Feb 24, 2022
“Should I continue adding money to my 401(k)?”
If someone tells you to invest in real estate assets instead of your 401(k), then don’t dismiss the person outright. Real estate investors like Chris Larsen will suggest evaluating your choices before putting all your eggs in one basket.
Chris is the Founder and Managing Partner of Next Level Income, which helps professionals create passive income to achieve financial freedom. He drops a ton of valuable recommendations for limited partners currently looking for markets and deals and for aspiring investors who want to start investing in real estate.
[00:01 - 02:57] Opening Segment
- This life-changing moment brought Chris Larsen out of the bicycle racing space
- How he found a path to real estate investing
[02:58 - 12:42] Don’t Invest In 401(k) And Here’s Why
- The variable that convinced Chris to stop investing in his 401(k)
- These are the asset classes you can invest in instead of your 401(k)
- Chris explains the importance of demographics and other variables in finding deals
[12:43 - 17:04] A Few Notes for Passive Investors
- If you’re a limited partner, listen to what Chris says about picking an operator
- Here’s a piece of advice from Chris that salespeople would not want to miss
- The numbers in a deal are the last things you should look at
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- This is what you should look at first
[17:05 - 18:59] Final Two Segment
- Your way to make the world a better place
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- Starting a financial literacy program
- Reach out to Chris
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- See links below
- Final words
Tweetable Quotes
“ I think it's really important as you grow and scale that you decide not only what you're good at, but also what you enjoy and you start to find people and find what they are good at and what they enjoy doing and that makes them ultimately the best at what they do.” - Chris Larsen
“I think the last thing, not the first thing you should look at…are the numbers in a deal...if you don't have good fundamentals behind the reasons for those numbers, then those numbers are useless.” - Chris Larsen
“What you want to do is you
want to focus on the things that you can control as an investor and
the things that you can control as an investor is choosing the
right operating team to work with.” - Chris Larsen
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Email chris@nextlevelincome.com to connect with Chris or follow him on LinkedIn. Do you want to join the “Next-Level Club” of financially independent individuals? Visit Chris in their website here.
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Want to read the full show notes of the episode? Check it out below:
Chris Larsen 00:00
If you're in sales, it's a lot easier to make money if you have more customers moving to an area, right? So invest in areas with that what I call a rising tide, invest with operators that think the same way and you don't have to know all the answers but know the questions to ask, Hey, you know, why are you investing in this space in the sector? Why are you investing in this region? Why are you investing in the city? Why are you investing in this neighborhood? And a good operator should be able to go through and answer all of those questions because I think the last thing, not the first thing you should look at the last thing you should look at are the numbers in a deal.
Intro 00:36
Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we will teach you how to scale your real estate investing business into something big.
Sam Wilson 00:47
Chris Larsen is the Founder and Managing Partner of Next-Level Income through which he helps investors become financially independent through education investment opportunities. Chris has been investing in and managing real estate for over 20 years. Chris, welcome to the show.
Chris Larsen 01:01
Damn. Great to be here not too far away. I'm like almost on the other side of Tennessee we're like just on the other side of the border here and Asheville, North Carolina.
Sam Wilson 01:08
You are but you're not in the Delta. The Delta is flat, actually different. Way different, way different. Yeah, man. It's that's loads of fun. Love your home state and certainly love your hometown Asheville. It's a beautiful place to be. Chris in 90 seconds or less, there's three questions I asked every guest on the show. Can you tell us where did you start? Where are you now? And how did you get there?
