Carlos Salguero is a professional real estate investor and mentor who runs CS3 Investments, which is on track to acquire $1B worth of real estate properties. In this episode, he discusses how he scaled from a fourplex to 1,000 units in one year and his biggest challenges in scaling and increasing his unit count across various markets.
Carlos Salguero | Real Estate Background
- Professional real estate investor and mentor who runs CS3 Investments, which is on track to acquire $1B worth of real estate properties.
- Portfolio:
- 1,000+ doors
- Based in: Denver, CO
- Say hi to him at:
- Greatest Lesson: Get a mentor that is living the life you want to live.
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed and I'm here with Carlos Salguero. Carlos is joining us from Milwaukee, Wisconsin. He's from Denver, lives in Denver now. He runs CS3 Investments, which is on track to acquire a billion worth of real estate properties in over 1000 doors. Carlos, can you start us off with a little bit more about your background and what you're currently focused on?
Carlos Salguero: Hey, Slocomb. Great to be here today with you, and excited to share with your audience a little bit of my journey. I am originally from Quito, Ecuador, and I came to this country at 17 years old; first ever in my family to come to the US. Didn't have any contacts, didn't have any money, didn't have any family here in the US... But my dad always, as we were growing up, encouraged us to travel and to see the world, and most importantly, to come to the US. I think his dream was to come and live in the US. And he never got to realize it himself, but since we were little he always thought the US is the best country in the world, there's opportunity there, dreams come true, the American dream... So that's how I got into the US.
I went to college, got a couple of degrees, I thought that would be the financial freedom ticket for me... And I realized after working in corporate America for about five years that it was a long road ahead, because I saw people that were doing exactly what I was doing in my job, still after 20-30 years doing exactly the same thing I was doing in my job. So that's kind of when I realized I need to do something that can change my future and where I control my financial future. And that's what set me on a 20-year journey of building multiple companies, founding multiple businesses, winning at some, failing at some, and eventually, I figured it out and found some mentorship, found some groups that could help me learn business, learn money, learn investments, and I sold a company along the way, made some money... And all along, I was a hobby real estate investor. Like a lot of people, bought a little home here, upgraded to the next home, rented that one, became a landlord, rented a second home that we bought, became a landlord, dabbled in Airbnb for a little bit, and bought a duplex and a triplex and fourplex... And that's how I did it until one of my businesses needed a commercial warehouse, and that's when I made my first big commercial transaction.
Slocomb Reed: And you did that for one of your own companies, to owner-occupy, essentially.
Carlos Salguero: That is correct. My first ever commercial purchase was an owner-occupied warehouse for my logistics eCommerce business. We got an SBA loan for it, and I pinched every single penny I had for the downpayment... And I was scared, because I had been initially in my garage; that's where we started the business. Then we moved to a little bigger garage, then we got a couple storage units, then moved and leased a 2,500 square feet warehouse, upgraded with the same landlord a couple times, and then I learned how good triple net leases are for the landlord, but not for the tenant, and I wanted to be on the other side of that. So that's when I started looking for a warehouse for myself, and I went from a 10,000 square feet warehouse to building that I bought 10 years ago that is 50,000 square feet.
Slocomb Reed: Nice. And as a real estate investor, you primarily focused on warehouse the?
Carlos Salguero: So I wasn't really at real estate investor, if you think about it, back then; it was more for the need of my business. So I was investing without knowing that I was investing. I didn't even have the perception of how to underwrite a real estate deal, how to calculate my NOI, how to know my cap rate... All those terms were foreign to me for the longest time, even after I had owned a building for a long time. But I realized, as I sat on this property for many, many years, that the first time about seven years into owning it that I called a commercial real estate agent, I said, "Hey, I'm curious about knowing what the value of my property is today." And when they send me their broker opinion of value - man, I was shocked. I bought this property for $810,000, plus some renovation costs, and here I'm looking at a $7.5 million valuation for my building.
Slocomb Reed: Wow.
Carlos Salguero: I don't even believe; this right under my nose.
Slocomb Reed: So that sparks curiosity and excitement around real estate investing. What happens then?
