November 2, 2019

JF1887: From 10 Single Family Homes To 1600+ Apartment Units

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Anthony got his start like many real estate investors, by doing a few smaller deals first. Once he had a taste of investing in apartments, he never looked back. We’ll hear how he scaled his business and also hear some specifics on a couple of his deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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“The only time that you fail is when you just give up, don’t give up, keep moving forward” – Anthony Chara

Anthony Chara Real Estate Background:


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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Anthony Chara. How are you doing, Anthony?

Anthony Chara: I’m doing great, Joe. How are you?

Joe Fairless: I am doing well, and looking forward to our conversation. A little bit about Anthony – he started real estate investing in 2001, owns and/or has syndicated approximately 1,600 apartment units across the country. Based in Denver, Colorado. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Anthony Chara: Sure. I can certainly do that. Hello, everybody.  I actually started in creative investing back in ’93; I’ve been doing pretty much apartments almost full-time since about 2001-2002… But in ’93 my wife and I turned our first house into a rental and then moved into a larger, nicer house… And for ten years, that’s all we knew. Our world consisted of buy and hold, because we didn’t know you could do wholesaling, fixing and flipping apartments, short sales, or anything else. So we did that for about ten years; had nine or ten single-family homes and condos, and then met a gentleman named Robert Allen, which a lot of people know – he wrote  a book called “No Money Down” years and years ago, and started taking some classes from him and then realized that you could do wholesaling, fixing and flipping and other things, and I did a couple of those. One of the biggest things that I learned after I did learn something was to take it and put it into action.

So I did that, I did a couple wholesale deals, I did a couple fix and flips, and realized that “Wow, that was a lot of work, and some reward”, but once the deal was done, I had to go out and do it again. It was like getting a job, and the job was over, and now I had to go find another job. So I also learned how to do apartments, and in early 2003-2004 I did my first apartment deal. One of the things that I learned from that was that the money kept coming in, and they were a lot bigger checks than some of the single-family homes that I was doing… So I decided that I really liked that.

Our next deal was 98 units, then we went up to 120, and 140, and 150, and our largest deal so far to date was a 410-unit portfolio that we did in Indianapolis. As you mentioned earlier, right now I’ve either owned or syndicated a little over 1,600 units. I love doing apartments, so my main focus now is apartment investing, and I’ve got a lot of students around the country, because I do actually teach people how to get into this… And then just keep on buying more stuff. I love traveling around the country and doing the teaching, I love meeting up with my students and educating people on how to be successful with the different deals that they get into.

Joe Fairless: That 410-unit – is that the most recent purchase that you’ve been a general partner on?

Anthony Chara: No, that one was a few years ago. We actually sold that one back in — it was either 2015 or 2016… So the most recent one we just closed was a — wow, I’m trying to figure it out, because we’ve got a bunch of them that just closed within the last year.  About a year ago we did a 60-unit in Iowa, we did a 100-unit property in Macon, Georgia…

The most recent one was actually a 32-unit property that we closed — perfect timing, we closed in Panama City, Florida, and shortly after we bought it, the hurricane came through, and took the roof off of it… So that was kind of nice. But fortunately, we had the right insurance in place.

Joe Fairless: What is that process like, when a hurricane comes in — you’re in Colorado, the property is in Panama City, and you see your weather alerts, that there is some nasty weather coming to an area where your property is… What do you do to keep track of that, and then when you assess the damage, what’s the process?

Anthony Chara: Sure. Well, in that particular case the property was being run by one of my students, so he went down as quickly as he could after the hurricane came through. Of course, before then you absolutely wanna make sure you have the right coverage, which we did… So not only are we getting the property taken care of, but the insurance company is also paying us as if the property is still being rented, as if renters were still in it. That helps tremendously, especially when you have investors that need or  are expecting some type of cashflow.

