well as not only build an active portfolio, but also a passive portfolio because the fees that I was earning through brokerage, you know, were substantial and that I could build a portfolio along the way. And so, you know, with this process, I learned that the name of the game is scale. You know, it’s all about how can you grow? How can you put a great team on the field? Not only from the economies of scale with multifamily real estate, but also how can we put a great team on the field and, you know, pay them appropriately and really do big things because no matter how big the asset is, it needs attention. You know, if it’s, if it’s eight units, if it, if it’s 36 units, if it’s 74 units, if it’s 192 units, it needs attention. And so you can obviously do that much more effectively on larger deals. So, you know, it was kind of the trajectory for me and my growth pattern was kind of going through that and learned that obviously other people are looking for these opportunities as well. Not only was I as a broker looking to invest passively, but other people are busy and they’re, they’re earning a great living, but they’re looking to protect their assets. They’re looking to protect and grow their wealth. So, you know, with my background, with my experience, it made sense for me to kind of take that next step into syndication and into private equity.
DAN KRUEGER (11:06):
Well, there’s, I mean, I’ve got like a million questions about your journey there. Because that sounds, it sounds really familiar. Actually. There’s a, there’s a lot in there that sounded the resonated with me. One I’ve just got to get in real quick. I came from a corporate background too, and I, it took me five years to figure out that it was, it was, I was trying to put a square peg into a round hole. How long did it take you before you said, okay, this is not really scratching my entrepreneurial itch I’ve got that.
TYLER CHESSER (11:30):
That was good. When you said that I was trying to count back, like how long was it for me? And I think it was like, honestly, it was like two and a half years when I started to get really dissatisfied. And it really probably took me another two years from there before I actually made the leap because it was like, why am I the satisfy? Everyone else is fine with this. Everyone else is okay. And I’ve, I’ve ultimately come to the point now where it’s like most people, just their life. And they just say, look, this is part of being an adult. This is how it is. This is what, you know, college was awesome. Don’t you remember? Those are the best days of your life, but that’s no longer the case. So that was, it was an interesting process. Yeah.
ANTHONY VICINO (12:06):
It takes a lot of negative stimulus to insight enough motivation to change our circumstances for a lot of people, they were willing to put up with a lot because the alternative is obviously very hard. It’s very scary. I’m curious for you and your situation specifically, what was it about the corporate world that was grading? Did you ever identify exactly what that was or did you just say, I just know this isn’t for me. I need to get out.
TYLER CHESSER (12:31):
Yeah. Well, so here’s the thing. I mean, I just, I was actually intellectually stimulated by what I was doing and I was growing and I was learning and I was, I was actually building a decent resume, I thought, and I was getting promoted and those kinds of things, but number one, I wasn’t getting paid what I thought I should be paid. And so I would start asking for the raises and doing the things that you do in the corporate world, you know, talking to your boss and making a case and, you know, showing what, showing the effects that you have, playing the game.
TYLER CHESSER (12:59):
And what I learned, you know, is that it wasn’t about effectiveness. And I don’t know if this is the case for all corporations. I mean, I was with one other organization before that. And before that I was in internships and things like that in college, but I learned that it wasn’t about effectiveness. I learned that it was more about tenure and politics. And so even with a company that I worked for that had a great culture, it was about how long have you been in that seat? It wasn’t about how effective are you? And the other thing too, that really ate at me was like every single day, I mean, I was committed to what I was doing. I’ve always been career oriented. I’ve always been driven to succeed and produce excellence. Just, that’s just how I’m wired. But I also like to have a life, you know, like when I plug in, it’s like, hey, I’m going to work hard, but I’m also going to have a good time. And you know, I’m going to get here on time and I’m going to do my job. I’m going to go above and beyond. I’m going to go the extra mile. But if I didn’t stay until six or six 30, it was like, hey, wait a minute. You know, you could probably be doing it a little bit more. You could really show people that you’re really committed by doing that. And it was like, what if I’m more effective? What if it’s all signalling, right? Like social signalling is he’s exactly right. And you know, if I get my five-year anniversary, get my 10 year anniversary, then maybe then I’ll be paid off. And I just felt like it was a carrot being held in front of me that I may never get, or maybe it was 30 years down the road that I would get. So I started recognize that.
DAN KRUEGER (14:24):
That’s really interesting. One other thing I wanted to ask was that obviously we know we kind of covered there that you know, if you could go back and change things, you probably would have left the corporate environment a little bit sooner, but in retrospect, given your journey from the corporate world to what you’re currently doing now as a full-time investor, what would you do differently about your journey? Would you have taken that brokerage approach? Would there have been a more direct way to getting to where you are going to end up? I guess if you could go back and change something or do something a little bit differently or more efficient.
