How to Avoid Bad Real Estate Deals by Evaluating Operators, Risk, and Experience

Chihiro G Kurokawa (00:00)
Yeah, so one ⁓ challenge is

a multifamily investment

that I was invested in as an LP, a limited partner. And for those listeners who may not be familiar with it, that means you’re silent partner and you don’t have any managerial responsibility in the deal. So you’re just investing capital and you’re along for the ride. You’re counting on the general partners to lead that deal to success, right?

And one of those didn’t go well. Like unfortunately, it was a complete or near complete loss of capital. And in hindsight, ⁓ it was due to lack of ⁓ sufficient experience in the part of the people running the deal.

Michelle Kesil (02:18)
Hey everybody, welcome to the Real Estate Pros Podcast. I’m your host, Michelle Kesil and today I’m joined by someone I’m looking forward to chatting with, Chihiro Kurokawa, is an investor focusing on both multifamily investments as well as business investments. So, really excited to have you here with us today.

Chihiro G Kurokawa (02:43)
Yeah, thank you for the opportunity, Michelle. I appreciate it.

Michelle Kesil (02:47)
Of course, so let’s dive in. First off, for those not yet familiar with you and your world, can you share what your main focus is these days?

Chihiro G Kurokawa (02:57)
Yeah, so I do maintain ⁓ real estate investments because that’s how I got started. And I’d say about maybe 40 % of what I invest in today personally is real estate of some sort or another. But 60 % is business investing. so specifically, I’ve invested into health care businesses of a clinical nature and then also ⁓ car dealerships is a business that I have invested in.

So yeah, and those are through the firm that I work with called ZT Corporate based in Houston.

Michelle Kesil (03:36)
Awesome. And are all of your investments based in the Texas area or which markets do you invest in?

Chihiro G Kurokawa (03:43)
They

are not exclusively in Texas, but they’re, I would say they are very heavily concentrated in the Sun Belt. So Texas through to like the Carolinas. Yeah.

Michelle Kesil (03:59)
And what got you started in investing?

Chihiro G Kurokawa (04:04)
Well, in 2016, I moved

to Texas from California, and I was really focused on getting involved in some sort of business, be it investing or otherwise, that was going to be a different path from like climbing the corporate ladder. And so for me, I felt that investing into apartments was the best way to achieve that. So I started doing that in late 2016, really.

very shortly after moving to Texas. And then I ended up doing four apartment deals as a lead sponsor or lead general partner, syndicating the equity for those deals. And then in 2022, I had been about a year removed from the last acquisition that I had made

multifamily and had been having some challenges trying to find apartments that

were priced well enough for me to feel comfortable buying them. And because of that, I made a pivot into investing in the businesses. And so I’ve been doing that since 2023.

Michelle Kesil (05:15)
Yeah, and what inspired that pivot and what it does investing in businesses look like?

Chihiro G Kurokawa (06:11)
Yeah, without getting too technical, I think the multifamily asset class specifically is really exposed to risk from interest rates when they increase and when they increased as rapidly as they did starting in 2022. That put a lot of pressure on multifamily in multiple ways. So.

As I started researching different asset classes, I realized that there’s a way to invest in the businesses that are cash flowing, but you can do it often without nearly as much leverage, which means much less of the cash that you generate on a monthly or quarterly or yearly basis is devoted to the purpose of paying off the mortgage on that business. so ⁓ obviously because of that,

that you have less risk in the form of interest rate risk. And so I liked that aspect of business investing. There’s of course pros and cons to every business type or asset class, but that was the biggest attraction for me in terms of ⁓ pivoting into business.

Michelle Kesil (07:27)
Absolutely. And what would you say are the main differentiators between that and real estate?

Chihiro G Kurokawa (07:36)
I would say what I just mentioned is number one. ⁓ Secondly, you know, I was a data analytics manager when I did my first ⁓ couple apartment deals. So just based on that, you and it and our listeners can tell like, well, with a with a little bit of grit and some resourcefulness, like somebody with a non real estate background can get into doing commercial real estate deals or

at least can get into apartment investing. With businesses, it’s not necessarily that way. You may need some ⁓ sector expertise in order to get into certain asset classes within businesses. so particularly for us, like dealerships or clinical healthcare facilities, and I’m not talking about medical real estate, I’m talking about the actual business ⁓ that.

is a clinic of some sort with physicians working and nurses and all that. You can’t just get into that. It’s not just a matter of having enough money to buy an emergency room, for example. You do have to have expertise in running that type of a business. And so that does create a higher barrier to entry compared to something like apartments where, you know, as a corporate person, I was able to pivot into that asset class. I wouldn’t have been able to do that.

