Chris and Ashton Levarek, military veterans turned real estate investors and founders of Valkere Investment Group, discuss their journey from starting with a small multifamily property to scaling up to larger apartment deals. They emphasize the importance of having a clear end goal, cash flow, and partnerships to leverage skills and finances to tackle bigger deals and create more passive income streams. The Levareks also share their experience with short-term rentals like Airbnbs and provide valuable insights on how to start small to generate cash flow and then focus on building a business around real estate investing.
Brandon Hall 00:00
This is the hacking real estate Podcast, episode eight.
Ashton Levarek 00:03
You know that kind of goes back to just knowing what you want, like what you want out of life, what you want out of that, where you're going, are you just buying a rental? Or are you trying to create multiple streams of income that create tax free wealth that create generational wealth that will be protected over years over here? So how do you do that? You don't just buy it. There's got to be a lot of stuff that goes into it. So I think having that end goal in mind is very important.
Brandon Hall 00:25
Welcome to the hacking real estate podcast where we dive into the stories of seasoned hands on and tech savvy real estate investors will learn the strategies and tools they use to maximize returns and minimize hassle all while navigating the rapidly changing real estate market. I'm your co host, Brandon Hall and managing partner of Hall CPA and I'm sitting alongside my co host, Vikas Gupta, CEO of Azibo. With our combined 15 years of experience in real estate investing and entrepreneurship, we're here to help you up your real estate game. Let's get hacking.
Vikas Gupta 00:57
Hi, everyone. Welcome to the hacking real estate podcast. I'm your host, Vikas Gupta. And today we have Chris and Ashton joining us, Chris and Ashton are military veterans, turned real estate investors, and the founders and managers of Valkere Investment Group. Together, they run a portfolio of over $90 million worth of real estate assets. And they each drive each other to empower others to gain financial freedom through their real estate. Chris Ashton, welcome to the show.
Ashton Levarek 01:25
Thank you so much, we appreciate it.
Chris Levarek 01:27
Thanks, good to be here.
So in your own words, would love to hear your real estate journey? Sure. Back in 2018, I was finishing up 21 years in the military, I joined right out of out of high school. So you know, that's all I knew 14 combat deployments. But I was looking for something to do after the military. And Chris actually came to me because he was looking into this real estate thing. And we put our heads together. And essentially, we tried to figure out how we could replace our W-2 income without having to get another job, right, and create more passive income, more streams of income, create more freedom and time freedom, all that. And so that's how it started. Chris has a little bit different version of why and I'll let him tell it but that is how it started. Yeah, IT engineer for about 12 years. And while I was working in a corporate job, I just saw the 401k is weren't doing what they were supposed to the market was tanking stocks in 2018, and decided to look into what a lot of wealthy people are into, which is real estate conversations with my brother we ended up doing Yeah, these deals together kind of scaling every time every deal we've done, we partner with someone. And so naturally, we went moved into syndication and joint ventures deeper and deeper into different types of assets we've done so we can go into that. But that's that's kind of how it got started. It's just a desire to have a plan B something better at the end of the runway.
Vikas Gupta 02:49
Yeah, no, that's certainly resonates. And that's that's something that we hear a lot. I mean, at this point, to the extent you're comfortable sharing, are you now completely in your real estate business and off the W-2 income?
Ashton Levarek 03:00
Yes, we yeah, we are. Yeah.
Vikas Gupta 03:03
Wow. So goal accomplished in five years.
Ashton Levarek 03:06
in three years. Three years.
Vikas Gupta 03:09
Wow. Even better. Yeah. So we'd love to hear about that first real estate deal. Can you tell us about what that was and how it came together?