Chris Larsen 01:27
Yeah, so I started at age 21. I talk about a lot of this in my book and if you want to get it. nextlevelincome.com, you click on the book link, I will send you a copy if you're listening here today. I wanted to have financial independence, Sam because I was racing bicycles and didn't make a lot of money. Long story short, my best friend, my trading partner, my college roommate passed away a race for another year after that. And when I came out the other side, I realized that you know, there was more to life than racing. But I knew that to live life to the fullest, you still needed financial independence. So I set out on my journey started in the stock market read 250 books over the course of four and a half, five years, ultimately decided on real estate bought my first property you mentioned, I've been doing this for over 20 years, at 21 bought my first property, continued to buy single family rentals before entering a career in the medical device industry because I needed to make some money to buy properties to be an investor. I manage those properties for about 15 years before moving into commercial, our main business now I was able to leave the medical device industry due to our real estate investments. And our main business now focuses on commercial real estate. So we started investing in deals personally. And now we syndicate deals. So we allow other investors to come in alongside us, and we've expanded outside of multifamily to also include self-storage, mobile home parks, and even personally, we run a couple of Airbnbs now as well and when I'm not doing that I spend as much time as I can with my 10-, 12-year-old boys. We're about to go skiing in snowshoe this weekend as a matter of fact.
Sam Wilson 02:58
Oh, that's fantastic. I love that. Chris, one of the things you said was that I've heard about you is why you shouldn't invest in your 401(k). Now you said you read 400, 250 books, whatever, more than enough books and then decided to invest in real estate. What does that even mean? And why do you say don't invest in your 401(k)? I want to hear something controversial right out of the gate.
Chris Larsen 03:18
Yeah, so I was like, What can I say that is gonna get people's attention. It's a little controversial. So I'll never forget, I was sitting there with my accountant five or six years ago, and he looks at me, he goes, Chris, you got to stop contributing to your retirement plan. And I'm looking at him like, “What do you mean?” Because I worked for Medtronic right down the road from you in Memphis, Tennessee, for 10 years, had a company match put a lot of money into my 401(k) did very well. And what he said to me, it made me think a lot differently. Sam, he said, “The problem, Chris, is you're going to be stuck with these required minimum distributions in retirement.” And I thought, okay, that's right. Now, here's something we don't really think about. If you invest $100,000, a 10%, rate of return and you're paying 30% tax today, and you get tax-deferred returns, okay? And then you don't have to pay tax in the future or you invest that same $100,000, 10% return, don't pay tax today, but pay 30% tax in the future. In what scenario do you have more money, a dancer's thought the same, or then so the variable Sam is taxes. And implicitly if we decide to invest tax-deferred in a retirement account, we're implicitly deciding that we're going to pay a lower tax rate in the future. Right now, how many people think the taxes are going down? If you're watching, raise your hand, if you're listening, raise your hand if you think taxes are going down. If you know I took my hand down, I think taxes are going up in the future. And if you're listening to the show, if you're an investor, if you're a real estate, entrepreneur, or operator, you're probably going to continue to make a lot of money. You got to be careful about that. So that's why I switched from investing in my retirement accounts and I started putting money into cash value life insurance, which is a lot more secure from creditors and has given me a lot more control. So, again, I'm not saying no one should ever do that. But you need to evaluate your choices, especially if you're an entrepreneur and you shift away from having a company match, you know, there are a lot of other options out there.
Sam Wilson 05:11
Right? Yeah, that's really intriguing. And we've certainly talked about that several times on this show is the opportunity and value of using cash or whole life insurance policy and how to properly structure that. So that's really intriguing. I love that thought there. Let's talk a little bit about how you started to scale your own commercial business, because you, you did single family, you did a bunch of that for 15 years, then you finally you know, we're able to step away from your day job. He said, “I want to get involved in commercial. How did you even pick your first asset?”