TYLER CHESSER (14:56):
I’ve actually thought about that. You know, recently just kind of thinking about my trajectory has been pretty interesting, cause it’s been like one leap over here, one leap over there, one leap over there, but you know, when I think back on it, I don’t have any regrets myself, just because, from my perspective, and from my background, I needed to go through that process to get the necessary learning, to be successful at the next stage of my development. So for me, it made sense to go in that trajectory, but for others that may not, you know it was certainly, it took me a while to really get my handle on my understanding of how to navigate the industry, how to get, you know, the vernacular down, how to understand, you know, how to truly negotiate, how to leverage, you know, human beings, emotions, and, you know, grow in my own self-leadership as well as the leadership of others, and also understand truly, you know, how to make assumptions on a deal and also to learn from other people who have, you know, were way smarter than me are way more experienced than me, you know, on deals that they were investing in, that I was able to collaborate on. So it gave me a lot of insight from that perspective. And so from that perspective, I do think it could be valuable for many of the listeners to consider that route. If it makes sense for their background, it may not make sense for their background. It may make sense for them to go more direct, but for me, I actually don’t have any regrets for that.
DAN KRUEGER (16:13):
And I think it’s playing worth noting as well, that you probably had the intention of becoming full-time in real estate, in some capacity, from the get-go right. You know, other people that might be listening might be perfectly content with their full-time endeavour. And they’re looking at real estate as something that they want to include in the mix, but not necessarily turn into their full-time job. So
TYLER CHESSER (16:35):
Yeah, I think on that, you really do have to think about it as like, alright, is this a hobby? Is this a, is this a side gig? Or, or am I being frail? Because I think if you really want to do big things, you really should consider going all in and really focusing, because I know you guys know this, it takes a ton of time and effort to be successful in this business. If you don’t want to do that, then certainly there’s many folks to passively invest with or, you know, go on a side basis. Absolutely.
ANTHONY VICINO (17:01):
And you mentioned something when you were talking about your background in the corporate environment, which was that it didn’t matter how effective you were. You were just kind of, you know, based on 10 years, how you were going to be compensated and rewarded. And one of the things I love about entrepreneurship or real estate investing is that your outputs are directly correlated to your inputs. Yes, very one-to-one type of way. And I get the sense that you’re probably somebody who spends a lot of time asking themselves, am I being effective? I’m curious, what are some of your core behaviours or ways that you look at your work that enables you to be effective? And then how do you measure effectiveness?
TYLER CHESSER (17:41):
That’s a good question. You know, the big thing, one of my kind of recurring questions that I ask myself is what’s the why behind I’m doing right now. And the reason why I asked myself that is because, you know, we can get into activities that may not get us any outcome that we’re focused on, or that we, you know, we’re intending to get. And sometimes we get unconscious of that. So I always try to re ask myself, what’s the why behind what I’m doing right now. And the why behind what I’m doing right now in this moment is to build relationships with you guys, to share with you guys to learn in this conversation. And so hopefully it helps somebody else learn something else because that’s the giving mentality that I have. But, you know, I think that’s one of the big things is I’m always asking myself that, but in terms of measuring effectiveness and I actually also I’ll back up potentially a process of effectiveness that I use is really kind of the RPM method that Tony Robbins talks about. It’s, you know, what’s the result that I’m after and what’s the purpose for achieving that result and really thinking about that, no matter if it’s a project or if it’s a huge initiative, or if it’s one component of my business, it’s starting there. It’s thinking about what’s the result that I’m after, what exactly am I looking to accomplish? And then why, what does that matter? What does that, do you know, how does that align with who I am as an individual? How does that align with my big intentions, my big goals in my life, and how does that help other people, you know, who else is impacted by that and what purpose is tied to that result? So I always try to start thinking there, and that puts me in a frame of reference to be effective in how do I develop my system? How do I develop my strategy based on those outcomes? And so then, you know, the M is the massive action plan. It’s, you know, what needs to happen and what needs to be prioritized. And then what can I timestamp? What can I put on my calendar and what can I hold myself accountable and have other people holding me accountable for as well? And how can I execute and course correct thereafter, because look, it’s all about what are we doing right now for me? The acronym is when, what am I doing now? That’s how I win. Is that how I focus on how I’m showing up in the present moment? And why behind, what I’m doing right now is the question that I’m asking always when I’m thinking of the big picture, the result, the purpose, and then taking massive action in those plans. So that’s really kind of how I execute, but as far as measurements that, you know, I set goals for myself and I’m always kind of, you know, of course, correcting and looking back and saying, all right, you know, how are we measuring up here? You know, whether it’s a yearly goal, a quarterly goal, a monthly goal, or a weekly goal, you know, have I hit that and have I, have I controlled the controllable myself? And if I haven’t, that’s okay. Maybe I need to readjust my goal, but that’s kind of how I measure myself. I always try to hold myself accountable as well as share with other people. Hey, here’s what I’m looking to do. Can you check in with me and make sure that I’m doing what I can do to get there
DAN KRUEGER (20:31):
That’s huge. I think that one thing that you mentioned there is just enormous in just being successful in general. And it’s something that I know Anthony does something very similar to as well, which is, you know, making sure that whatever you’re doing has a good why behind it. And I think a lot of people get really caught up in just keeping themselves busy, but they’re doing stuff that they feel good about being busy and they feel good that their days filled up, but they’re not necessarily doing the stuff that’s going to really move the needle. If they’ve got some sort of automated system to kind of almost prompt them in the same way that you mentioned as well.