Ashton Levarek 03:16
Yeah, absolutely. So the first one. So we put our heads together? We're like, yes, let's do this. We started reading and listening to everything, every piece of content we could get our hands on about real estate investing, we figured that small multifamily is where is where we would start. So the proof of concept there, we found we were looking at anything four units or less. And Chris had a friend that had some capital that was looking to get into real estate as well. And so we were able to partner with him. He brought 70% of the loan to value, we bought a property, all cash, the idea was to burn it. So by rehab, rent, refinance, and repeat, it was 209,000. It was only one unit was livable. And I only say that because people were living in it. I don't think it was actually livable, in my opinion, everything, but the place was a mess. And we had, you know, heard that those are the best ones to buy in the beginning, because they're so easy to add value to. But it was like a 1930s house 1935 or something like that. Plumbing, electric, everything had to be replaced, underestimated the rehab costs, had to raise more money, you know, take out he locks and liquidate all sorts of different funds. But we pulled it off. And we were able to refinance, I think, in about six months later, because we made the mistake of having him on the loan and then you can't refinance fast enough. So you have to have to have some seasoning period. So we learned a lot we made all the mistakes. And probably to my brother's credit, we wrote down all those mistakes, and we learned a lot from that one. And but you know, we cracked bottle champagne and at the end of that one, we're like, oh, we're making $300 Extra, which is not life changing. But we thought okay, we need to go get more than so. Yeah, that's what we do. did it and we did it, you know, we just scaled from there. As Chris said, we took what we learned from that one and repeated it multiple times duplex duplex, five units, 16 or 13, and 16 and 80 411 2384. And on So, but that first deal was, you know what it is, and this is kind of cool about having a partner is key, you can challenge each other. And that's what it was, we challenged each other, we say, Hey, we're gonna, let's do this in 90 days, you pull your way, I'm gonna pull mine, and we're gonna hold each other accountable. And that's exactly what happened. And, you know, we learned a lot, especially in the partnering realm, in the outsourcing how to build a team, how to leverage other people's skills and finances when you don't have them. Right. That has really helped us a lot.
Vikas Gupta 05:43
Oh, that sounds great. Yeah. And in one thing, you said the extra 300. And that's not a lot. But no, no, I don't mean that in a negative way. I think back to, like, I've, I've been in the tech startup world for a long time and multiple early stage startups and that first, that first deal, that first sale, even if it's $50, a month subscription or a $500, you know, software purchase, it's like ringing the bell. That's that's validation, right? Like, it's actually, that first piece of revenue is the hardest revenue to get, and then you just keep on growing from there. And after a few years, it's like, remember when we were excited about $300? Like, it just grows? Yeah, no, that's cool. Yeah. So it sounds like you fairly rapidly moved up from sub four unit properties into larger and larger deals. Tell us a little bit about that journey. Because a lot of folks that we talked to, who are sort of individuals or families investing in real estate, just continue to build a portfolio of, you know, SFR, or two unit or three unit. But, you know, how did you go up larger than that? I think you said 184 was one? Yeah. So tell us a little about that journey.
Chris Levarek 06:53
Yeah, so what we did is we built a business around it. And I think if you're gonna get serious, in real estate, as in creating wealth, you need to develop some kind of business, that business can be just eating your family, where it's, you're looking for that business to replace your income. Or in our case, it could be providing a service, you know, taking to the next level. And usually, when you create a business, and you're now selling something, or providing a service to people, you can have access to bigger deals. Because now you're joining with bigger partners and able to leverage your talents, they're able to leverage their talents, and you come together as a partnership. You can do it on multiple levels, we just ended up once we did our first syndication, which was a 16 unit ran into other syndicators. And that process of learning and betting deals together and talking to people about the stuff we're doing. And then partners naturally, who are doing big things gravitate and start doing things together. And so we just had the possibility to jump on an 84 unit with another partner. And that was kind of our entry into the bigger apartment deals. And we provided a service, not only to investors on that deal, but also to our other general partners when we came together. And so it just depends your goal, I'd say you do better when you partner together. So even if you're just doing a single 5050 joint venture, you're probably going to be able to buy more with another person, then you could probably do a loan. And you'll probably do better together than you would do alone. It's just that getting past that limiting belief that a I can't depend on anyone, or B, I can do it all. Once you get past those, really, you can do a lot of bigger deals. So that's just what we've learned
Vikas Gupta 08:38
And in terms of scaling and doing bigger deals, what scales and what doesn't scale. So if I'm going from four units to 80 units, or 380 units, getting a deal done is getting a deal done. So I imagine that scales pretty well, that's not good. Doing a 380 unit deal is probably not 100 times more complicated, but maybe it is telling me if I'm wrong. But you know, management is management. So like what scales well, and what doesn't scale? Well, when you're when you're talking about, you know, 100x difference in unit count?