But it’s definitely been a pain in the butt, it’s been trying. The student has been interfacing with the insurance company, and if you’ve ever worked with an insurance company, most of them try and take in as many premiums as they can and pay out the least amount possible… So we’ve also been working with a public adjustor, who’s gone out to the property, and is on our side, because they’re working with us to battle our insurance company… Because you can’t imagine that you’re actually on the same team when you actually have to put in a claim. It’s like a big battle to the finish, and whoever survives is the winner and the victor.

Joe Fairless: Which is very unfortunate, but it’s ridiculous that they take it that direction… But yeah, [unintelligible [00:06:00].15]

Anthony Chara: It is, yeah. Yeah, so the public adjustor is helping, because they’re coming out and showing other detailed information to the insurance company, that says “Your estimates are way undervalued, because we need to bring this property back up to the condition it was in before the hurricane came through.” We can show them pictures and videos of the interior of the property and how we want this property to be put back like it was before.

They generally like to push back, they think that we’re charging way too much or asking way too much, and we think that they’re paying too little. Eventually, we’ll come to an agreement and get everything done, and ultimately we are gonna win; we’re gonna be successful, but it’s a very long, painful process, because as I mentioned, insurance companies, even though they love to take your premiums, they don’t like to actually pay for those repairs.

Joe Fairless: So you have business interruption insurance; you are also insured for the property whenever something like this takes place… Let’s fast-forward 12 months from now. In your opinion, is the property better off having had this event take place, is it a neutral event, or is it a negative?

Anthony Chara: In this particular case it’s going to be a hugely positive event. It has already been a hugely positive event, simply because there’s been so many homes and housing that’s been wiped out in the Panhandle area there in Panama City. We’ve actually been taking our rent up, and I know that there are some people out there that would say “Oh, you’re taking advantage of people in the area.” It’s like, “No, we’re actually not.” Most of the people that were living in the property are actually working for insurance companies and contractors, and there’s no place for them to live, and we need to pay for our increased premiums and everything else that goes on… Because everything in that area has gone up.

Not only are we raising the rent, but the things that you would normally pay for, that might cost you X amount – well, it’s now X plus an extra 50%, because it’s harder for even things like lumber and drywall and roofing material to get into that area… And as soon as it gets in, it’s gone, because there’s just so much work that has to happen in those areas; the people that live there just to get food, and things like that. They’re still working on the power in that area, and making sure that the power is flowing the way it’s supposed to, they’re still clearing debris out of the area… And it’s a year later. As a matter of fact, I’m down in New Orleans right now, and it was 14-15 years ago when hurricane Katrina came through; last time I was here doing a presentation was on their 10-year anniversary and they were still recovering from the effects of Katrina.

So if you were like us, and you were in that area right as the situation happened, it is going to be a very positive event for us, because we are helping to continue to provide housing for people in that area. We are benefitting from it, because we can increase our rents, because there is a lack of housing… But we’re also providing a service that do need to be down in this area helping people recover by fixing up their units and getting back on track with their lives.

Joe Fairless: One challenge I came across with one of our deals that we owned in Houston – we’ve since sold it – when hurricane Harvey came, it did not directly hit our property, but what it did is it increased the cost of contract labor, because now all of a sudden what we had budgeted for contract labor dramatically increased, because they were more in demand, and there were other properties that were paying much more for their services, because they had to, in order to get their services. So then our budget had to increase. Have you come across that with your property?

Anthony Chara: Yeah, we certainly have, same exact situation… Because there’s only a certain number of people. There’s a lot of workers that were in that area that are now displaced. They moved to other areas of the country with family, or to find a job someplace else, because their home, their apartment might have been wiped out. So the people that are coming down, that are there, their cost of living and being there is higher… And we’ve also found out that insurance companies are paying these people more to entice them to come back to the market or into the market, so that they can actually do the work that needs to be done for the insurance company. So yes, all the costs have gone up because of the scarcity. The infrastructure is still suffering, so a lot of the stuff that we take for granted, like warehouses to store food, and building materials and things like that – they’re all gone; there’s no place to do it. So it’s a constant, endless truckload of things, and food, and parts, and pieces that need to come in, and all the people that need to take care of those things.