⁓ trying to get into car dealerships, for example.

Michelle Kesil (09:08)
Yeah, that makes sense. And what do you feel have been some of the main keys that have allowed your business to grow and run successfully?

Chihiro G Kurokawa (09:19)
⁓ It is finding the right people. ⁓ Every business that’s worth anything, in my opinion, is an operations business of some sort. And so if you’re gonna be successful, ⁓ you need to have that sort of expertise. And so for us, that’s been finding the right operators. We haven’t had the same operators for our ⁓ businesses the entire time. We have made changes. And it’s because

Some people weren’t suited suited for the scale that we had grown to, or others didn’t have necessarily. ⁓ Maybe they were later in their career and didn’t have the drive that we needed in order for somebody to be aggressive in not only operating an existing business well, but also grow while doing that, right? That’s a pretty hard job. And so you have to have the right person for that. And so no, we have not had the same operators the entire time we’ve leveled up.

with our operators that run our businesses as our portfolios have grown. And so that is definitely the key. At the end of the day, any business is operations and you’ve got to invest in that.

Michelle Kesil (11:04)
Yeah, absolutely. And what have been some challenges or hardships that you’ve overcome in your investing career and what have you learned from them?

Chihiro G Kurokawa (11:17)
Yeah, so one ⁓ challenge is a multifamily investment that I was invested in as an LP, a limited partner. And for those listeners who may not be familiar with it, that means you’re silent partner and you don’t have any managerial responsibility in the deal. So you’re just investing capital and you’re along for the ride. You’re counting on the general partners to lead that deal to success, right?

And one of those didn’t go well. Like unfortunately, it was a complete or near complete loss of capital. And in hindsight, ⁓ it was due to lack of ⁓ sufficient experience in the part of the people running the deal.

They were experienced in deals in general in real estate. However, they did not have specific ⁓

expertise in this particular kind of deal. I guess you could say it was like a subset of ⁓ multifamily. so ⁓ the takeaway for me with that was ⁓ not all experience is equal. And if you’re doing kind of a niche strategy, even within the same asset class, then it may require that ⁓ you take a closer look at the experience of the people running the deal.

because if they don’t have a hyper-specific experience for a hyper-specific niche deal, then ⁓ their ⁓ other experience, even if it was very successful, may not serve them very well for this particular deal.

Michelle Kesil (13:02)
Yeah, absolutely. That’s an important lesson to learn in this business.

Chihiro G Kurokawa (13:09)
Yeah. And you know, we’d learn more from our challenges or losses than we do from our wins. And so, ⁓ you know, I’ll take that forward with me for sure.

Michelle Kesil (13:24)
It’s better to take messy action and learn something than to not take action and be stagnant with your growth.

Chihiro G Kurokawa (13:34)
Yeah, 100 % agreed.

Michelle Kesil (13:37)
Yeah. So what are you most focused on solving or scaling to next?

Chihiro G Kurokawa (13:45)
⁓ For me, it’s, you know, I aspire to be the best connector of people and resources that I can be. And so ⁓ many of us know somebody or know some people who are ⁓ constantly relied upon to make a referral or make a connection to somebody. Like you might think of, ⁓ there’s that one person and I always call her or text her when ⁓ I’m looking for a

a realtor in town or I wanna referral to a ⁓ doctor of some sort or anything, there’s just these people that create reputations like that for themselves and ⁓ I hope people do see me in that way but I can always be better at it and so I aspire to be like an amazing connector ⁓ to and for people and so I love being able to do that when somebody ⁓

actually just this morning was asking me if they know, if I know, ⁓ like a haematologist, like a very specific specialized type of physician. And ⁓ I don’t, but I know somebody who does. And so I was able to connect him and ⁓ that makes me feel good. So I want to continue to work on

Michelle Kesil (15:46)
Yeah, definitely. Relationships are everything in this space. Is there particular methods or ways of networking that you have found made the biggest difference in being able to meet more and the right kind of people?