ANTHONY VICINO (21:07):
Yeah, it’s very similar. The question is slightly different, but the, what it’s getting to is the exact same. And it’s super critical. The question for me is what’s my outcome. And I have that set up in regular alarm form that goes off on my phone randomly every couple of hours. So that it’s just stops me in the middle of whatever I’m doing at that moment. And reminds me, it’s like, what’s my outcome. What am I doing right now? Is that leading me towards my big goal? What’s the purpose? And I find if I can go into any engagement, any activity with that question at the top of my mind, what’s my outcome. Then I know what I’m looking to achieve, and I’m going into it with the right mind-set. And it makes me that much more likely to actually find the thing that I’m looking for in that, in that engagement. So like in this conversation, if that’s, hey, I’m here to learn from Tyler, then that’s my outcome. I’m going to be judging constantly. Hey, am I learning anything? Why am I not learning anything? Is that because I’m not asking the right questions. Okay, well then you need to dig deeper and figure out what it is that Tyler can add value to you, right? Like that’s not the case here. I’m learning a ton. So,
TYLER CHESSER (22:08):
Absolutely. Well, I think it is important to have intention in everything you do and to show up and know what are you looking to give to someone else? And what are you also open to receiving as well? I think it’s so important. You know, many of us get to the point where we’ve reached a point in our development where we say, hey, I’m just going to be the Go-Giver no matter what. And I’m going, give, but if you really read that book, you’ve got to really understand that you’ve got to also be open to receiving. So what’s your intention for giving as well as receiving, because other people in other situations are always willing to show you an opportunity if your frame of mind and your reference point is open to it? So I think having the intention puts you in a position to, you know, accept opportunities when they come as well.
ANTHONY VICINO (22:47):
Absolutely. That book, the Go-Giver, if you, if you guys haven’t read that, if you’re listening from home, you should go check it out right now. I think the last law in that book is all about being open to receiving. And that is a form of giving because you’re allowing the other person to give. And it’s very counterintuitive, but there’s, there’s a lot of value there in that mind-set. So I want to, I want to, I want to shift the conversation just ever so slightly. And I, because you mentioned earlier that you made every mistake in the book on your first deal. And you know, a lot of our listeners are probably new to the game. They’re worried about making mistakes. And I think far too often in real estate, we, as a community, we talk all about the successes, but we don’t talk nearly enough about the failures or how difficult it can be. So why don’t you just walk us through that first deal and what was so difficult about it for you?
TYLER CHESSER (23:37):
Yeah, well, I feel like I made every mistake in the book, but let me just say, I probably didn’t, there’s still many mistakes that you, I, and all three of us have to make in our future. So we need to definitely just state that and say that there’s many more mistakes to be made, but in my first deal, you know, I was totally like rich dad, poor dad, let’s do this. Like this makes total sense. All you do is you buy the property, they pay the rent, you pay the mortgage. And you know, you’ve got a few expenses here in between and the rest is just cash flow. It’s just going to rain down on the sky from you. And, and we all know that is not the case. It is a hard business. You’ve really got to work the assets and look, these are, and this is a place for people to live. I mean, if you’re buying multi-family real estate, these people are very focused on where they live. And depending on the type of asset, you’ve got a different type of clientele. And, you know, my first deal that I bought, I thought it was a value add, but let me tell you guys, it was a distressed deal. This was not value. Add. There was a ton of work to be done. It was a total reposition. And I didn’t really understand the pitfalls that came with a distressed asset. And, you know, I can tell you that initially the rent roll was loaded. I had no idea. I didn’t know how to identify whether or not there were performing or non-performing or very high risk tenants. That was a piece that I did not understand. You know, I looked at the rent roll and said, look, this looks great. This is amazing. I can raise the rent by, you know, $300 a month per unit. And this thing is going to be cash flow in like a monster. But what I didn’t recognize is that, you know, to get there, you know, I was probably going to be looking at a significantly higher vacancy percentage in the short term, as well as a much further accelerated, you know, renovation plan and perhaps even more expensive renovation plan due to the nature of the asset itself. It was an asset built in 1920. It was actually, it was three buildings. One was built in 1920. The others were built in 1960. So even the 1960 was quite dated and it needed some attention, but especially the 1920 asset needed a tremendous amount of Capex that I wasn’t even, you know, to a large degree aware of. And so there was, there was a lot of a lot of work there.
TYLER CHESSER (25:46):
So accelerated capital improvement plan that, you know, came much quicker than I expected a loaded rent roll, where I literally went 50% vacant within the first four or five months. And I had to accelerate my renovation plan, which then became much more expensive not to mention the fact that I didn’t hire the right property manager. And my property manager was, you know, was not equipped to manage a distressed asset during a turn and not to mention that I was managing, you know, the general contractors who, you know, we all know, I mean, we’ve all had our experiences there. If you’ve had any time in this business, you learn a little bit of the tricks of the trade there with some contractors. And so, you know, that can be challenging. I mean so there’s all these things that compounded and yeah, I mean, those are, those are some of the big things that come to mind, but happy to dig in anywhere.