Chris Larsen 05:38
Yeah. So about almost 10 years ago, now, I was in a meeting, met a gentleman I was kind of lamenting the performance of my single family portfolio. And he said you should check out multifamily, Chris. I'm like, Well, it's kind of just a different flavor. He's like, no, no, no, he's like, there's some differences. Talk to my friend, who's an operator, he syndicates these deals, I talked to him, I look into the demographics. And as part of the reason I wrote my book, it's chapter seven talks about kind of the rising tide and demographics that support multifamily real estate. And I'm like, “Wow, this guy's speaking my language” because I got into medical device because of the demographics. So I started as an investor, I invested in the space for about three years. And then my original partner and I, we decided we actually had more real estate experience than the group we were investing with. So we came on board with them as partners, we bought our first deal using them kind of as our mentors to buy that deal. That was in 2016. So we're talking about six years ago, that we started out on that journey. And we acquired about one deal a year for the first few years. And then you know, over time, it's like a snowball, you know, it starts off and the momentum, it's slow to pick up. And we started sharing it just with friends and family. And then you start to have people referred to you. And then I started a podcast a few years ago and people started reaching out to learn more about what we did. And then really what happened was it blew up. And Sam, when I left the corporate world, people were really curious how I was able to do that, because I was making really healthy six-figure income, I ran a couple of different successful territories over the course of my career. So got people's attention. And then, you know, building the team around us to support, you know, the property acquisitions, and that is really the confluence that are all coming together.
Sam Wilson 07:18
Yeah, I love that. I mean, but now you guys are in self-storage. You're in mobile home parks. And I think we share this in common even investing in something a little more non-traditional in Bitcoin. How are you scaling those different asset classes? Yeah, you mean call Bitcoin an asset class? I don't know.
Chris Larsen 07:34
Sure. Let's focus on the real estate. That's kind of where business revolves around. But yeah, so the multifamily, the self-storage, and mobile home parks, they're all commercial real estate, but they're all slightly different. Right? And if you're a business owner, you're an investor. You know, Sam, you, I know you understand this as well. But we have different operational teams for each one of those asset classes. Starting off that first deal. Yeah, my partner, we did a little bit of everything. We both, you know, that with brokers, we talked to investors, we, you know, toured the properties, we looked at the, you know, packages, we were going to, you know, put in quotes and all that stuff. But as we've grown, you know, from 100 units to a couple 100 units to 1,000, a couple 1,000, few 1,000 units. Now we have teams that operate the multifamily side teams that operate the self-storage, we're talking about both acquisitions and operations, as well as the mobile home side. So I think it's really important as you grow and scale that you decide not only what you're good at, but also what you enjoy and you start to find people and find what they are good at and what they enjoy doing and that makes them ultimately the best at what they do.
Sam Wilson 08:41
Yeah, it's interesting, because you guys really kicked it off more on the active side. And then it sounds like you said, “Hey, look, as opposed to scaling out these different asset classes and building a team around it, let's just partner with teams that are already there.” How are you guys doing that? Are you coming in as a fund to funds you did? You'd start your own fund that people can invest in your fund. What's that look
Chris Larsen 08:59
like? Yeah, actually, we are GPs on the deals we just have, like within our team, we brought in a team for self-storage acquisition, as well as self-storage management, the multifamily side, which was our primary business, we built and scaled that up the mobile home parks, again, a different team that we work with there. You know, one part of the team focuses on the acquisitions, one focuses on the management side of things. Yeah, so we're not doing a fund to funds. I've been working as a general partner on each of these asset classes, which is probably why there's, you know, we scaled slowly, but you know, it's gotten to a few different asset classes now.
Sam Wilson 09:33
I love that let's talk a little bit about some of the demographic shifts in the moving trends that you guys are seeing, I mean, because these asset classes take you to a variety of places really around the country, I would imagine, for various reasons, depending on the asset class. So tell me some research you've done on that front and what have you found?
