May 6, 2022
Are you in real estate for quick gains or long-term generational wealth creation?
If you’re in the latter group, Chris Pomerleau has a buy-and-hold model you just can’t pass up. Chris is an attorney by trade as well as a skilled investor and syndicator. As an equity manager of over $46MM in assets under management, he helps others achieve freedom with passive income by investing in real assets without having to invest their time and effort.
You don’t want to miss this episode where we’ll be breaking down Chris’ best strategies for owning real estate for generational wealth.
[00:01 - 05:58] Stop Volunteering Those Weekends
- Chris’ experience from an attorney, to military, to BRRRR, to scaling multifamily
- Chris talks about shifting from single-family to multifamily
- How Chris’ Master in negotiation plays into building his business
[06:53 - 12:21] Scaling CRE Comes with Finding the Right People
- Finding the best people to stay high level and build the company
- Bringing traffic by positioning yourself as a thought leader
- Chris breaks down his “mini funds” structure and how it works to everyone’s benefit
- The importance of vetting and what to look for in a property management company
[12:22 - 18:04] Owning Real Estate For Generational Wealth and Passive Income
- How LeavenWealth goes about establishing property management locations
- Why Chris opts out of the Flip method in favor of Buy and Hold to keep making money indefinitely
- How long-term holds benefit investors
[18:05 - 19:09] Closing Segment
- Reach out to Chris!
- Links Below
Tweetable Quotes
“If you can just weed out the people and or the hardline opinions and just try to meet at the end to satisfy everybody, that's the most important thing.” - Chris Pomerleau
“If [a] property continues to pay you indefinitely if it's taken care of, why get rid of it…? Our goal is to never sell, it's to treat it as if we'll hold it forever and hopefully my children own it.” - Chris Pomerleau
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Connect with Chris over on LinkedIn. If you’re looking for real returns from real assets, look no further than LeavenWealth over on Instagram, Twitter, and over on leavenwealth.com.
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I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
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Email me → sam@brickeninvestmentgroup.com
Want to read the full show notes of the episode? Check it out below:
Chris Pomerleau 0:00
It's the greatest feeling in the world when you return their money. I don't hear from 90% of our investors ever until they get their money back. And then all of a sudden, when's the next one? And it's because they get it right. They understand and they get to own it. So maybe we're attracting that type of investor and there are different types of appetites, I suppose.
Intro 0:18
Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.
Sam Wilson 0:30
Chris Pomerleau is the co-founder of LeavenWealth Capital with $200 million in assets under management and over 2,500 in seven different states throughout the Midwest. Chris, welcome to the show.
Chris Pomerleau 0:41
Appreciate it. Thanks for having me.
Sam Wilson 0:43
Hey, man, pleasures mine. Same three questions I ask every guest who comes on the show: in 90 seconds or less, where did you start? Where are you now? How did you get there?
Chris Pomerleau 0:49
Yeah, I was born and raised in the Omaha area. I did college sports, then I went on to law school, got a master's degree in negotiation along with my law school degree. I was in the military for a little bit after that and then started practicing law. I received some accolades early on in my legal career that made me realize, you can meet every metric that your job wants you to, but there's a ceiling, it comes quick. So, jumped into real estate investing in single-family homes in 2013. With my father, we were “buy and hold.” So we just the BRRRR Method, if you will. And after that worked on three or four single-family homes, I said, Why not a duplex? And I said why not a 20 unit? And then why not 100 unit? And from there on that's exactly what we've constructed our entire business plan around is just refinancing and rolling the ownership of all of our apartment complexes and then taking on investors along the way.
Sam Wilson 1:40
Right, man, that's fantastic! Tell me, you know, as you've scaled through, you've done the typical progression, where it's like, Oh, hey, you know, I'm more of a single-family on board with this. We just keep getting bigger and bigger. What were some of the pivotal moments when you knew you were on to something? And then what did you do to act on it?