Carlos Salguero: So you're exactly right about that. That is that a-ha moment of "I've been neglecting one of the biggest businesses that I've had all along. I should learn more about this." Because I just didn't know what I didn't know. So I set out to start a journey of understanding commercial real estate. And I started picking up books, listening to podcasts, watching YouTube, going to a couple of conferences, getting into a mentorship program, a mastermind... And the more and more I learned about it, and learned from books and audio and all that stuff, I realized this is what I want to do for the rest of my life. I want to become a real estate investor; I want to buy property.
And then the second question that I made myself was, "Which asset class should I focus on?" And I was first leaning towards industrial, because that's what I knew. But I knew that multifamily was also attractive, because it provided diversification. I could have more than one stream of income from the same property. Because usually, in a commercial warehouse property it's one or two tenants. But in a bigger multifamily property, I had maybe three or four... And I was still kind of far away from the "I want to have a 50-unit deal, 100-unit deal, maybe a 200-unit deal sometime." But the more I understood it and studied it, I started realizing that's what I want. I want a 50, 100 unit deal, because it checks all the boxes that I wanted it to check as an investment and as a business. So that's when I chose multifamily.
Slocomb Reed: How long ago was that?
Carlos Salguero: When I first realized I wanted multifamily, and that kind of became clear to me, was about two years ago. And I started small; like most people, I bought a fourplex, actually here in Milwaukee, of all places. I found an offline deal here in Milwaukee, and with a friend, we bought the fourplex together. And it was a 1% deal. So it was bringing 1% in rent every month that our total purchase price was, so we thought it was a good investment. And then after that, I bought a townhome triplex in El Paso, Texas. Those were my two first investments.
And then shortly after that, I realized, "Oh, shoot, now I have to manage these deals, and I'm not even there. I live in Denver." Then I realized the management is a big part of it, too. And that's what pushed me to go into bigger multifamily and learn the big multifamily game. So barely two years ago is when I started learning, and my first fourplex, official, me as a real estate investor, was about a year and a half ago.
Slocomb Reed: Gotcha. And I know I talked about unit count in the bio. How many doors do you have now?
Carlos Salguero: So shortly after that, I realized I need to go big. And I went to a conference, and all I heard was big multifamily. Big multifamily. It's the same effort to go buy a small deal and a big deal. And sure, I took the assignment, went back, I searched, I scoured the internet, the broker sites, Crexi, Loopnet, all these places, and I found this deal that is sitting behind me. It's an 84 unit deal with residential on the top three, four floors, and commercial at the bottom. A $20 million transaction. So I was like "What if I can score this?"
So I called the broker, talked to the broker, went and visited the deal, walked it a couple times, and then I realized "I can do this." I put my first offer. We negotiated, and actually, I was awarded the deal. So that journey, in the last 12 months - I've acquired 1,000 units of multifamily real estate.
Slocomb Reed: That's a lot of scaling, for sure. 12 months going from four families to 1,000 units in larger deals, and some of the mixed use... For those who are listening, those are definitely mixed use buildings in the picture behind Carlos. Where's
that property?
Carlos Salguero: This is in Murfreesboro, Tennessee.
Slocomb Reed: Murfreesboro, Tennessee. Nice. So you're in a variety of markets as well; what have been your biggest challenges in scaling, increasing your unit count that quickly, but also doing it in a variety of markets?
Carlos Salguero: I think one of the biggest challenges is having a solid team that could help me handle the multiple things that are required to manage a big portfolio - the accounting work, the asset management, the acquisition, the pieces of just doing the due diligence on multiple deals, sometimes at the same time, that I have under contract, the fundraising, managing investor relations, and all these things... So I think the team is critical for your success. I think I was blessed that one of the things I have learned along the way with my other businesses is I knew how to build an effective team, and I knew how to put people in the right places. So that has had a tremendous impact in me being able to scale to 1,000 doors so quickly.
Slocomb Reed: I imagine, Carlos, you're raising capital for these acquisitions...