Ashton Levarek 09:08
That's a good question. I've never heard it asked like that. So well, the economies of scale are obviously why people get into larger properties, the risk mitigation because now you take a vacancy on 100 units versus a vacancy on a four unit that's 25% loss, you know, on a vacancy on a four unit. So the economies of scale play a huge role in that. The other thing I would say to caveat up what Chris was saying the thing that scales really well is the tasking who you're working with, right? Because now it's a bigger deal. So naturally, you're like, well, I need more people and I need partners or I need people that are experts on this. And so you tend to leverage real experts, people that have done this stuff. You tend to partner with other people that specialize in certain things like so you may have a capital raiser, you may have a deal finder. You may have property manager, you may partner with the contractors or whatever. So now you're not trying to work with Like mom and pop Oregon teams or mom and pop like businesses around town to do a single family home and get the cheapest price, you're actually looking for professionals. And I think that helps you scale very well. And then additionally, it's probably a mindset thing. As you go bigger, you're like, I'm serious, and you start to brand yourself. It's a mindset, like, you start to think this is serious, we're getting serious here, we're talking $50 million properties, right. And that was a huge piece, Chris kind of touched on it. But when we started talking to other real estate investors and talking about where we were going and what we were doing, we were creating a brand, whether we liked it or not. And like he said, people gravitated to that and the right people gravitate to that, because you're not going to somebody that buys $50 million properties, is going to have a different mindset, they're going to want to talk to different people. And so how you present yourself, whether online or whether in person is is very different, right. And so I think that piece plays a huge role in how you scale and how quickly you can scale.
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Vikas Gupta 11:38
I want to say back to you one thing I heard and make sure I heard this correctly. So I think this can be really helpful for our audience. So one thing that I feel like I heard and correct me if I'm wrong, you do a $50 million deal versus a $500,000 deal and the $50 million deal, you can then afford to go support a full time expert on capital raising or a half expert on capital raising, if you're gonna put five or $10 million into rehab, you're getting a different class of contractor. And all of a sudden you get much you get expertise in each of these things at a level that you can't afford to do or wouldn't get at a $500,000 deal. And that just makes things easier. And you know, more value add is that is that correct?
Ashton Levarek 12:21
Absolutely. Obviously, you want to keep costs down. But it's easier because there's more economies of scale right to work with a professional at that point. Yeah.
Vikas Gupta 12:31
Got it. Cool. So moving away from the acquisition and deal structuring for a minute, how are you managing and operating this vast portfolio of yours?
Chris Levarek 12:42
Yeah, it really comes into adopting that that mentality that you are playing a role, and pick the role don't deviate too much from it. So in that case, all these different partners are have the different roles. And then they build, the more they focus on them, they build more systems, and they get more experienced in that role. So in our case, we really focused on becoming more of a fund manager and raising equity. And then we, you know, you'll lose more experience in other areas, but you're never going to do 100 unit property by yourself. So you make a decision to focus on one of the aspects of the 100 unit, and get crystal clear on it, and then build the systems around it. And that's, that's how you build a business. Eventually, maybe you start building verticals in your business that are in the various roles. So big, big groups, start not having vertical management, vertical property management in their group and start having acquisitions team in that group, as well as an equity team and their group and all that kind of stuff. But when you get started, play the one role build the systems in that role. For us, that's what we did, we started niching down. Now, if you look at our brand new, you know, you invest with us, we're a fund manager, you know, we do certain type of deals, that's what we do, it doesn't say, hey, we'll go be your agent and get go get you a deal. Like, that's just not what we see people see when they see our brand. So that's the way to do it. It's niche down on something and then start building the systems around it, and you get better and better at that area. And you can pivot and change at any time. But I advise, like, get good at the one thing and then you know, see how far you can take it and then start to grow out if you can or want to.
Vikas Gupta 14:26
So you mentioned a few different vertical areas in which people can grow property management, capital raising. What if any of those have you decided to put under your umbrella?
Ashton Levarek 14:37
The capital raising is a piece we focus on a lot, but I will add one of the lessons we learned early on was the cashflow piece, right. And if you're trying to make a business out of it, you need cash flow. And so it took us about three years to figure this out. But as new investors I think a lot of people get caught up in having to do deals because they have to create cash flow so then it becomes a scramble. all the time. Whereas if you can somehow get something that cash flows from day one that provides you the lifestyle and allows you to take that load off your shoulders to actually focus on scaling and building the systems and building the team. Whereas you're not trying to just fumble through it as fast as you can to get that cash flow that is very important. And we discovered that in what 2022 using Airbnb is actually so to provide us the financial platform from which to take that pause, build the business build, the teams, actually get our capital raising strategy down while we we specialize in raising capital for large projects, we actually tell a lot of new investors, go get a couple Airbnbs that can provide you, you know that unless you already have a job and you're fine, working your job, your W two, and then you know doing these kinds of projects. But if your goal is to get into big deals, they don't create a lot of cash flow in the beginning because it takes longer to stabilize. Right. So that's kind of what I'm getting at here is it helps to have a couple that actually cashflow really well and vacation rentals can do that very easily. So that's another piece to our business right now is we actually teach people how to do a couple Airbnb is just to get started, so that they can go pivot and go wherever they want with the business. It's kind of two part we do focus a lot on the capital raising. But we have started helping other people by helping them get their first couple Airbnb ease.