Chris Pomerleau 1:55
It was certainly our first successful refinance of our single-family home. It took my father and me about 14 months. I mean, we were going there every weekend, sometimes at nights, laying the flooring, painting, doing everything ourselves took us over a year, right? We refinance the property, got all of our initial cash back, and I said, that's great! But now we're making you know, $300 a month cash. What was that last year for? But we did that three more times. And then we got to learn along the way. I basically realized early on that, look, we have to start scaling this. We have to stop volunteering our weekends, we're still trading time for money. And as soon as we were able to hire out everything for that first 20 unit on general contractors, property management, all of that stuff, and actually get in and out of a 20 unit deal for free, if you will, meaning we still to this day on that 20 unit. And within 11 months, we had fully turned the entire place that we got all of our money back. I said, there's no end in sight because you get your own way sometimes. And it took me a while to learn that. I learned a lot along the way but that's certainly what we build our business plan around now.
Chris Pomerleau 3:02
I am. That's correct.
Sam Wilson 3:03
And do you still practice law?
Chris PomerleauChris 3:05
So at this moment, I'm about one to five hours a month where I practice law. I would imagine that in 2022, that'll most likely come to an end.
Sam Wilson 3:14
Right? So you're not - yeah, one to five hours a month is not a big-time commitment.
Chris Pomerleau 3:18
It's not. Enough to keep my license and I really enjoy the people that I work with. I've been there a long time, everyone's great there. And that was kind of, not a startup, but a new firm and so I kind of have this feeling of connectivity with the group. But certainly, I'm 100% real estate.
Sam Wilson 3:33
Right. Tell me about the Master in negotiation. How has that changed? Or how does that affect what you do now?
Chris Pomerleau 3:39
I'm glad that I have it. I think it's helped a lot in my life, whether it's legally and all the cases I was a part of, or perhaps the negotiations. I got that simultaneously with my law degree. So in the mornings, I would go to the Army ROTC and then all day, I'd be in law school and then at night, I was getting my master's in negotiation. And the goal was a better round myself to - I didn't know at that time I want to do real estate but I knew that a master's in negotiation would certainly help with the legal career and also just perhaps anything that came my way. What do I think that it's helped me with? I think it doesn't take a massive negotiation to know this, but it's been drilled in my head and it certainly has proven to be true is that, right? And so sometimes, you get stuck with a seller saying I've owned this for 20 years, it's worth this. This is all my hard work or a buyer is saying, I can only afford X amount per door and sometimes there are ways to negotiate that work for everybody.
Sam Wilson 4:41
Right. That's an absolutely valid point. So Chris, tell me this, what is it that you guys are that your role is inside of LeavenWealth Capital?
Chris Pomerleau 4:49
So I'm co-founder along with Colin Schwartz and I kind of had the transactions in the investment strategies. I'm helping pull different investments into different mini funds on many syndications. I'm finding the right investors for the right deal. Some investors don't mind not having returned for a few years where others want the return starting day one. So we find the best deals to kind of help fit. And then I'm also a part of, operationally with Colin, a number of businesses that we have. So we have not only our syndication company but we own two property management companies, we own a construction company, we own a hard money lending company. And it seems as though that's a little bit of FOMO. But it's really just scaling, right? These are all people that we would use anyway, we need property management companies, why not own the place? We need, many times we use hard money on some of these smaller deals where we'll buy a four-unit. And I know that's not a lot of the listeners don't care about four units. But if you can buy a four-unit with hard money for four and $1,000, and then refinance it four weeks later, for $500,000; Hard Money is perfect for that one, I don't the company lends the money. So I'm really just kind of operationally speaking at the top of the ownership of trying to help with making it all work in the end I suppose.
Sam Wilson 5:59
That is a skill set that many aspire to and few possess that ability to stay high level and build out companies without getting in the weeds. How have you done that?