ANTHONY VICINO (26:36):
That’s amazing. There’s someone there’s just so many points of entry here. I think the first one is let’s, let’s dive into the difference between and value add. Because I think it’s really easy to deceive ourselves into thinking this is value add and not realizing, hey, no, that’s, that’s not just a heavy lift. That’s like a really heavy lift that you need a spotter to make sure that you don’t throw your back out on. So what is the difference between a distressed deal on a value add deal?
TYLER CHESSER (26:58):
Well, I mean, a distressed deal is one that, you know, it’s going to be, it’s going to have a higher level of vacancy or a higher level of bad debt immediately in comparison to the market, right? If you’re looking at the market and your market vacancy is 7%, but you can expect 20%, 25% in the first six months due to a defect of the property or a defect of that particular location or something that’s going on that you need to correct. That’s a distressed asset and that’s going to require immediate capital improvement. And if you don’t do that, you know, you’re going to have a lot of challenge in, you know, releasing that property. So I think that’s one place to look at it. I think distress in terms of a definition is fairly dynamic because there’s many different ways you can look at it, whether it’s, you know, just a major defect or if it has to do with the tenant base, you know, maybe it’s been mismanaged for a significant period of time, and you’ve got a significant expense in terms of releasing or repositioning just the stigma of the asset. So I look at a value add deal as being, hey, look, you know, there’s certainly meat on the bone here. We look at this thing and we say, hey, look, you know, there’s, there’s some operational efficiencies that we can employ here to raise, you know, the net operating income, whether it starts from the top line or the bottom line from an income and expense perspective. So you definitely are going to start there or, you know, it’s a property that, you know, what it maybe needs a little bit of love it’s in good condition, but we can also, you know, bring it up to a higher level and we can attract a higher level tenant, or we can attract a higher level of rent per square foot based on a competitive set and a rent comp, you know, approach that you go out and really do your research in the marketplace. So I think there’s a few different ways to look at it from a value add perspective, but it’s generally a lower risk and generally a lower reward, sort of a perspective to be acquiring a value, add asset, you know, it’s, you’re going in and you’re certainly implementing a business plan to raise the level and raise the value of the property in the value of the asset and the cash flow for the asset through that time period. But a distressed asset is more so we’re doing a total reposition and we’re doing a significant, you know, either renovation or repositioning of the asset.
ANTHONY VICINO (29:09):
Yeah. The way that I often think about this is that a value add deal is very much like putting lipstick. You know, you have the framework at a pretty person, right? You just need to put a little bit of maybe like they just need to shower and get there, you know, their, the complexion, their hair cleaned up. Maybe they just need to lose a couple of bounds. So they go and exercise and eat well. Whereas the distress deal is like, you need to get in there and do some plastic surgery. And some medical assistants like really changed the cause there’s some fundamental underlying issues. And so with the distress deal on this one, was it in a neighbourhood that was also distressed? Because I often find like you can take a distress deal and hit it out of the park home run, but I find it’s really dependent on the neighbourhood that you’re, you’re operating it within. Was that accurate for you?
TYLER CHESSER (29:55):
That’s a great question. So this asset in particular was just outside of a path of progress type of neighbourhoods. But it was actually on a main thoroughfare that was really linked to that. And so if you looked at it from a marketing perspective, it was actually in that thoroughfare that was really turning, but truthfully, you know, how real estate is. So, you know, hyper-local and each block is specific in this particular block was not in that path of progress. And it was, that was a challenge too. I mean, you know, you cannot change the neighbourhood. I mean, those are forces beyond your control. And so I was lucky that the path of progress eventually did kind of reach this area generally. So it did help me and I ultimately sold the asset for a pretty significant profit. And so it ended up working out, but it was, there were some things that were out of my control that really were lucky to be honest with you. So it’s pretty interesting.
DAN KRUEGER (30:45):
That’s very interesting. I was curious now first off I love the horror stories. Like I get more value out of hearing about people’s failures than I do about their successes. So I’m always drawn to, okay. Tell me like your worst experience and things like that, but I’m curious what you think as far as our listeners are concerned, what do you think is one of the most important concepts that an investor should be trying to master? If they’re new to getting into this, what do you think they’ve got to get down? And typically, you know, I’m probably talking more so about people that are a little bit more on the passive side. Not necessarily like us, where we’re going to go out and start a business and start buying properties and building a portfolio and that’s our full-time job. But for that guy who has a job wants to have real estate included and doesn’t want to spend all this time trying to learn things from the top down, inside out, you know, what is an investor? What should they be focusing on market? Should they be focusing on you know, learning how to underwrite or building their network, maybe mentorship, what do you, what do you think is the best use of their time?