Carlos Salguero: Correct. So for the first few deals, I did it myself, the small ones. And then I realized for the big ones, I don't have all the money for the downpayment, and the expenses, and all that stuff. So that's another big mindset that I had to change, is "How much money do I have in the bank right now? And how much can I afford?" Because I think a lot of people approach real estate that way - they save a little bit of money, they have $50,000, $100,000 in the bank, and they think, "Okay, now I can go buy a $300,000 or $400,000 property." That was my mindset. The moment that I understood that when there's a good deal, that cash-flows, that has potential value-add and appreciation over time, a good deal will always attract the money. So when I found this deal, underwrote it and I saw it's a 5.7 cap rate, it's going to cashflow over 5% year over year the first year, it has all these vacant space that I can fill up and increase the value, and maybe I can increase the value by $10 million or so in the next three to four years - when I found the right deal, the money came to it. I started talking about it to people and say "I want to invest." So when I realized that, that I could raise money for a great deal, my whole world opened up. And that's when I realized I can scale. I can go faster. I don't have to depend only on my dollars to do this. And that's really what changed it all for me, is just thinking bigger, and learning and knowing that I could attract capital if I had a good deal in my hands.
Slocomb Reed: You started speaking on this, I believe, but what has your buying criteria been?
Carlos Salguero: So I leaned very quickly towards class A properties in class A locations. I know from my second property that I bought, my triplex, that this is maybe where the lesson came. My very first fourplex was 100 years old. The one that I have here in Milwaukee. Old C class, needed work, we had to put some effort into it... So because of that, not a whole lot of tenants or higher-quality tenants were attracted to it, so it was harder to push rents.
On my second acquisition, my triplex, it was a brand new triplex townhome property, four-bedroom townhomes with a yard, everything brand new... And I saw how people reacted to those properties. My realtor that sold me that deal said "Carlos, I think you can charge $1,100 a month for these." And I refused to believe that. I was like, "No, I think I can charge $1,500." And he was like "Well, give it a try." So I did what I did, posted them on Zillow, posted them on the different websites, and sure enough - boom, I scored a first tenant at $1,500. Because I saw the reaction walking into a brand new place. They wanted to live in a brand new place, in a newer property, that was new. And then I said "I'm gonna try the second one at $1,600." And sure enough, I got a tenant at $1,600. And the third one, $1,700.
So I saw that desire of people to live in a nice place, clean, newer, and I was like "I'm gonna take that to the bigger scale. So when I started hunting for these bigger properties and defining my buy box - I call it my buy box; I carry that from my eCommerce days. I carry my buy box, and my buy box became I want to have a deal that is at least 50 units or more, class A property, in a class A location. And a lot of people say those deals are impossible to find, and whatever, right? I have found them, and I've invested in them. So the property you see behind me is in a Class A location, right in front of a hospital, and a class A quality asset. Beautiful property. And I see, when people come visit the property, they're like, "Wow, this is nice. I'd love to live here."
Break: [00:15:25.27] to [00:17:26.29]
Slocomb Reed: Buying class A, what kinds of returns are you targeting, globally and for your investors?
Carlos Salguero: Yeah, that's a great question. I look for returning at least 4% cash on cash year one. I many times exceed that. But that's my target, at least 4% cash on cash. And then over the term, which is typically 7 to 10 years on the hold, I want to achieve at least 15% IRR. In many of the deals that I look at and underwrite, I want to refinance the deal between year three and five, where I can return most of the capital to investor, if not all the capital to investors. That's my criteria.
Slocomb Reed: You're targeting a 7 to 10-year hold period, with a refinance liquidity event in 3 to 5 years.
Carlos Salguero: Right.
Slocomb Reed: That starts to answer my question already, Carlos, but what kind of debt are you purchasing with?
Carlos Salguero: That's a good question. Typically, prior to interest rates climbing, I was going for 3.5%, 4% debt, and my entry cap had to be higher than that or equal to that.
Slocomb Reed: You're talking about longer-term then; you're talking about securing it for the full 7 or 10 years?
Carlos Salguero: Not necessarily. I'll give you an example specifically on this property that is behind me; there's a couple of value add things with the Gateway Village, the property that is behind me. Number one, the rents were under market by about a couple hundred dollars. And number two, there was a 66% vacancy on the commercial space, just because prior management did not really push. Being in front of a hospital, there's no shortage of traffic in the area. But they just didn't push, because it was a developer that owned it outright, no debt on the deal, so there was no rush to push.
