My Realty Gains
Chris Salerno attended Wharton Business School and Winthrop University. Chris successfully transacted more than 40mm in real estate volume and helped lead the #1 real estate team in the Carolinas to produce more than 140mm in annual sales before creating QC Capital. Named to Charlotte’s 30 under 30, Elite 50, Elite 50 entrepreneurs, 30 under 30 entrepreneurs, and nominated for Forbes 30 under 30, 2018 and 2020. Chris has quickly gained recognition, and notoriety for his hard work, and dedication.
Prashant Kumar, CCIM – How does passive investing work for somebody who’s busy and how can they Invest? Share some insights.
Chris Salerno – We have a lot of Passive Investing partners with us in our acquisitions and deals. For those individuals who are unfamiliar with how it works, there’s a great thing that we are going to be releasing in about four to six weeks, which is going to be a booklet to help Passive Investors gain knowledge on Investing in their first syndication or their first fund. We’re releasing that here to help individuals gain the knowledge and in that book, I can give you little nuggets that are in the book, it’s educating yourself, educating yourself on what you’re investing in. If it’s going to be multi-family syndication, if it’s going to be senior living, hospitality or self-storage, educate yourself on really what is attracting you the most, and then from there, dive deeper into it. I always say interview, multiple operators. The big red flag for me is if an operator does not invest alongside all their investors, that’s important to me.
All the Investing partners that we have to know that we as a company and I personally Invest alongside them in each deal. We want to make sure our interests align and that they know that our interests align. Know the property, what type of asset class it is, if it’s a C if it’s a B if it’s an A or what does renovation charge or what does Cap X mean and how much are they going to renovate? What is their business strategy? So the best thing to do is first educate yourself. And they’re already doing that by listening to this podcast or viewing it, they’re already doing it. You’re already a step ahead for those who are listening and viewing this that you’re gaining that knowledge. Once you gain the knowledge and feel comfortable, you are interviewing other operators from there, you start looking at the deal, the operators, their track record, their business strategy on the deal, and then also what’s going on in the market.
Now for tech professionals, I don’t expect them to know everything that we do because we do this full time. I’m not going to want to know everything that the tech professional does because he or she does that full-time. That’s their expertise.
There’s going to have to be trust involved. If you’re starting with your first syndication or your first Investment into a fund, you’re going to have to have some trust and you’re going to build that trust by interviewing those operators and getting a good understanding of what your business strategy is.
I think we’ve all gotten spoiled over the past two years where we can buy a property, but put no money into it, and sell it in a year for our five-year performa and trust me, take advantage of that opportunity when it arises. However, with the market shift, and as we were chatting a little before this recording market is shifting, and we’re seeing that we were talking about it this morning as a company, I think investing partners should expect a longer hold period than three to five years.
I think they should start expecting a seven to ten-year hold period. On top of that, I think, in my opinion, Investing partners should look to invest in a fund to mitigate the risk of just investing in a one-off deal. Now, I think that’s very important to have that understanding that when you invest in a fund, you’re investing in five to seven deals, so you’re mitigating a risk overall compared to just a one-off deal. I think it’s very important in the way the market is going right now. I think it’s very beneficial and smart to go that route as a passive investor who is busy with their tech job but also has that capital saved up that they want to invest.
Prashant Kumar, CCIM – Very well.
Prashant Kumar, CCIM – How a tech professional should navigate into finding a good operator, into at least creating that awareness in his mind. People who don’t know what an operator is or what multifamily means. How should they get involved?
Chris Salerno – I think it’s a very important question. And as you are a very busy tech professional, you also have to time manage your time properly to build wealth, to reinvest all that money that you’re accumulating into other asset classes. And with doing so, I think one thing that a lot of tech professionals can utilize is social media to their advantage.
A lot of operators and sponsors on social media, and you may not know what an operator or sponsor is. An operator sponsor is someone who manages and controls the deal. For example – QC Capital is an operator and sponsor. We manage and control the deal, which means that we locate the deal as a company. We do the due diligence. We then present the Investment opportunity to our investing partners, which are Passive Investors. From there they then go ahead and sign the subscription documents and then Invest in the deal as a Passive Investor. Meanwhile, from us, they’re receiving monthly distributions with monthly updates on how the property is performing also quarterly financials.
If there are any other questions, they email them to us and we answer those questions. After that, they just get the mailbox money or we direct wire. We do have some Investors that like mailbox money, but we do direct wire deposits into the accounts, but they just sit back and they let us control the property, run the property and perform it to the business strategy. We then will go ahead, as sponsors and operators, to know when the right timing is to sell, and then from there, we’ll sell 1031 that into a new property.