TYLER CHESSER (31:50):
I think if they’re passive, they need to be working on their network because you know, you really need to know who knows what they’re doing and who’s, you know, who’s developing a great business model and who’s offering great value. And so I think that’s probably the first place to start. It’s a, it’s a really tough question because, you know, if you really want to be someone who inspects what they expect, whether you’re passive or active, or, you know, maybe a hybrid approach, you should be fully multi-dimensional as far as I’m concerned. So you should have an approach of, hey, this is a long-term business. And my intention is to learn as much as I can, and also surround myself with the right people who can advise me appropriately people who I trust. So I tend to lean towards, you know, starting with surrounding yourself with the right people who can help you learn people who can help you learn from the underwriting approach from, you know, from the market analysis approach, from, you know, making assumptions to negotiating, to, you know, building systems in your portfolio, whether you’re passive or active or a hybrid approach. So I think it’s, it’s important to be multifaceted. But I also think if I were to answer that question, I would say, you really start with your network. Yeah. I
DAN KRUEGER (33:00):
Love that answer. That’s kind of where I was leaning as well, because we’ve talked to so many people on the show and then also Anthony and I collectively kind of agree on this concept that for a passive investor, like the best use of their time, when it comes to actually figuring out what to do with their money, when it comes time to actually taking action is one of the best things they could be doing is really finding quality operators and spending their time, vetting the operator more so than the actual deal itself. If you could find rock stars and surround yourself with those, the rest I feel like is probably going to work itself out.
ANTHONY VICINO (33:31):
Because even like looking at this list of what went wrong on your first deal, if we’re looking at this from a passive investors perspective, we want to go into, you know, good deals and maybe we’re looking to get into a nice value, add deal, not a distress deal. How would a passive investor look at the underwriting and be able to say, Oh no, that’s a distressed deal versus a value add deal. It might be really difficult. You know, if you don’t have, if you don’t have that relationship with the operator where, you know, like, and trust them and you’d know their business model and you understand how it operates, but is there a way, do you think Tyler for a passive investor to be able to look at a deal underwriting and say like, no, that’s, that’s actually distressed versus value add?
TYLER CHESSER (34:13):
Well, I think there’s definitely, I mean, the thing is there are certainly deals that it’s totally obvious that it’s the stress. I mean, if you’ve got a high level of vacancy, you got a high level of bad debt, you’ve got, you know, a significant expense ratio that’s out of control.
DAN KRUEGER (34:27):
Or physically, obviously if something’s physically falling apart, that’s a red flag.
TYLER CHESSER (34:32):
Yeah. So I think the big answer to this question, I think kind of where we should go with this is really, you know, educate yourself. If you’re going to passively invest, you need to know what you’re, what you’re investing in. You know, what is the status of the asset? What’s the business plan because there’s certainly a place a time and a place for distress deals. And you know, who knows there could be distressed deals coming out of the situation that we all find ourselves in, or maybe not. But if there are those opportunities may be attractive and obviously there’s a price for anything and, you know, you should be compensated for any level of risk. So I think it comes down to educating yourself and knowing who this operator is, knowing what the business plan is, you know, what happens if the worst case scenario persists, you know, do we have a plan in place for that? What type of reserves do we have on, you know, on hold and what type of assumptions are we making or do we have an exit cap that’s 200 basis points lower than the acquisition cap rate? Or are we looking at a step up in an exit cap rate? So, I mean, these are questions that you need to be asking, you know, any sponsor that is proposing a deal to you is, hey, what are, what are all these factors looking like? And you’ve got to make your own decision based on to invest or not to invest because you are the director of your own capital. You know, you are the one who gets to make those decisions. And if you think passive means you just give somebody your money and close your eyes and run away, then this business is probably not for you. You need to educate, you need to be involved. So that’s what I would say.
DAN KRUEGER (35:59):
Yeah, that’s huge. I think if people are, have listened to us before, they probably heard this concept brought up, but you know, we talk a lot about, you know, really questioning whether or not the Performa that’s presented to investors is best case scenario, middle case or worst case. Cause usually there’s only one scenario presented and you’re not sure if it’s the best, the worst or the middle. And you’d be good for you to ask because if it’s the best case scenario that’s been presented, you’re you always want to know what does the worst case look like? You know? And have you guys even thought about that because if not pretty big red flag right there,
TYLER CHESSER (36:34):
It’s important. I mean, performs are, they’re just a guess. And so what are we guessing on and how educated is that guess and why? So asking why I think is important. Why is this number, you know, your assumption, why do you believe that vacancy will remain in the market level? Or, you know, why will it exceed market level? Or why will it, you know, I mean, you dig into all of these different factors. So it’s an important, very important concepts.
DAN KRUEGER (36:59):
Fantastic. I’m curious about, unless another question on that point, I was going to try to dive into CF capital here. When we get a sec.