So yeah, expenses have gone up. Until you get to the point where it’s very easy to go down to the street corner and get a gallon of gasoline, things are gonna continue to be expensive until it normalizes… And if it’s anything like what New Orleans went through, it’s gonna be about ten years before Panama City comes back to fruition.

So it’s good for us, since we already have property there, and it’s gonna continue to stay strong for a while, but yeah, it’s also costing us more, as well.

Joe Fairless: The 60-unit in Iowa – switching gears a little bit – will you tell us about that?

Anthony Chara: Sure. That particular one is on the Eastern Coast, right on the Mississippi River, in a little town called Burlington. One of my students found that through a real estate connection that he had; he’s created relationships with brokers in that area. He likes buying in Iowa and Kansas and Nebraska… And the broker came to him. And the interesting part was we know that that same broker likes this type of property, so when he brought it to us, we said “Wait a second… Why aren’t  you buying it, if it’s such a great deal?” And he said because it was too far away from his target area. It was about a 2.5 hour drive from where he lives, and he only likes buying properties that are over 100 units, which we do, too… But in this particular case, that same student already owned about a 118 or 119 property about three miles away, so it was an easy transition.

So we went out, took a look at the property… It was actually a great little property. The owner of the property – about four years ago now the fire department came through, and why they didn’t do this years ago I have no idea, but the fire department came through for one of their typical inspections, and noticed that in all the second-floor units… These were townhouse-style, where you’ve got the living area on the lower end, and then you go up the stairs to the bedrooms in the upper area… All of the upper windows had the through-the-window air conditioning units, and the fire department finally figured out that “Oh, wait a second… You’re blocking an emergency egress.” So they made them take out all the upper air conditioning units. Well, if you’ve ever been in Kansas in July or August, it gets very hot and very humid, and people aren’t going to only stay down on the lower level with the air conditioning unit that is going through the wall on the lower level… So the owner made the decision when they pulled them all out to put in all brand new air conditioners and furnaces in all 60 units.

Joe Fairless: Nice.

Anthony Chara: At the same time, they redid all the roofs, they redid all the siding… So we ended up coming in and buying what should have been a C class property, that was probably more like a B-, just because it had all this new equipment in it… And we also inherited an 18-unit HAP (Housing Assistance) contract from HUD with that same property. So 18 of the units were paid for, whether they were occupied or not, and then the other 42 we take care of on the open market.

It’s been going pretty good for us. We’ve had a little over a year now, and we’re looking to refinance out of a short-term bridge loan that we got on that one in order to get into it.

Joe Fairless: What was the business plan for it?

Anthony Chara: Well, the business plan was because we knew that it was gonna be a good candidate for a HUD loan, was to buy it on a bridge loan, which we did; unfortunately, it’s taken us a little bit longer. We had some issues with HUD themselves, getting this particular property going. The original manager that was in the property for us ended up getting blacklisted by HUD because another property that they managed, that the owner was taking care of the maintenance. Well, HUD didn’t care that the owner was supposedly taking care of the maintenance, because this management company had their name on the property, and HUD was not happy with the repairs that they were doing… So HUD blacklisted them and made us get another manager. Well, that whole process set us back, because it took us about 3-5 months for three different parts of this.

Joe Fairless: Yeah…

Anthony Chara: The first part – we had to find a new manager that we liked. That took us about a month, a month and a half of interviewing quite a few managers in the area. Then once we liked them, then HUD had to interview them to confirm that they were okay with them, and then do a background check on them and look at some of their other properties to make sure they were maintaining them… And then the third part of it was because of this HAP contract, as soon as they blacklisted the first manager, they stopped paying us for the HAP contract. So it’s like “Well, wait a second… You’re the ones that blacklisted them, and now you won’t pay us.”