Chris Pomerleau 6:11
I'd be lying if I said I've been perfect since day one, you know. My ability to delegate has taken some massaging. It's really just surrounding yourself with the right people. And that's really whether it's partners on a real estate deal, or whether it's finding the right person to head operations or property management, or we are soon to take on a CFO role, directors of finance. He's joining us from the CPA firm we've used. And so I guess, I think the most important thing in my position, or I'm not gonna say I'm superb at it, but I think we've been able to grow so well is because we have the ability to find individuals that are very, very good at the roles that we need and then making sure they're compensated as such, so that they want to be a part of the team, and they see our overall vision and mission. It's just finding those right individuals to take over.
Sam Wilson 6:54
Yeah, finding talent and letting them kind of excel in their role. Sounds like part of it. One of the things that people struggle with early on in this business and really, in any business as I think about it, is that early on the revenues aren't there. They're not there to support bringing on the correct talent. How did you overcome that?
Chris Pomerleau 7:12
We were doing it all ourselves, right. So at first, it's just kind of learn as you go. But ultimately, that can only go so far as well. So, through the process, we've built a following. Colin had actually started a great meet-up in town here. And so, kind of being seen as a thought leader and building these groups or whatnot, drive a little bit of traffic and talent our way. And that's just taking some time. Same with experience, you know, the deals are being given now, they weren't coming across my desk, if you will, five years ago, but with the experience in the name we've built, we're starting to attract that attention. So that's mainly one of the reasons we're getting a lot of opportunities to team up with different individuals and people to work in our companies.
Sam Wilson 7:50
Got it. That's fantastic. Let's talk about the funds are 'mini funds,' as you call it, that you guys are putting together. Can you break down that whole structure? What do those mini funds do and why they're different than say an ordinary syndication?
Chris Pomerleau 8:04
Yes. I mean, so even though I'm an attorney, I'm not giving legal advice at this moment. But I can tell you that, you know, kind of alluding to what I just said is that at first, it was hard to find that right deal. And this was five, six, seven years ago, when deals - I wish I could go back, don't we all five or six, seven years ago - but didn't have experience, right. So even though I was an attorney, and maybe I knew this person or that person without the experience, the banks, and the brokers, and sometimes well, we built that traction. And so recently, we've come across the opportunity to buy this 40-unit, this seven-unit, and this 12-unit and about the same timeline. And instead of saying, well, the 40-units are too small, or I can only concentrate on one, why don't we just package these together as a portfolio. And that's what we did. Our first portfolio like that was called the Midwest Portfolio. One, it consisted of properties in three different states 262 units total. But that helps with the leverage, that helps with the liability, that helps just if the property in Kansas City isn't doing very well, hopefully, the property B in Wichita is doing a little better, and they kind of feed off each other. And that started with the first portfolio, we're now on the fourth portfolio already in less than a year. And that allows us to also not pass on great opportunities like great 11 units. I know that's weird to say, but we used to just kind of kick them to the side because the scalability wasn't there. And now we just throw in the portfolio and everyone gets a chance to invest in it.
Sam Wilson 9:26
Right? That also helps offset the expense of organizing a fund, right?
Chris Pomerleau 9:31
It really does. Yeah, so it's all owned by one entity, right? And then that one entity has four subsidiary entities and each one of those owns the property but it's all one fund, if you will, it's one syndication.
Sam Wilson 9:42
Right, that ordinarily maybe an 11-unit probably wouldn't support even the paperwork side. You're dropping the paperwork, but if you package that with a 40-unit and another 40-unit, how do you get all those sellers to you know, work on the same timeline? It seems like that could be a little bit challenging to have one comes in this week and those two weeks out On two weeks, you get two or three different deals, you're like, well, okay, we've always had to close at the same time, I would imagine.
Chris 10:05
Well, luckily, we have structured it so they don't have to close at the same time but in order to appease the investor, for sure, it makes the most sense. And it's the easiest to digest if they do close around the same time. So I can tell you that when we close that first portfolio, everything closed, within four weeks. The portfolio we're on right now, everything will close within about three and a half weeks. So there's a little bit of timeframe difference. There're different sellers but if we can negotiate those, sometimes we've just been successful. Just to give you a point, I had a 20 unit, we're going to close on very soon here. But it made more sense that it closed about 90 to 120 days in the future to align with the other deals that were closing like I am, and they were able to agree with that. We let some money go hard and it worked out that way.