Vikas Gupta 16:21
So So for your first two years sounds like you were heavily chasing that next deal in order to generate somewhat lumpy deal dependent cash flow. And then he took a break. And he said, You know what, let's build up a foundation of assets, that throws off fairly reliable cash flow, and then we can sort of not be chasing the next deal. But take some time to invest build a business, do bigger deals be more thoughtful, is that yes, right? Yeah,
Chris Levarek 16:48
we did grow the verticals to a degree. So we didn't grow a vertical Property Management multifamily arm. We did, however, grow a vertical short term rental property. So we've managed about six short term rentals, five short term rentals in house. And we did those with with other partners, but we do the management side of it. And then we added an education vertical, where we're teaching people who can invest with us to go do it themselves. So it's kind of these three verticals. One is more and private equity. One is more in short term rental property management. The other is in education. So
Vikas Gupta 17:28
so how are you managing your long term rentals? You have a outsource property manager for that.
Ashton Levarek 17:33
Chris Levarek 17:34
Always. Yeah, even our small multifamily, we have a couple duplexes and five unit and so we have a smaller property management team for those. And then we far the big units, the 50 Plus units, that's like the most important piece. So typically, they're the close partnership with a bigger company that you know, especially usually over a billion in assets, and they're well known in the space.
Vikas Gupta 17:58
Got it, I want to switch gears for a minute. I think one of the key themes of this so far has been around partners, the value of partners, finding the right partner, building the right team, I do, if you don't mind want to ask about pros and cons of working with family, because that can be really great. If it goes well, that can be challenging, and it's probably not always one or the other, but it's upside down. So we'd love to hear what you can share about how you decided to team up together and how that sort of family business has evolved?
Ashton Levarek 18:28
Yeah, so that's, that's a good question. And people have asked that before. But you know, it's no different than partnering with anybody else. You just have when you partner with somebody else, that's not family, you just have this exit plan in the back of your mind, you're like, I can drop that guy in anytime, right? When you commit to something. And Chris, where I come from, you know, from a very discipline background, our parents were very committed to success, we understood that I think going into it, we would never let each other down. And so we did get everything in writing, because we wanted to be clear about it, you know, what happens if this what happens if that right? You do want everything in writing, you do want an you know, a legal document that shows how many who owns what and how many shares and you want everything protected? And yes, absolutely. So whether you partner with family or friends, it's the same or strangers, I mean, I would never recommend partnering with a stranger. But the point is like, they're nothing changes, you just need to get very clear about what you're you're strong at and what they're strong at what you're weak at, and what they're weak at, and how you can complement each other, get that in writing. It's just like when you get married. If you don't manage expectations early on, you're gonna have a rocky road. Like if you don't know what you your wife expects of you and your you expect of her, like you're going to be clashing all the time. And you know, Chris, and I kind of ran through that at the beginning, but there was a few pieces of education that came our way. One of them was traction, which helped us really align our roles. The other one was the DISC profile, which helped us figure out our personalities to help us align our roles in the business even better. And now Now those expectations are really managed and I'll give you a funny joke about it is like Chris knows that when it comes to like car Um, he's like, Oh, you're, you're probably not going to input that data, because I'm not a detail guy. And so like, that's a, it's a funny thing. But he doesn't get frustrated with it as I hope not not as much anymore. Because that's not something I focus on as much. And vice versa. Like, when I get all excited about a new idea, he's already thinking like, 10 steps ahead and looking at all the details, and it kills the idea, but I don't get off, you know, pissed off about that, either. So it's like this, give and take, and you're always working with that, you know, the different personalities and but once you understand each other, it works out very well. And so that's what I, I would say, manage expectations early on, if you're gonna go into a legal, you know, partnership, make sure it's in writing, make sure those expectations are in writing those roles and responsibilities are in writing. And, you know, Chris actually leaned into that early to get us to do that. And we, we did, and we have it that way. We each have our own LLC that owns 50%, of our holding company. And, you know, so we stressed that a lot.