Chris Larsen 09:50
Yeah, so again, like I mentioned, chapter seven of my book, I talk about, you know, the importance of demographics, the importance of job growth, population growth, income growth in an area, so if you want to dive into kind of the methodology behind that, you can read through that. But I just did a podcast this morning a solo cast, and I referenced the United Van Lines annual moving survey of 2021. So this came out in early January, and it talks about where people are moving. So this is really simple, whether you're starting off in your career and trying to find a nice geographical area to move, whether you're looking for a personal investment for yourself, that you're actually going to own and operate, or whether you're looking to be an investor. I think this is really interesting. It's very simple. The United Van Lines tracks this, they take all this information, and they say how many people are moving to states? And what percentage are moving in and out of those states? Now, we're going to kind of paint this with a broad brush because you can check out that podcast and that blog on my website and dive deeper. But the bottom line is people are moving away from the northeast, they're moving away from California. And what are those places have in common? Illinois, for instance, as well, kind of the Midwest, they have high taxes, they have, you know, some of these places don't have great weather like California, you know, they have great weather, but they also have kind of this lower quality of life because of certain things like California had a lot of restrictions over the past couple years that really decrease the quality of life, can't go to the beach outside in California during COVID. Right? So who cares if you live at the beach, if you can't go to the beach, right? So a lot of people said, “Wait a minute, what's going on here?” People that are retiring, they're moving away from those areas as well, because they don't want to pay high taxes in their retirement, they have more flexibility. The number one reason people are moving as jobs. Number two is family. And number three is lifestyle. So where are they moving? They're moving to the southeast in huge numbers. We're talking about the Carolinas, Florida, Texas, Tennessee, which I'm sure you know, you pick a great state to be in, if you're an investor, they're also moving to places like Oregon, Utah. And again, you can probably discern, if people are moving out of California, they're probably more likely to move closer in one of those states. You know, if they're moving out of the Northeast, they're probably more likely to move to a place like the southeast. So you have this joke about people moving from New York to Florida or from Florida back to North Carolina to actually call them halfbacks. There's like a name for people. So many people do it. Yeah. So then, you know, see, look at those states. You look at the reasons why and then you can actually drill down even further to look at the cities within those states of where people are moving. And you know, no surprise, a lot of these cities are in the news like Raleigh, where you know, Apple is taking jobs. Greenville, South Carolina where a lot of car companies are moving Charleston, South Carolina, Charlotte, North Carolina, Fort Myers, Florida, Naples, Florida, Orlando, Florida, Miami, Florida. And then there's same thing in states like Texas, I could go on and on. But that is kind of the high-level overview of how you determine the best places in this country to invest going forward.
Sam Wilson 12:43
Yeah, maybe this is too much for this podcast. But even with that data, like okay, so we looked at United Van Lines, record or report and I know I think U-Haul puts out a similar report, but it's like you look at these reports. “Hey, oh, that's cool. Everybody's moving to Tennessee or North Carolina.” What do I do with that as an investor?
Chris Larsen 13:00
That's right. Yeah. So again, this is kind of your top-line information, right? So you say, “Okay, let's figure out kind of a region,” then you say, okay, where within that region do I want to invest? So let's say you decided on, let's say you decided on North Carolina, just because I live here? And then you say, Okay, you look in North Carolina, you say what state you can go to the state level and say, where is that going to be? Then you look at Raleigh. So then you start to say, okay, where around Raleigh, what I want to invest. So if you're actually buying property yourself, I talked about, you know, I've written articles about this, too, you can go to the city level, and you can look at the city's 5, 10, 20-year plans, and you can determine the next hot area of the city to invest in, alright, because the city is going to tell you where they're going to put their money for infrastructure. Now, if you're a limited partner, and you're looking for operators, which that you can invest with, you want the operators to think the same way you want to say, okay, you know, Sam, why do you own and operate in this area? They should have good analytical reasons why they do that. If they're like, “Well, I've always lived here.” Maybe they're lucky they got they live in an area that's been doing really well. But you know, people are like, “Oh, Chris, do you invest in North County because you live there?” No, actually, I moved to North Carolina because I wanted to invest here. So I've talked about that a lot in my articles in my book, and I wanted to live somewhere where people were moving, because hey, if you're in sales, it's a lot easier to make money if you have more customers moving to an area, right? So invest in areas with that what I call a rising tide, invest with operators that think the same way and you don't have to know all the answers but know the questions to ask, Hey, you know, why are you investing in this space in the sector? Why are you investing in this region? Why are you investing in the city? Why are you investing in this neighborhood? And a good operator should be able to go through and answer all of those questions because I think the last thing, not the first thing you should look at the last thing you should look at are the numbers in a deal because I can tweak my spreadsheet all I want and make those numbers look really pretty but if you don't have good fundamentals behind the reasons for those numbers, then those numbers are useless.