ANTHONY VICINO (37:08):
Do you want to, I didn’t want to go that direction too, but while we’re here, let’s one question I do have, I’ve been thinking about it a lot recently as it pertains to risk management is when we look back and we talk about creating our worst case scenario for our underwriting assumptions. A lot of times that means that we were benchmarking off of the previous worst case scenario. You know, if you think about that, logically the say 2008 was worst case scenario, but it was only worst case scenario. It was worse than the previous worst case scenario, which happened maybe a couple of years before that. So we always were like, we’re benchmarking off worst case, but in fact what’s likely to happen if it is to happen is it’ll maybe be even worse than worst case. Is that something to think about, I’m curious for you and you’re underwriting, because I think you’re still, you know, actively pursuing deals right now. What are you doing to adjust your assumptions to say let’s be, let’s be conservative and practical, or are you saying, or maybe that maybe that’s not your approach, do you have a different approach?
TYLER CHESSER (38:03):
Yeah, that’s a great question. And you know, it reminds me of the book I read earlier this year called the black Swan, which you guys might be familiar with and really at the end of the day, what it, what it boils down to is that anything is possible. And that what we believe is the next, you know, big problem or massive issue to deal with whether it’s economically or in our lives in particular, you know, we can’t really, we can’t predict it. We can’t predict the future. So you never know what’s going to happen next. And obviously 2020 is a prime example of that who would have thought walking into 2020 that we would have a global pandemic and the total economic meltdown and all of these different capacities. And then all of the other ensuing things that have continued to happen and continue to happen to this day. So it’s just fascinating and it’s insane to really think about, but it is important for us to recognize, you know, what are our contingency plans in place for anything else that could happen? And, you know, as we look at deals, you know, one thing that we are we’re saying right now, and obviously this is based on what we already know is that we’re, we’re kind of, we’re holding off value, add plans, you know, for at least 12 months and probably more likely 18 months just to keep ourselves in a safe position beyond that it is about reserves, you know, it’s about, hey, you know what, let’s overfund these deals because you just never know. I mean, look, you know, when stimulus runs out or if it runs out, you know, you’re, you may have some significant challenges, but one thing I will say, and one thing that has been apparent at least, you know, from the circumstances that we’ve experienced as far shows that the government is willing to support folks in their housing. And if you look at its food, clothing, water, and housing, and people are also placing a priority on their housing. So while they’re cutting, you know, discretionary spending on luxury items or travel or all these other things, they’re still placing a priority on travel. So we still feel like multi-family is the place to be, to be honest with you, it’s a safe Haven and a very unsafe financial world. But with all that said, anything is still possible. So what is possible on the backend? We’re always giving ourselves the open mind to say, look, something else may happen here, but we’ve got to be ready to pivot. We’ve got to be ready to be nimble and just communicate and deal with it as it comes. But it’s very challenging to, you know, fully prepare for something that’s totally unforeseen. But I think it comes down to over-funding reserves as well as being conservative and saying, hey, look, you know, if we can’t do what we did over the past three, five, 10 years, you know, does this deal still work? And what are our other alternatives? So that’s, that’s kind of how I look at it.
ANTHONY VICINO (40:36):
Yeah. I love, I love all that. I just recently re-read Nicholas Nassim, two labs in Certo series, which black Swan is part of that then anti-fragile fooled by randomness and better procrastinate, which I highly recommend for everybody. It’s all about these, you know, risk management and really understanding how we get fooled by probabilities. Because think about this over the last couple of years, everybody’s been predicting that we’re going to enter into a recessionary period, like everybody in there and their uncle’s like, Oh yeah, a recession is coming. Nobody predicted it was going to happen like this. No. Right. And so you just have to be able to adapt. And you mentioned that there, like at the end of the day, you just need to be as robust as you can with your reserves and in conservative, but it’s going to be the species that’s most able to adapt, that’s going to overcome. So I love that. All right, Dan, back over to you for CF capital.
DAN KRUEGER (41:25):
Yes. No, that was, that was a fantastic, awesome. By the way. I love it. Thank you. We try, we try. I love that. That’s a question I want to ask just everybody out there, that’s an active investor in this space because I’m just genuinely really curious how everyone else is changing obviously, because the world has changed. So thank you for getting that one. And then there, Anthony, so as far as CF capital is concerned, you mentioned how you guys are adjusting your underwriting. Can you tell us a little bit more about what a CF is doing? And because we know when you’re done with the, you know, the brokerage side of things, you’re just full on investing at this point. So yeah. Tell us about CF capital, what you guys are doing over there.