Vikas Gupta 20:57
Did you set up all of that legal structure ahead of time? Or was that more of, you know, three, six months, you're like, oh, we should probably professionalize this a bit.
Ashton Levarek 21:06
Chris, I think it was, like it was in the feet first deal or
Chris Levarek 21:09
in process with the first deal. I knew we had to get something underway. The first deal was really a joint venture, single LLC 5050. You know, actually, it had to have been because we included the company LLC as a 50%. Partner. Yeah, it was kind of in tandem. So basically, the best thing I tell people to do is like, you don't have to go build the whole thing from the ground up. But definitely have a call with an attorney, it can save you time later on just saying, Hey, this is my idea, what's kind of a Entity Framework that would support this, and they're gonna go, well, here's a little pyramid and you got these LLCs over here, and your trust is this way. And now you don't have to do all that upfront, but at least you have a guide map of where to get started. And you don't even need an LLC, really, if you're just doing like an umbrella policy, insurance policy on a property or something like that. So for us, we knew we wanted to build a business. And so it was important to have that foundation strong from the start. So not every that doesn't apply to everyone. But if you want the business built the foundation, yeah.
Ashton Levarek 22:15
You know, that kind of goes back to just knowing what you want, like what you want out of life, what you want out of that, where you're going, are you just buying a rental? Or are you trying to create multiple streams of income that create tax free wealth that create generational wealth that will be protected over years over years? So how do you do that? You don't just buy it, there's got to be a lot of stuff that goes into it. So I think having that end goal in mind is very important. We knew that we want we wanted $10,000 x, we want $10,000 A month from passive income. That was our goal. Alright, how do we do that we backwards plan from that? And how do we protect ourselves and protect our investors? And so yeah, having that end goal in mind, and planning backwards is very crucial. What like Chris said,
Vikas Gupta 22:56
Yeah, I guess like it's anything right. any business, any project, as you said, right, like, work backwards from the end state? And if you don't know where you're going, you're not going to get there. Yeah. Yeah, I do. I do have one question. Another question for you. And I say this from experience as someone who has lost their friends money in a business venture. Have you had the unfortunate experience of losing your friends or losing your family's money? And how did you handle that? Not yet? Not yet. Oh, good for you. Let me tell you, those are not fun conversations.
Chris Levarek 23:28
Yeah, I'll be honest, though, we've had a couple of scary moments where money's disappeared and you're like, What the heck you know, and or going into the 16 unit like when there's a lot of skeptical we got met with like other syndicators are like, that's under a million dollars that's gonna fail, or what it's an A C plus asset or neighborhood, nothing's gonna be a nightmare. Rents aren't gonna do all sorts of things where we doubted ourself and kind of just, you know, we still went on the project, and then ended up doing very well, crushing it. But, uh, you know, there is a lot of, you get exposure in real estate, but I think one of the things I like about it is other than like, venture capital, or business startup or an app, whatever you're building, like real estate's pretty proven. So even if you miss a lot of things up, if you can just hold on for a couple years, three years, five years, and just ride something out. Typically, you can get a lot of your capital back. It's, you know, can you hold on for that duration? But the same can be said for crypto or stock like you might never see a crypto recover. You might never see a business app ever launched. And you spent millions in investment on it, you know, so real estate, it has some level of, I guess, protection, somewhat which we've been blessed not to lose any money so far.
Ashton Levarek 24:56
Well, in should add to like, there's certain rules we follow when we invest in real estate, right? So the first one is we always invest for cash flow, always it has to cash flow from day one, we do value add. And so if it doesn't cash flow from day one, that's puts us at risk, right? Because if the market crashes right after we close, now, we either were underwater, and we're not making money, and we can't sell it and we can't refinance it, right. But if it cashflows, and we can't sell it, and we can't refinance it, we can still just hold on to it. And it's still paying for itself. And then when the market comes out what like the normal recession, on average lasts, what, nine to 13 months, and then there's a recovery period of 12 to 24 months. That's not that long. That's a drop in the bucket of the history of America, right? So you think if you have a cash flowing property, you can wait three years? I think so. You know, and so that's the first one we always buy for cash flow, we always have cash reserves, and part of the cash flow goes into building that cash reserves. That's our emergency fund. And then we always try to get long term, low interest rate financing, right? Now, we may break one of those rules, but we will never break more than one of those rules at a time. Because that puts you at massive risk. And so that's kind of what Chris is saying is like, can you can just hold on to it, especially your cash flows.