Sam Wilson 15:03
Yeah, that's a fantastic point. I'm glad you brought it up because I'm gonna be my next question for you is why are numbers the last thing you should look at. So if you are a limited partner or you are a passive investor, what should you look at first?
Chris Larsen 15:15
Yeah, the first thing after you've decided you said, hey, I want to invest in real estate, I want to invest in multifamily. Okay, the first thing you should do is find a good operator. Because really what you can't like an operator can't control population growth, he can't control job growth, they can't control cap rates, they can't control any of those variables, the only thing that an operator can control is their strategy, as well as the price that they pay for an asset that's going in. So they have a good repeatable strategy that with a great track record that they can reference, okay, great. If something like a hurricane comes through, or you know, cap rates expand or compress, I was invested in a property in Houston, the oil market went down the economy tanked in Houston during that period, that wasn't the operator's fault, right. But you know, there were things that the operator could have done differently to have that asset improve. It wasn't their fault, the hurricane hit, right. But you know, so there's variables outside of your control. So what you want to do is you want to focus on the things that you can control as an investor and the things that you can control as an investor is choosing the right operating team to work with.
Sam Wilson 16:23
Right, yeah, 100%, the operators first, the market, of course, like you've already talked about, I think would be second. And then the deal, third. Once you have solidified the deal, you can't change it. But the first two variables you can fit long before you put your money in the deal. So as an investor, those are the two things. I'm glad you took time to kind of break down the why on that, that you really should be spending your time focusing on I love that, Chris, thanks for taking the time to jump on today. This has been a blast, learned about your business, what you guys are doing it and really how you've scaled so quickly into a variety of asset classes. That's an absolute blast. Thanks for that. Let's jump here. We'll jump into the final two questions. If you don't mind. The last two questions are this one: What is one thing you're doing right now to make the world a better place?
Chris Larsen 17:05
Yeah. So we started last year, a financial literacy program for a group called Open Doors of Asheville, which is a local nonprofit here. And I think, you know, financial literacy is something that we could all do a better job of when it comes to society. If you're a parent, you're listening today, I got a great little resource. It's five steps on how to teach your children to be successful with money. And that's in nextlevelincome.com/kids. I walked through the five things that we're doing with our own children. And you can start doing that at a very young age, just a few years old, all the way up to becoming teenagers, and ultimately helping them decide what to do for college.
Sam Wilson 17:43
And then last question, which is great. I love that the open doors of Asheville and financial literacy because that is, yeah, it's so sad that we have kids graduating high school that can't balance a checkbook and yet they were forced to take calculus and it's like, this is the very basics. This is the basics. So good job doing that. I love that. Last question for you this Chris is if our listeners want to get in touch with you or learn more about you what is the best way to do that?
Chris Larsen 18:04
Yeah, real easy: NextLevelIncome.com. You can check out all of our resources, ton of free stuff there or book or podcast or blog, the kids the five steps to help kids become successful with money, as well as kind of their videos and you know, people that are professionals like yourself, Sam, sharing their habits, their traits, their strategies, and everything that they've learned, and most importantly, the mistakes that you don't have to make so you can shortcut your path to financial success.
Sam Wilson 18:31
Chris, thank you so much. Have a great day.
Chris Larsen 18:33
It's been a blast. Thanks, Sam.
Sam Wilson 18:34
Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen, if you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners, as well as rank higher on those directories. So I appreciate you listening. Thanks so much and hope to catch you on the next episode.