Sam Wilson 10:48
Right. Got it. Tell me about some mistakes, or something - a mistake that either cost you time, money, or both.
Chris Pomerleau 10:55
Yeah, I'd say the vetting of property management companies, hence why we now own two of our own because we have a lot of control. But of course, they're gonna give you all the best references they can. Of course, they're going to talk the talk, but the question is, do they walk the walk? And I think the mistake we made early on is just kind of trusting those groups, I don't think we just kind of lasseiz-fair with the motions. Maybe this is a hindsight thing, we could have changed, but I do feel as though maybe in hindsight, drilling down further into property management companies could be a benefit to us. I think it helps now that also we own our own private equity companies. So we know what to expect from other property management companies if that makes sense.
Sam Wilson 11:31
What do you expect from other property management companies?
Chris Pomerleau 11:35
Transparency, and don't hide. Like this is not, actually I feel, and I can tell you members of our team feel this way, is that I think property manager companies are a little more open with us. I can tell you that that's the opinion that they have. And they actually share that with us because they know, they don't have to BS us. I mean, we get it, I want them to make money. If they don't make money, then they're not going to be happy doing what they're doing. So I get the deltas on the bids, and I get all that stuff. But I also don't want our weekly phone calls to be all butterflies and rainbows. I want to know what the heck's going on? And I think, we have gotten great feedback, that because we have both hats if you will, it's benefited us.
Sam Wilson 12:11
Yeah, absolutely. The inspector knows what to expect out of an inspector.
Chris Pomerleau 12:16
Right, that's perfect.
Sam Wilson 12:16
Right, and you could talk a language that somebody is not an inspector couldn't talk.
Chris Pomerleau 12:20
That's exactly what it is.
Sam Wilson 12:22
Have you used - are you still employing other property management companies because of the locations of the properties you don't have a presence in yet? Is that what it is?
Chris Pomerleau 12:30
No, I can tell you, our goal isn't to necessarily grow the property management company so that it's this extremely large revenue income building, it's more for the control because we can hire on-site, we can hire the regional, we can guide how that goes. We have no interest in starting a property management company in a city where our current property management company is already doing well. You know, if it's not broke, don't fix it. So here's an example. We're doing really, really well in Sioux Falls, South Dakota right now, very well. That state has done 70% growth and rental rates just last year, that's a little secret, you can go ahead and cut that out if you want to. But I can tell you that we have a phenomenal property management company there. So we have no interest in going there. It's really just been by necessity that we've done these things,
Sam Wilson 13:16
right? That's a lot of the name of the game is that we didn't want to do this. But we need to do this. And that's what makes sense. What are some things that you feel like you've done really well? If you were to give this advice to somebody else, or maybe even your younger self, you'd say, repeat this step, this is something you got to do well.
Chris Pomerleau 13:30
I'd say being picky or selective on the investments. I think we've done a really good job of that. I think we haven't just jumped to an investment because we're getting itchy. Or now we have an investor base who reaches out to us every couple of weeks because they think something's wrong because there hasn't been a new syndication launched. I think it's important to stick to our business plan and stick to kind of the metrics we want to see in all of our investments and allow that outcome to please the investors instead of just always having a place to put your money, I think we've done a really good job of that. I mean, we've gone full cycle 52 times now and out of those 52 times, we have gotten 100% of our money back. Now that ranges from a single-family all the way up to an 87 family. And we obviously have a 262-unit and a 235-unit but those are still in the middle of the business plan. But what I'm saying is, we know what we want, we want that refinance, we want that long-term hold, and making sure we find the right property for that. I think we've done a good job of that.
Sam Wilson 14:24
When you say long-term hold, what does that mean?