So when I saw that, I was like "I don't want to lock myself up with an agency loan or a long term loan that doesn't let me refinance inside of my three to five year period." So for this property, I got a bridge loan at five and a quarter, fixed rate, that allows me to refinance after two years.
Slocomb Reed: When was this?
Carlos Salguero: I closed on this deal March 1st of this year.
Slocomb Reed: Gotcha.
Carlos Salguero: So it was right by a hair that I got the fixed rate and got it done. And in fact, the lender retraded me. My original rate was four and three quarters, and they pushed up the rate about three weeks before close.
Slocomb Reed: Wow.
Carlos Salguero: So this loan allows me to refinance in 24 months, and I have a couple one year extensions if I need it, in case I want to keep pushing value, and refinance at the best moment. But that's not necessarily the same story for all the properties, right? It's a very case by case basis. Right now, I have a deal under contract in Lakeland, Tennessee, it's a 138 unit deal, built in 2021, it has also a commercial component to it, a 21,000 square feet retail component; it's 94% occupied. In that deal, I'm actually assuming the loan. The developer did something smart, which was they put a 10-year interest only loan at 4.35% on the deal, and I'm buying it at about a five and a quarter cap. So that allows me to go in at a higher cap than what the interest rate is, and then of course, I'll grow over time with rents.
Slocomb Reed: And as you mentioned, it's also interest-only.
Carlos Salguero: Interest-only, exactly.
Slocomb Reed: Gotcha. So we're recording this in mid November, so the middle of Q4 2022. A loan assumption deal with 10 years of interest only in class A multifamily and mixed-use - is that what it takes to find deals with a cap rate higher than the current interest rate? Because I'm imagining you're not finding six and seven caps out there, or eight caps on class A space to be higher than your 7% interest rate.
Carlos Salguero: Correct. That's one strategy, assuming a loan that somebody did smartly put on a property prior to interest rates climbing. The second strategy that I'm pursuing hard right now is seller finance. There are sellers out there that, for one reason or another, have to sell their property; either their loan is coming to maturity, their loan is variable interest rate, or they have a ton of equity, and they just need to sell because they need to put that money at work in another project.
There's a lot of sellers now, even in big multifamily, that are considering seller finance. And what I'm doing right now, which has worked for me in the past - I many times put two offers for the same deal. I write two LOIs. One LOI will be with traditional financing, and of course, the purchase price is what gives me that cap rate that matches the interest rate that I can get on that loan... And the second LOI is a seller finance LOI, where I can give the seller more money, because he's now carrying that note for me at a low interest rate for maybe a five, seven-year period, or sometimes even 10, interest-only.
Slocomb Reed: That makes a lot of sense, especially when you're going to end up with a class A asset, in a class A location.
Carlos Salguero: Yeah.
Slocomb Reed: Carlos, it is time... Are you ready for the Best Ever lightning round?
Carlos Salguero: Let's go.
Slocomb Reed: Awesome. What is the Best Ever book you've recently read?
Carlos Salguero: The Best Ever book I've recently read is "Don't split the difference" by Tim Grover --
Slocomb Reed: Is that Never Split the Difference by Chris Voss?
Carlos Salguero: Yeah. I had it confused with Relentless by Tim Grover. So Never Split the Difference by Chris Voss.
Slocomb Reed: Awesome. What is your best ever way to give back?
Carlos Salguero: My best ever way to give back is teach people about real estate. I wish I had learned it in high school. I wish somebody would have taught me and taken me under his wing to learn real estate. I had to go and find out by accidentally making investments and learning it on my own, and just basically trial and error. So the way that I give back is I teach people every single week, twice a week, about real estate for free, on Clubhouse and on Zoom. And then if they want to take the next step, they can join my mentorship program to learn it.
Slocomb Reed: Thus far in your commercial real estate investing career, scaling your apartment portfolio, what is the biggest mistake you've made and the best ever lesson that resulted from it?