Vikas Gupta 26:14
On the on the cash reserve subject. Is there a rule of thumb that you follow X percent of value or x multiple events? Like how do you size your cash reserve?
Chris Levarek 26:25
It depends on the asset. I think it's simple thing for people to find, follow, usually three, five, so 5% 5%, so 5% for vacancy 5% for maintenance, 5% for capex, so if you can do that, that typically will protect you a little bit. Nowadays with debt. It's getting really interesting. You've got interest reserves, you've got capex reserves, you got your renovation reserves, you got Oh, crap, like, so there's a lot of changes to the debt, like buying these insurance caps, buying these insurance. Like we were doing a deal right now they're putting 500,000 aside, just to pay interest for the first year, just to ensure the bank loan is it's good for the first year. So that's crazy. So yeah, but I used to do the 555 rule. I think it's a good number. If you're really confident and you can go to 3%, we had a five unit dropping, we had five unit that lost three AC units the day after closing, just someone stole them off. So it's good to have reserves. Sometimes we didn't have enough for that. And I'll tell you what, we did have insurance day one. So
Ashton Levarek 27:35
yeah, that's another way. Always have insurance. Even before closing. Yeah.
Vikas Gupta 27:41
Alright, so someone just drove up and took off the window units and drove off.
Chris Levarek 27:48
Exterior full exterior bolted to the ground. They just, they took the whole thing apart and took everything out of it. Typically, you want cages in an SI plus areas or some kind of bar to prevent?
Vikas Gupta 28:02
Yeah, yeah, no, that's that's a that's a story. Yeah, I think, you know, the last, the last few guests we've had are pretty much I think the one of the consistent themes we've had, from our guests so far has been almost an opposite strategy of buying, buy high quality property and high quality areas, high quality tenants, and any other sort of optimizing for minimal sort of operational overhang. And it sounds like, you know, obviously, like there's no one right way to do this. And it sounds like you, you like to go for more of upgrade rehab, build value that way, and you're gonna run into some of these these instances, right?
Ashton Levarek 28:44
Yeah, but that's where the, that's where the The upside is, right? If I buy an A class property, there's not a lot of upside, you know, it's, if I buy a, b and c class property, we can add value, we can force the appreciation by a couple million in just a year, you know, like on a on a 100 to 200 unit apartment complex, and you raise rents $50 That's like a $2 million increase and decrease expenses, like five to 10%. That's another 2 million increase in value, you know, just by doing the math, because if it just in case, people aren't tracking, like apartment complexes, large commercial properties are their values based off their net operating income. Right. So it's not necessarily what the other properties in that area are selling at. It's what the net operating income is. So if we can increase how much money it's producing every month, and 100 units, that's not very hard, you know, it's a lot easier to scale on a four unit, we'd have to increase the rents by like $300 per unit, whereas on 100 unit, it's only $50 or $25. And, you know, so that's where that scalable and scalability comes into. So,
Chris Levarek 29:51
like Ashton saying is you can depend on the market for increasing the value or you can depend on increasing the value as or you could do both. And the biggest we've seen is within a year a $15 million increase in value. And when you see that play out in front of you, you kind of like, okay, I like I like the value at two. I also like, and that was a B class. So it doesn't have to just be C Class asset. But when you see like the potential value add can do, as well as timing in the market or whatever. That's a huge, it's crazy.
Vikas Gupta 30:28
So got it. Oh, wow, 15, I was I was able to follow the mental math on getting to to the 15 is a bit trickier, but just just to walk our listeners through it, and to make sure that I have it in my head. So if we have 100 unit building, I increase rents by 50 bucks a unit that's $5,000 a month. So it's called $60,000 a year, that should all drop straight to the bottom line since the price increase. So 60,000 increase in net operating income. So if it's trading at around 30 times that operating income, then that would be 1.8 million. Is that how you get to your $2 million? More or less?