So once we finally got the new manager in place, the new management company then had to redo all the paperwork and submit all the paperwork for the 18 units, and that took another 2-3 months in order for us to get fully paid and up to date with all the paperwork. Well, at the same time, with the transition, the previous manager was short-timing it, so they weren’t really doing a very good job of putting new people in, plus they couldn’t talk to anybody that was on HAP, because they knew HAP wouldn’t pay them. So they could only talk to people who were coming in off the open market.

So anyway, we ended up getting a bridge loan, and the plan was to be out of that within a year, but then with this whole situation with HAP our vacancy started to creep up. We ended up at worst-case scenario; we ended up at 30% vacancy, 70% occupancy, going through this whole process… And now we’ve got it back on track. Over the last few months the manager has been putting in better quality people, and we’re back up around the 85% range, but we can’t actually do the HUD contract or the HUD loan until we’ve got 90% occupancy for at least 90 days. We’re still working on that.

So the plan – long answer to a short question – with the business plan was to have the short contract in order to buy the property with the bridge loan, take out financing within the first year, and now we’re just slightly over one year, so it’s probably gonna be about a year and a half, so we’re about six months behind on the plan.

Once we get that new loan in place, the interest rate is gonna drop drastically, the cashflow is gonna go up… The last thing that we need to do with the property – because there really wasn’t a whole lot, since the owner had been doing a good job of taking care of it – was replacing most of the windows. A lot of the windows were original from the early ’70s when the property was built. They still had some single panes, and some of the windows don’t open and close very well… So we’re gonna replace all of those, which is also gonna help with the energy efficiency of the property, and then we plan on selling it in five years, when the loan  balloons, to other investors. Of course, the goal is to at least double our money within that five-year period, if not better.

Joe Fairless: About how much does it cost to replace the windows in a 60-unit?

Anthony Chara: It depends on the quality. We’ve had quotes anywhere from some of the smaller windows for maybe $150 to $200 including labor, up to $350 to $400 for some of the larger windows… I think we budgeted about $120,000 to replace all the windows, including labor.

Joe Fairless: And how do you think of that in terms of ROI for the deal whenever you sell it in five years?

Anthony Chara: That’s a great question. We actually took that into consideration before we bought it, because that was part of our plan when we purchased it. We knew that these windows were a sore spot, not only with the residents, but with the energy efficiency of the property. Some of them don’t look very good, some of them that are the dual-pane also have the seals broken, so you can’t really seen through them… And they also are kind of an eyesore at this point, simply because if you look at some of the units that have been changed, they have the larger, thicker, white vinyl border, whereas some of the older ones are still the old aluminum windows… They look older, and they’re kind of an eyesore.

So we actually budgeted for that in our numbers, and that’s one of the reasons we were really excited about this property, just because even with the 120k or 160k total between the windows and some other things we wanted to do, our investors were still getting a cash-on-cash return around 10%, and then the total return we were projecting – I think the IRR is gonna be in there around the 18% range over a five-year period.

Joe Fairless: With the 18 units under the government assistance program, would you rather have just 18, or all 60, or zero? Which of those three options would you rather have?

Anthony Chara: You know, if you would ask me before we bought it, I might have —

Joe Fairless: Before they stopped paying you…

Anthony Chara: …before they stopped paying me, I might have been interested in the whole project being a Section 8, just because whether it’s occupied or not, they’re gonna pay the contract. The downside is after what happened here – and I’ve heard this from other owners as well – is that if HAP has an issue with something, whether it’s the condition of the property, how you’re taking care of it, they don’t like the manager, something goes on, they can literally cut off all of your payments. So I think I’m actually kind of happy the way it is now that we only have a part of the property, about 30% under the HAP contract… And we still are allowed to take HAP vouchers; we still have other people on the property that are on Section 8, but because they’re under a voucher program, as opposed to the HAP contract, they did not get cut off, those payments did not stop coming in.