Carlos Salguero: Man, it's such a good question. Biggest mistake I've made so far is not doing enough due diligence on the property manager. Sometimes they look really good on the surface, and we forget to dig under the surface to find out. "Show me your accounting systems. Show me the reports that you send to owners. Let me talk to your team members. Let me talk to the team that handles the phone calls at the property. Let me interview the people that work for you. And let me really take a deep look at who's going to be running this property for me, so that I can trust that, number one, they're taking care of the property, number two, taking care of the tenants, number three, taking care of the money, and preserving the value, if not helping increase the value of the asset."
Slocomb Reed: When you're vetting a property manager, do you ever call on their rental listings, or inquire on Zillow to see what will happen?
Carlos Salguero: Always. Always. Not only myself. I have 5 or 10 people in my team that actually do the same thing, and we record those calls, so that we can listen and say, "This is why they're not leasing the property." And I'll tell you a quick story and funny story, that is kind of funny and sad at the same time. There's this property that I'm acquiring right now, and we looked it up, and I was on a team meeting with my whole team on Zoom, and I said, "Hey, guys, I'm gonna call the Google number for the property." So sure enough, I pull up the number, dial it on my phone, I had it on speaker, and guess what I got? This number has been disconnected. "Please, try again later." [laughs] I had to dial it twice, Slocomb, because I thought I had misdialed the number. But no, sure enough, they had [unintelligible 00:26:08.05] my listing number down for over two months. So I emailed that 911 to the property manager, said, "Hey, 911, the number's down?" And he's like, "Oh yeah, we let the marketing company know two months ago that this was happening." And I'm pulling my hairs, like "No way! Do you realize how many tenants or prospective tenants you're losing right now?" So yes, the answer is yes.
Slocomb Reed: I'm an apartment owner-operator in Cincinnati, Ohio with my own management company, and that's what I tell people - if they're interested in my property management, or they're interested in partnering with me, or they want to learn how to get their own properties leased, I just tell them "Go to my website, pick a property, inquire, pretend to be a prospective tenant and see what happens. That's the best way to figure out my systems or what to expect from my management." So that's why I asked you.
Carlos Salguero: Too bad you're not in Tennessee where I need you, man.
Slocomb Reed: [laughs] Cincinnati, Ohio. You should start looking at deals here. Carlos, what is your best ever advice?
Carlos Salguero: My best ever advice is always be a student. Don't ever think that you know everything, that you have arrived, that you have all the knowledge in the world... There's always something new to learn, there's always rooms with smarter people, there's always rooms with more successful people, there's always rooms with people that want to help. When you have the attitude of being humble enough to understand, "I don't know it all. I can learn something new tomorrow that can help me change my life, and potentially the life of my family and other people, you'll always have that attitude and growth mindset that you're always growing, always evolving, always pursuing the next level." Because I see so many people stuck at one level, because they already think "I've seen that, done that. I don't want to learn it. I don't want to pay attention", and then they're stuck. And those are the guys that you and I buy properties from. Because we know we can go double the value of them after we buy them.
Slocomb Reed: You're so right.
Carlos Salguero: Just continue to put yourself in a position to win with people that have achieved success. The best decision that I made in business and real estate investing is I bought a mentorship program, I really connected, engaged, became an active participant, and I found myself a mentor that had the results that I wanted; not just anybody. Somebody that had the results that I could look at a blueprint and say, "I'm gonna follow this blueprint, and I'm gonna be a good student, I'm gonna follow directions and apply it, and win." It's easy to copy success. Most of us are trying to reinvent the wheel. You don't need to. Copy proven success. You'll win.
Slocomb Reed: That's great. And last question, Carlos - where can people get in touch with you?
Carlos Salguero: You can find me on Instagram @iamcarlos10x, or on my website, cs3investments.com, or on my website, iamcarlos10x.com. I'd love to hear from you.
Slocomb Reed: Those links are in the show notes. Carlos, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this conversation about scaling quickly through commercial real estate, please do subscribe to our show, leave us a five star review and share this with a friend who you know will gain value from our conversation today. Thank you, and have a best ever day.
Carlos Salguero: Thank you, Slocomb. It's been great to be here with you. Looking forward to be here again soon.
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