Chris Levarek 31:03
Yeah, yeah, yeah. Anyway, that's when we did our C classes. In two years time, we did very much same thing. But we went from like a 500k purchase to 1.1 million sale in two years. And of course, selling in the market previously was really good. But we also took our 16 unit from $950,000 purchase to $1.8 million in two and a half years. So same thing, though, just that rents increase value through the income. Yeah,
Ashton Levarek 31:33
decrease expenses here,
Vikas Gupta 31:35
wherever you found the most consistent opportunities and decreasing expenses,
Chris Levarek 31:39
management. Yeah, management's a big one. Utilities, you can get package deals, or optimize how people are paying for utilities, you can put in things that are decreasing water costs, you know, tracking what people are using for water, and then giving out back to them in a bill, what they're spending on something like rubs, you know, and we've gotten away from being the asset manager, some scratching.
Ashton Levarek 32:06
And that's why I said that. So this kind of goes back to our first few points is like, who you partner who you bring on the team, the property manager, man that those guys bring a lot to the table, they know the market, they know the tenant class, they know you what you can do with the asset. And they know where to implement all these cost saving these expense, you know, cutting tools and techniques. And that has saved us many times just by finding the right property manager. And on the other hand, we had the wrong property manager, and that hurt us for like 12 months. So until we fired him.
Vikas Gupta 32:38
Yeah, so it sounds like with the right property manager, I mean, they're almost paying for themselves.
Ashton Levarek 32:43
Chris Levarek 32:45
I think they're the most valuable position, along with asset management, of course. So you're ensuring you're hitting the projections, helping the property manager with your specified turn or whatever you're trying to do. But they Yeah, property management, asset management, they'll make or break the deal. Obviously, acquisition is important that by right when you're going in, but that asset management team is literally your business plan. They're driving that business plan. So if they're off the mark, with timeline off the mark with what they can rent for with the money you spend, it could it could mess the whole deal up. So
Vikas Gupta 33:23
well. Super helpful advice. I think we're almost wrapping up here. But before we get to the closing questions, I do want to ask one more, how is your approach to finding deals doing deals changed over the last 12 to 18 months with the rising interest rates.
Chris Levarek 33:38
But I mean, it's a great, great side of it. So the short term rental side, we were finding in house and we've kind of paused ours now we're getting the management side in order with the short term rentals we acquired last year required for last year. So we're really getting those in order. I'm part of a mastermind, where operators come pitch. So because we're fund managers, we have big operators think like 1.3 billion in assets, names of I mentioned them, they're very familiar names in the syndication space. And they're coming in and pitching the fund managers and we all get to vet them and see that deal. That's been cool for us as private equity fund managers. But I'd say on a high level Yeah, like, you know, for us in the short term rental space, where do we want to go stay? Where do you want to go vacation and then making sure that data matches in something like an air DNA or mashvisor and then pick in the market like that, but man, those vacation destinations right now are just so expensive that with a 7% interest rate of some kind, it really doesn't pencil very well. So we're looking at like more Midwest destinations. Want to go in the oh there because there's something but yeah.
Vikas Gupta 34:56
Great, no, that must be you know, that's certainly a great position to be in if If you're at a point now where people are bringing you deals, and you get to take a look at them and vet them and ask questions, certainly much different. I imagine that it was three years ago for you to Yes.
Chris Levarek 35:11
And, yeah, we've had, you know, we've had deals all through, I think we've had three total that we were raising for that, especially last year. Last year was just rough, people were scared, and nervous rates were rising. And so we've had two deals back out, mainly not because of the investor side, mostly because of the debt, the debt chip changing every week, it's really hard to get a timeline when your debt keeps changing every week. So we had sellers, retreating, and all sorts of stuff going on, they can make it get more. So that's been the difficult part when we were doing it that way, you know, with just local relationships, or we had a broker who knew this had this deal. Now when you have a more system and like you've got people with even more experience than us in a circle, and you get now the right partners coming in and they're vetted operators, and it's just a lot smoother process.
Ashton Levarek 36:08
We had we had the seller not reporting stuff to remember that one, San Antonio, two shootings, and then the bank found out about it before we did
Chris Levarek 36:18
was weird bank said See ya.
Vikas Gupta 36:21
At shootings on the property on the property. Oh, wow.
Chris Levarek 36:26
I mean, that sounds like we're looking at really crazy deals. But this is actually in San Antonio.
Brandon Hall 36:30
It was like, yeah, nice area.
Chris Levarek 36:32
I mean, it was a b minus. It was not like, it's still nice. It was the you know, anyway.
Ashton Levarek 36:41
But it happens. It does happen.