So I kind of like the way it is now. We  have 18 of them where we have guaranteed rent, and then the other 42 are open market and Section 8 people… So we have a variety of people on the property.

Joe Fairless: Will you elaborate on the difference between a  voucher program versus a contract?

Anthony Chara: Sure. The contract is just like it sounds – you have  a contract with housing assistance that says “We want these 18 units. We’re gonna decide who’s gonna go in the units. We’re gonna pay for these units so that they’re available for us to utilize.” And they pay that–

Joe Fairless: So they screen the tenants and they put them in there, and all that process?

Anthony Chara: Well, they’re supposed to… We still have the ability to screen them, and if we don’t like the people that are coming – and we have the ability to go out and look at their work history and their eviction history, and things like that (even their criminal history) to see whether or not we wanna allow them into the property. But a lot of times because it’s under the HAP program they just say “Well, Mr. Jones is here, and we’d like Mr. Jones to move in.” With the HAP program, people just go wherever HAP says “We’ve got a contract. You can go here. Here’s the available unit. If you like it, let us know and we’ll put you in.”

With the voucher program, people can actually take the voucher. It’s what’s called “portable.” So they can move that voucher from one complex to another. They’re not limited on where HAP only has a contract. They can go to a house, for all that matter. They can go to a homeowner that is willing to accept a voucher, and they can walk in and say “I’ve got this voucher”, and based on how much money that person makes, then HAP has a metric, a formula that they put them through, that says based on how much money they make and what the average rent is in this certain area and how many people are in the house, whether it’s husband and wife, or girlfriend and girlfriend, or boyfriend and boyfriend, and whether or not they have any kids, the size of space that they need, the number of rooms, how much they qualified for what their share is going to be, if any… We’ve had some people that even on a voucher HAP has paid for their entire rental rate, and some they paid a minimum amount – $4, $9, $11/month…

So the big difference is with a contract it’s set. Most of the time you pretty much accept the people that come, but with the vouchers you can still screen them, they can take that voucher and they can use it on your property this year, and then next year if they decide to move out, they can take that voucher and their income and go someplace else to somebody else’s unit, where the HAP contract is set for — I think it’s a five-year contract that we have with them. I don’t remember off the top of my head, but I think it’s somewhere between a five and ten-year contract.

Joe Fairless: On a separate, but related note, regarding the property… You said you came in town and looked at the property. What are some things that you pay particular attention to? And we’ll be specific – let’s just talk about the 60-unit. When you came and looked at the 60-unit, what are some specific things that you read about the property, you saw the financials, so you had the paperwork, and you probably saw pictures, but now you’re actually there… What do you look at? What do you look for?

Anthony Chara: Well, the biggest things that I wanna look for are the major issues with the property that can cause you a lot of monetary loss if they’re not taken care of properly. Some of the biggest things I wanna look at when I come in are things like the roof, I wanna look at the parking lot, I wanna look at the drainage around the units… We’ve had issues where years ago we missed things, because — well, I shouldn’t  say we missed it; we just didn’t realize that it was an issue until we actually had an issue with it.

We had  one property where there was actually a creek flowing through the middle of the property. And we knew it was there, we did our best to check and make sure that it wasn’t gonna be a problem, we made sure that there was a drainage area underneath a little bridge on the property that we had to make sure was cleared out… And then lo and behold, we get a huge rainfall, and the creek was not the problem; the problem was the way the property was situated – it was up on a frontage road next to a freeway; there was so much rain coming off the frontage road down into the property where there was no creek, and no clear path for the water to drain, because it had never really rained that hard in the area to even cause an issue… It actually washed out the foundation underneath one of our buildings. So that was  a pain.