TYLER CHESSER (42:04):
Yeah, absolutely. So our tagline is elevating communities together and it’s all about going in and raising the bar for not only, you know, the communities that we invest in, but also, you know, our team and the people that we work with. So that’s really our philosophy when we talk about sort of the result and what’s the purpose behind what we do. It’s about improving the lives of the people that we do business with, or that we invest with or invest for. So, you know, whether it’s employees or, you know, tenants or residents or employees of the property or employees of our company. So that’s the big picture. And we love multi-family obviously for all the reasons that we’ve all discussed today, but our approach really, and really kind of our strategy and our mission is to acquire, you know, a hundred to 300 unit multi-family real estate assets across the Southeast and a couple Midwest States in the U S. And so we really focus on Kentucky, Tennessee, North Carolina, Indiana, and Ohio in specific markets. And, you know, typical deal size is anywhere from 10 to 40 million and we’re a private equity firm. So we work with high net worth individuals’ private equity offices, family offices, and other funds you know, in terms of acquiring our deals. And of course we invest in every single one of our deals as well. So we’re always aligned in terms of interests there, but, you know, our goal is to invest in communities, protect capital, you know, grow resources and continue to go from there. So that’s our big picture, but we love emerging communities, but we also love secondary and key tertiary markets because those are where opportunities are. But, you know, just before this call, we just got off a call with economic development in a, in a market that we’re about to make an offer on a deal for, and we need to know, you know, what, how are you guys pivoting? How are you guys nimble? And how are you know, really positioning this city for success over the next five to 10 years. So when you think about sort of being nimble as well, I mean, we’re having those conversations when we’re really thinking outside the box as well, and not just about this asset, but how does this market look because we’re looking at sort of migration patterns that have occurred over the past 10 years, and obviously that’s important information, but how is it going to shift now? Like, what are the migration patterns going to be? What are the occupancy trends going to be moving forward? What markets will succeed and what, you know, we’ll be in a high risk position. So with all that said, I mean, our approach is really just to acquire, you know, great assets and do the right thing and play the long game. So that’s, that’s what we do with CF capital.
DAN KRUEGER (44:34):
It sounds like your corporate philosophy aligns a lot with your personal philosophy, which is basically you go around and try to provide value for everybody who crosses your path. And that seems to go well. So in your case, you know, the residents provide a great value for them, better place to live the investors. They make money, your employees giving them a good job, you know, all that good stuff. So that’s fantastic. It’s a good philosophy to employ just in general business.
TYLER CHESSER (45:00):
It’s a long game, you know, especially in real estate. I mean, it’s not a get rich quick scheme, you know, not for anybody involved, you can certainly become extremely wealthy through real estate. But I believe that if you treat everybody right, you do the right thing and you know, you’re nimble, you’re, you’re, long-term oriented that the right things will happen for everybody involved and that’s the type of life I want to live. So that’s, that’s the approach we take.
DAN KRUEGER (45:20):
Yeah. I mean, it’s such a great business model. It’s so basic, you know, as long as you don’t over leverage and you run a good business, you’re, you’re going to do well in real estate. You might not be the richest guy in the world, but you’re going to do pretty darn good. As long as you just go easy on that leverage kind of like you mentioned, with the extra reserves and just being more cautious these days.
TYLER CHESSER (45:36):
Yeah. I can’t remember who says it, but it’s something to the effect of real estate is the best get rich, slowly scheme in the world. Yeah. I agree with that. All right. So let’s pivot to the best part of the show. Now we actually, we usually do this at the beginning, but we put at the very end, because I knew that there was going to be so much juicy content to get through. And usually our listeners just tune in for this piece of bad investing advice. And then they go home. So we put it at the end this time so that they stick around. Cause I wanted them to get the full value here. But Tyler, why don’t you drop on us, your worst piece of investing advice ever. Okay. I’m excited to answer this question because we talked about it just a little bit earlier and you know, it comes down to this question that every financial advisor asks and maybe not every, but every one that I’ve ever come into contact with, they ask you, when do you want to retire? And I’m like, okay maybe how about, when do I want to be financially free? How about when do I want to be financially abundant? Or, you know, when do I want to have limitless options in my life? That question is never asked, right? So the question is flawed. I mean, you’re setting yourself up for failure, you know, because most people retire poor and it’s more like how can I get myself to a position where I have 18 years left to live on the tiny nest egg that I’ve set up for myself. So to me, that’s the worst piece of investing advice is to ask somebody, hey, do you want the 2060 plan? And you want the 2050 plan or whatever. I mean, it’s totally setting yourself up to live a poor end of your life rather than live a limitless life, which is all available for all of us. So that to me is the worst investing advice.
ANTHONY VICINO (47:14):
I agree a thousand percent, I think we have like culturally, we’re very much programmed to think of retirement as the finish line when it is in fact a starting line. And the sooner you can pull that starting line to you, the sooner that you get to go out there and start living your best life. And I hate this idea of like pushing off retirement until 65 or whatever, and even like defining what retirement is in general. Like I don’t, I don’t see any of us ever really just fully retiring. Like, it just means that you now have the time and the energy and resources to put yourself into the activities that bring you the most fulfilment on a day by day basis. And how has that ever a bad thing?
DAN KRUEGER (47:57):
I think it goes right back to the whole you know, corporate experience that Tyler was talking about at the beginning. They’re like, that’s just part of the narrative that’s presented as, okay. Here’s what one does at this stage of their life. They go to college, they get the degree, they get the job, they buy the house that the family. And then if you’re lucky at 55, but probably more than likely 60 or 65, you get to stop working because that implies that you’re probably doing something you don’t really enjoy. That’s kind of, I mean, it’s not the most positive plan, but I think a lot of people don’t realize that isn’t the only option I didn’t. I got, you know, like I said, five years into my corporate job before I realized that there were other options. I didn’t have to follow that path. Some people love that path. Some people are actually happy doing it. I wasn’t. So for those that aren’t, you know, content with that with that style, like there are other options you do have the ability to build up a nest egg of passive income producing nest egg that lets you do whatever the heck you want at some point, depending on how aggressive you get.