Chris Levarek 36:43
I mean, I lived there back when I was like, you know, college or something?
Vikas Gupta 36:47
Yeah. Yeah. Yeah. I remember last June, when when the rates were going really crazy. We had, we had a couple of customers who, like 24 hours before a loan was supposed to close. The lender just pulled it said, Nope, we're not we're not reading loans anymore.
Chris Levarek 37:05
Yeah, exactly. And it's so hard to like, last minute, go find something, and then keep everybody who's on the deal. Comfortable. So yeah, it was challenge.
Vikas Gupta 37:18
Yeah. Well, great. This has been fantastic so far. We'd love to go into our three closing questions. Now. I'll let you to decide if you both want to answer them if you want to trade. I'll leave that up to you to the question number one is, what is your favorite book and it doesn't have to be real estate related.
Ashton Levarek 37:37
Yeah, that's a good one. Okay, so my favorite book currently is a new earth by Eckhart Tolle, Eckhart Tolle very deep thoughts and like presence and awareness and enjoying life. Yeah, so
Chris Levarek 37:50
I'm not sure I have a favorite I got too many books, but I am reading, breaking the habit of being yourself. But Joe Dispenza, you can tell we actually like like spiritual mindset stuff, too. So great book, though about like, how at a cellular level, how you think, changes your, your, your reality, but also your identity and all that kind of stuff. So pretty cool.
Vikas Gupta 38:15
Yeah, that sounds cool. I'll have to tell my wife about them. She, she's much more into the spiritual books than I am. But she's trying to drag me over. So the second question, we kind of touched on this at parts of the conversation, he talks about the importance of cash flow, but then he also talked about forced appreciation and how much value you can get there. So if you had to pick one, cash flow or appreciation, what would you pick as the most important?
Ashton Levarek 38:40
I would pick cash flow just because you have more protection? If it cash flows, you can wait for the appreciation?
Chris Levarek 38:47
Yeah, I'd say the same, especially early in the journey, especially midway through the journey. Now, like, unless you're retiring, when you're developer, you have a nest egg, like appreciation is a great game. But you know, like, you really want to build your empire and you build that with cash flow initially, or even the mid mid levels.
Ashton Levarek 39:11
Cash Flow pays for your cost of living, right. Yeah, the appreciation is like, that's the Yeah, generational wealth. Sure. But if you don't, if you can't get there, because you can't pay your way till that time, like, you need the cash flow.
Vikas Gupta 39:26
Yep. Nope. Makes perfect sense. And I guess, especially if the pathway is how do I get off to a W two, you can't do that without the cashflow. Final question. Any other last piece of advice that you want to leave our audience with that you didn't get a chance to cover?
Ashton Levarek 39:41
Good question. So I think the last piece of advice I would say if you're looking to get started, and you really want to build a business or retire from your W two or something, look into short term rentals. I mean, this is that's an asset class that cash flows. Like we're saying four to 10 times more than a regular rental right? It has utility it appreciates in value, you can force the appreciation of that value, it's valued off of how much money it makes. So you can actually treat it a lot like a small multifamily in the fact that you can increase the net operating income and increase the value and get a better refinance or sale, you know. So it's actually a really good way to practice to get into commercial real estate honestly. But it's also a great way to just retire yourself in a year depending on how much you make but and then additionally, for high net worth people, there's this vacation rental tax loophole, which if you own one, vacation, rental, all of a sudden, your passive losses can be used towards your active income as well. So now you can pay less on your active income as well. So there's just a lot of benefits to owning a vacation rental. So that's, that's one of the biggest pieces of advice I give to people both starting out and high net worth people.
Chris Levarek 40:52
The other thing I say is just know what you're doing this for. You don't have to go build a business. You don't have to do what we did, necessarily, unless you want to build a business. Building a business is a lot of work, you can go home and a couple of short term rentals, like you said, and maybe a couple of multifamily that you build up a legacy portfolio with over time. And, and do that very comfortably while having a W two job. That's just my feedback. It's like you know, know what you sign up for. And don't leave, don't leave the job until you're ready. Really like you don't have to burn any ships or bridges until you aren't ready, so
Vikas Gupta 41:30
well. Great. Well, thank you both very much. This has been fantastic. We really appreciate you sharing your insights, your learnings, really telling us some, you know, insights from your from your business and letting us into your world for a bit. Absolutely. Thank
Ashton Levarek 41:45
you for having me. Thank you
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