To find sponsors and operators. Social media is important. Facebook is a very great tool. LinkedIn is a very great tool to get into closed Facebook groups, to get on there, and to start networking and building those relationships, you’re going to have to start somewhere. And I think that’s going to be the easiest way to start is through social media. You can also start Google. We have a lot of leads that come in every month organically from Google because of the Google Real Estate companies. The Google 1031 tax benefits.
They want to know that things and we pop up and they inquire. Google is another great source to find Real Estate private equity companies that focus on acquiring multifamily or any other type of Real Estate asset class.
Prashant Kumar, CCIM – In the end, you said Real Estate private equity company. I think that is the key for somebody to understand if they want to invest in real estate, they should potentially go to Google and look for private equity companies.
Prashant Kumar, CCIM – How long do you think is the learning period for these new folks before they get into the deal?
Chris Salerno – We operate in 506C, C as in Charlie, which means that we are only able to take accredited Investors and we do that with third-party verification. Any potential Investor that is interested in investing alongside our firm as an Investing partner, what they will do is they will inquire with us when we have an opportunity or our fund that we’re about to release. Once they inquire with us and they go ahead and they like everything they see and they want to make a soft commitment, we then go ahead and get them verified by a third party verification company that verifies them that they do meet the SEC requirements of an accredited Investor. Once they do meet those requirements and we get that letter, we have that in their file. From there, they go through the whole process of making a soft commitment, signing the Docs, and then wiring their funds or snail mailing a check-in, whatever is preferred. That’s how we operate.
Prashant Kumar, CCIM – What are the differences between the level of returns when one manages the deal by oneself and when a syndicator manages the deal?
Chris Salerno – Level returns can be very profitable if you manage the deal by yourself but like you discussed at the very beginning of this conversation, you’re working nine to nine, you’re working twelve-hour shifts. Do you have time to manage, do you know how to manage, and do you know how to analyze the financials?
If you’re doing it all on your own, those are some very important questions. Are you willing to take the risk to manage it on your own? To take away from your nine to nine twelve-hour shifts that you’re working from I guess Monday through Friday or Monday through Saturday, maybe seven days a week? Are you willing to take the risk to a place that capital to buy your deal just because you want to buy it yourself and you want to run it yourself? Are you willing to take that risk with the demand that you’re already having with your current employer? So that’s going to be a risk.
You have to analyze that risk for each individual whereas you can take that money, go ahead and analyze the risk on a sponsorship team, interview a sponsorship team, gain the trust and the bond between you two, and invest passively and you don’t have to worry about anything. Well, I take that back. You don’t have to worry about the hands-on day-to-day. Now each investment has risk. With each investment, you can lose money. However, you’re mitigating that risk by Investing with a professional. You don’t want to call me to come to handle your tech stuff on your computer. I am not the person to do so. You’re going to want to call a tech individual. You’re going to want to call a tech individual at Mac or at Apple to come to fix anything wrong with it. You’re not going to want to call me. So why would you want to go ahead and handle that when you’re going to take the risk? A lot can happen and you don’t have the time to do it in the first place. Whereas you can just Passively Invest, give that direct deposit every month, read the reports, any questions you have, email those questions, and then move on.
Prashant Kumar, CCIM – What you are saying is that these investments are being managed by Real Professionals. You are a real professional in what you do. Properties are being managed by, in some cases third-party professionals. Property management companies and banks are involved. They are watching these transactions very closely. They are auditing on a quarterly month, six-monthly, or yearly basis. And on top of that, you have SEC regulations that you are following. A lot of people are watching. You are not doing some goofy stuff behind that.
Chris Salerno – You can’t, I mean if you are, you’re bound to get caught and slip up with the type of transactions. Now give it that you can’t buy a bad deal, you can buy a bad deal, and it can go south. That’s why it’s important to have a team that underwrites very strictly to a business plan that they have. And you have that trust in them compared to trying to do it all on your own.
Prashant Kumar, CCIM – So one is trust that we understand. The second is the ability of our mind could go through time. It is regulated. Whatever you do, it is regulated. It is not that anybody can just come in and tomorrow you go on vacation and somebody can start in your place. That doesn’t happen in this business. That is what I’m trying to communicate is, yes, you can build trust which comes slowly, but it is a regulated environment and with all the professional help that you have on the ground, through that, you can gain the maximum benefit from the project.
Chris Salerno – That’s very important is that we’re regulated. We have bosses. Our boss is the SEC. We have certain filings we have to file. We have SEC attorneys that have to file blue sky filings and updates and all of our PPMs are public. So you can go to the SEC website, sec.gov, and search up our PPMs for any of our deals, for any of our funds and look what they are.
Prashant Kumar, CCIM – Awesome. Great conversation Chris.
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