TYLER CHESSER (48:57):
Yeah. And I think that you can live a fulfilling life by doing things that you love to do. And, you know, work doesn’t have to feel like work. You know, if you’re building something that you’re fulfilled by and that, you know, makes you feel purposeful and really aligns with who you are truly as a human being, I think that you can, you know, you can do that, you know, forever. And why do you have to sit around and, you know, shoot, you know, hit a golf ball every now and then, and maybe that’s come from coming from the guy who sucks at golf. But to me that doesn’t sound too exciting. We’re not any better. I don’t, it doesn’t sound exciting to me to live the last 20 of my years, just smacking a golf ball around, you know, a green pasture to me, it’s like, let’s build something, let’s help somebody. Let’s build new relationships. Let’s grow as an individual. Let’s contribute to society. Let’s leave a legacy and let’s live a greater life and you know, live a life of meaning. And I think that you can do that by living a life with purpose. And to me, that question, when do you want to retire? To me, it’s like, first of all, why would I want to retire when I’m fulfilled by this? And when would I want to stop giving and contributing and growing? I mean, I think we should grow until, you know, at the end of time, I don’t think we should ever stop growing. So I agree. Preach. I love guy. I had Tyler. So throughout this podcast, you’ve mentioned off the top of my head, four different books, rich dad, poor dad, black Swan to go give her maybe it was only three.
DAN KRUEGER (50:20):
He overachieved on the book.
TYLER CHESSER (50:21):
Yeah, you’ve killed it on the book recommendation, but why don’t you give us that your best book recommendation for the week you strike me as a guy that reads a ton. I do, I do read a lot. And that’s why I said, this is going to be a little bit of a tough one, but you know what I’m going to give you. I’m actually going to overachieve on this one too. So a couple of days, I’m just what I’ve learned through reading is that I’m a deeply curious person and that when I learn something new, I need to know more. And so hopefully that strikes a lot of your listeners to be the same within them. If not, perhaps they follow their curiosity. And one thing I’ve heard from somebody, I think it was Naval Ravikant who said, you know, when you love until you love to read it or something along those lines, and I totally butchered that, but forgive me there. So what I’ll say is sapiens by Yuval, Noah Harari is one of the greatest books I’ve ever read. And it’s amazing. It has nothing to do with real estate, but you can apply a lot of the learnings towards your business and real estate in your life because of where we’ve come from as human beings. It’s so fascinating. It’s so interesting. It’s illuminating. So you know, stoke your curiosity to read that book. The other one is another one kind of similar to that framework, but also very different meditations by Marcus Aurelius, the Roman emperor from 2000 years ago, you know, actually he had a journal where he was, you know, writing his thoughts during, you know, during the war and all these things. And it’s Sage you know, wisdom that is timeless and highly recommend that read. So both of those are amazing.
ANTHONY VICINO (51:52):
That is meditations is my all-time favourite and most gifted book. It’s a book I gift the most. There’s a translation by Gregory Hayes, which I highly recommend to everybody. And then email, you mentioned [inaudible] guys at home. If you’re looking for another podcast, go Google Navel. He has a fantastic one called how to get rich without getting lucky. And he he’s a brilliant thinker and he also has a great reading list as well. So I’m glad that you mentioned that. Because anytime I can plug Nepal, I do same year. He’s an amazing individual. Absolutely. So, so Tyler, I want to really thank you so much for being with us van. You brought me so much value. I’ve learned a lot from you and I’m looking forward to just following the progress of CF capital and see what you guys are going to build here, moving forward. Where can people get a hold of you? If they’re like, I like this guy dig what? He’s, what he’s putting out there. I want more of it working. They get yeah.
TYLER CHESSER (52:42):
Yeah. So they can hear more of me on elevate podcast. So just go search elevate with Tyler Chester or just search elevate. And you’ll probably see my half of my bald dome there. So click that. And there’s quite a bit there to kind of keep you keep you busy for a while. But other than that, it’s CF cap, llc.com or Tyler chester.com. So there’s three places you can find me. And of course I’m everywhere on social media, but yeah, I I’ve really enjoyed the conversation today, guys. I really appreciate it.
ANTHONY VICINO (53:09):
Absolutely. So for you listening to the home, go find Tyler out there, subscribe, go follow him on his podcast. Elevate. He’s just a great thinker, puts out a ton of positivity and a lot of great mind-set material in general. I think that if you’re struggling with that aspect, he he’s going to help get you, right. And before we let you go, this is the most important part of the show. You know, everything else before this was just fluff and it’s all for not, unless you go right now and leave a review on smash, the like button and the subscribe button. We’re actually not sure how any of that works, please push for leave us. Let’s push buttons until something happens, but leave us some feedback. Let us know what you thought of the show, what you thought of Tyler. And until next time guys, we hope you’re having a great week. Thanks guys.