Now that we’ve learned that, we walk around the property, we look to see if there’s any (in essence) chokepoints like that… Because you do get a lot of rain in Eastern Kansas, especially since we are very close to the Mississippi River. We look at the elevation to see how close we are within the flood plain, because – I don’t know about you, but the Mississippi River and a few other rivers in Central America (as in Central United States of America) have been over-flowing and flooding… Roofs are always a very big ticket item. We look at the either boiler systems and/or chiller systems. In this case we have individual furnaces in all of the units. We knew those were only three years old, so we didn’t have an issue with any of those… But we wanna take a look at the big dollar ticket items.

We also wanna look and see if there’s any types of issues with mold, bugs, things like bed bugs, cockroaches, and see what we can do to mitigate some of those issues to the best of our ability… Because those things are what’s going to cost you in the long run. It’s going to be very expensive to do the roofs. Ours were only three years old, but even though they were three years old, we still got up on the roofs and checked them out, because occasionally you can have decking under the roofs that is weakened, and sometimes people don’t actually replace the decking when they put on new roofs; they just put new shingles over old shingles if they’re allowed to, based on code…

So we did our checking on that, and the roofs looked like they were in great shape. All the furnaces and air conditioners were all in great shape. The drainage issue… We had one little area where I let the team know and the managers know that they needed to keep a particular area, clear it out, because it seemed like a lot of stuff – whether it was people dumping trash, or the trash just blowing or draining down into that area as the rains came; that all needed to be cleared out… Plus, it didn’t look nice with some of the trash that was in the area. So those were some of the big things we look at.

Then, of course, the parking lot, whether it’s asphalt or concrete, what’s the condition, does the parking lot need to be sealed… A lot of people don’t realize that the asphalt parking lots need to be sealed on a regular basis and restriped, so that they don’t dry out… Because if they do dry out, they can literally turn to nothing but mush and gravel, and then it’s gonna be a much more expensive fix to clear all that out and then put down a new overlayment, instead of just taking care of it and doing preventative maintenance in the meantime.

Joe Fairless: Taking a giant step back, what’s  your best real estate investing advice ever?

Anthony Chara: My best real estate investing advice is 1) take action. Learn, and then take action. And then the other part of it I would tell people too is to not give up. There are going to be obstacles that you run into, and it’s all too often that in our society people just hit a roadblock and they quit. In my opinion, the only time that you fail in any type of investing or any type of endeavor is when you just give up. So don’t give up, keep moving forward. Even if you have setbacks, learn from the setbacks. Use that as a tool, so that you are a better investor the next time you go out and you do a deal. Don’t let setbacks hold you back. Keep moving forward, keep doing more and more deals, and you will be more and more successful.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Anthony Chara: Let me sit up straight here, and… Yup, I’m ready to go.

Joe Fairless: Alright, I know you’re ready… First, a quick word from our Best Ever partners.

Break: [00:27:06].02] to [00:27:44].27]

Joe Fairless: Alright, Anthony, best ever book you’ve recently read?

Anthony Chara: Cashflow Quadrant. I’ve just reread that a couple months ago.

Joe Fairless: Best ever way you like to give back to the community?

Anthony Chara: I donate money and time to a bunch of worthy charities, I donate a lot of money to Habitat, since I’m in real estate… I donate a lot of money to Habitat for Humanity, American Red Cross, Wounded Warriors…

Joe Fairless: And how can the Best Ever listeners learn more about what you’re doing?

Anthony Chara: You can go to my website, I do classes all across the country, and we’d love to see you out there.

Joe Fairless: I know some people in Cincinnati who have taken your class and had really good things to say. Anthony, thank you for being on the show, talking about some specific deals – the 32-unit challenges, with that and Mother Nature; the 60-unit in Iowa, and just talking through some things in the business plan, and what you and your team is doing, and things to look at from a big picture, whenever you’re taking a look at a property on a walkthrough.

Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Anthony Chara: Thanks, Joe.

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