Chris Pomerleau 14:26
Well, I can tell you the easiest, the lowest hanging fruit, we don't flip apartments, we just don't do it. And there's nothing wrong with it. House flippers make a lot of money, syndicators who flip apartments and three years they make a lot of money and everyone's happy. And there's nothing wrong with that. What allowed me to get on my attorney job is to own a property that kept paying me. Because in my eyes and again, this has nothing against anybody else's business model, but in our eyes, if that property continues to pay you indefinitely, if it's taken care of why get rid of it. And that's what I mean by long-term now. If in ten, fifteen, thirty years from now someone comes along and offers us something that we can't pass on, then, of course, we're going to take it. Heck, we just sold an apartment every day, we only held for 16 months. But we got an offer we couldn't refuse, we rolled that cash into a larger portfolio. So that's what I mean by what long term is. Our goal is to never sell, it's to treat it as if we'll hold it forever and hopefully my children own it.
Sam Wilson 15:19
How are you approaching that conversation with investors because there is commonly the return of capital, which is obviously hurdle one via a refinance? But then there's also the return on that capital that investors are seeking. And the return on that capital can be a slower train or a slower play if you're just collecting it from cash flow. How are you getting investors on board by saying, hey, our plan is not to exit, W\we're not going to sell the milk cow. How does that work?
Chris Pomerleau 15:48
I think they resonate with the cash-out refinance, right? Because in order for us to sell the property in year three, we're going to have to have a decent delta on the amount we've raised that value. Right, right. Well, that delta is typically what we're seeing when we raise that not enough to refinance. So sure, they only make seven 10% cash flow for two years, three years, but then they get $100,000 back, and they continue to make cash flow indefinitely. It's the greatest feeling in the world when to return their money. I don't hear from 90% of our investors, ever until they get their money back. And then all of a sudden, "When's the next one?" And it's because they get it right. They understand and they get to own it. So maybe we're attracting that type of investor. And there are different types of appetites, I suppose.
Sam Wilson 16:37
Yeah. When you put together a pro forma or projection or a deal deck to your investors, how do you underwrite that? Because a lot of people are out there IRR shopping, if you will, like oh, well, that's only a nine IRR, I can't do that. And obviously, if you’re having, again, the return of capital is step one. But then if it is not a 2x equity multiple in five years, you're not going to hit a 20 IRR, it's just not going to happen. Do you even publish that information?
Chris Pomerleau 17:03
It's funny you say that. We've gone back and forth on even posting an IRR and explaining that I haven't needed to but every once in a while, you'll have a sophisticated investor come in and say, "Look, I'm only looking for IRR as a minimum of this." And I say, "Look, I don't know if that's the right fit here but let me tell you what it would be. Because when we return your $100,000 back, in our attorneys blast off on this, we can give you an IRR with an asterisk that says if you want to count the equity you still have in the deal as part of the IRR, then we're gonna be really close to what you wanted." "And by the way, if we turned around and sold the property the day after refinance it, this is what you would have made so that could be your IRR." But we're not flipping apartments and that has gained good traction.
Sam Wilson 17:43
I love that and that's been one of my continued, shall I say beefs, in the syndication business, because I'm probably like you, an active investor and also a passive investor in other deals. And once the deal exits and you get your 2x equity multiple in three years, which is a beautiful, great thing. All of a sudden you're like, crap! Now I gotta find a different deal, and that's a good problem to have for me. But I've always enjoyed, personally, the 'buy and hold indefinitely' model a lot more. So, thanks for explaining that. I answered some of my own personal questions here on this show this time. You were very helpful, Chris. Thanks for coming on the show today. I certainly appreciate it. If our listeners want to get in touch with you or learn more about you what is the best way to do that?
Chris Pomerleau 18:23
Well, you can find us at LeavenWealth Capital on Instagram, on Facebook on TikTok. I'm on LinkedIn. I'm always happy to speak with either current investors, prospective investors, other syndicators, investors. I really, really enjoy this stuff. So always open to speak to anybody.
Sam Wilson 18:39
Awesome, Chris. Thanks again for your time. Have a great rest of your day.
Chris Pomerleau 18:42
Thanks, Sam. Appreciate it.
Sam Wilson 18:43
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 used 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 and thanks so much and hope to catch you on the next episode.