Chihiro G Kurokawa (16:08)
You know, it

is hard to network or meet people and ⁓ there’s like this inverse relationship between the volume of people that you meet and like the quality of relationship that you can build, right? If you’re meeting a gazillion people at like a ⁓ huge conference, you’re just not gonna be able to build deep relationships. ⁓ So I try to be…

⁓ strike some sort of balance between meeting a lot of people and spending time with each person that I meet. And ⁓ it’s hard to do, but I’ve learned through experience to do that. so ⁓ a lot of that next level understanding of somebody beyond knowing, Michelle’s a podcast host. Well, beyond that, it would probably require us.

speaking with each other, meeting another time for me to get under that initial layer of ⁓ just tying you to your specialty as a podcast host to understand, she actually really likes cats or makes her own pizzas or whatever.

Michelle Kesil (17:25)
Yeah, that totally makes sense.

And so what advice would you give to someone that’s earlier on in their investing journey or just looking to get started?

Chihiro G Kurokawa (17:44)
⁓ I think it’s ⁓ related to this concept of networking or relationship building, but you can’t do anything worthwhile, at least in real estate investing or investing in general, ⁓ strictly from your desk. Maybe there’s exceptions to that.

trading public equities or something. But generally, if we’re talking about real estate or business investing, ⁓ you have to shake hands, you have to meet people. And so ⁓ I’ve grown a lot in having done a lot of ⁓ hosting of events, attending events, meeting people, building relationships. It’s been a 10 plus year journey that I continue to be on at this point.

⁓ What I would give as advice to somebody who wants to get into that type of investing is start going to local meetups and or ⁓ events, ⁓ save up some money if you need to to attend a conference, ⁓ whatever it is in order to be around the right people and be around the people who have achieved what you want to do. So if you want to be a successful flipper of houses, you need to be around people who are successful at flipping.

and find some way to do that. Otherwise, how are you going to learn how to do it and make the relationships that you need in order to achieve your goal? So find some way to do that. Be resourceful.

Michelle Kesil (19:22)
Finally.

And what is the strategy or the process in finding the right investment for you, whether that is a multifamily building or a business venture?

Chihiro G Kurokawa (19:43)
⁓ That’s hard, right? Because like, ⁓ you know, rule number one from Warren Buffett is never lose money. But if you invest long enough, you can’t not lose money, unfortunately. And Warren has ⁓ had bad deals, you know? ⁓ And so I wish there was some magic answer for doing the right deals and avoiding challenges in your investment journey.

But I don’t think there are. So I think it takes persistence. think ⁓ you have to get up ⁓ when you get knocked down. ⁓ you’ve got to ⁓ know, you have to expect when you get started that you are probably going to face challenges and you need to think about what you might do or what you’re going to do when those challenges happen. ⁓

And you need to think about that early on in your career before that happens. So think about ⁓ what if I were to lose this investment? How would that affect me? How would that affect my relationships, my family, ⁓ my career? ⁓ Those are very hard questions that I think you need to ask yourself if considering an investment journey.

Michelle Kesil (21:10)
And so is there a way that you look at deals or find leads that when like something clicks for you and makes sense like this is the right investment for me?

Chihiro G Kurokawa (21:27)
⁓ yeah, I mean, ⁓ do have a more robust way of conducting due diligence on a deal, ⁓ compared to, you know, ⁓ when I got started nine, 10 years ago. So, ⁓ it’s, ⁓ I I’ve done deals in the past where really my, my research or due diligence, ⁓ consisted of like,

Hey, did you invest in this? Yeah, or did you invest with this guy before? Yeah, I have. Oh, and how’d that deal go? Oh, it went really well. Here’s the numbers on it. I got this kind of return. Okay, that sounds good. And, you know, that’s just not enough. And so that is a starting point for me now when I’m evaluating deals. Oh, okay, great to know that this person had a positive experience on this deal.

with this particular operator. But now beyond that, ⁓ I might ⁓ re-underwrite the numbers that are presented in the projections by that operator to see if it works out for me. Like so I wanna redo the underwriting myself. ⁓ I might ask for multiple referrals from that operator to talk to people about their experience investing with that operator.

I might do some really deep dive, I don’t want to call it investigation, but studying the operators involved. Like do they have any sort of disciplinary actions from like the SEC or something like that? Basically like checking the character and the history of an operator. Have they worked? Have they changed the name of their investment firm?

what might have been the motivation for them to do that. ⁓ So essentially, to get back to your question, the due diligence becomes really multifaceted and ⁓ there is no formulaic way to approach it because ⁓ if there was, then I would do that and I would never lose money in a deal. ⁓ you just, it’s like a blend of art and science, I would say. ⁓

⁓ the science part being like hard ⁓ spreadsheet work and then the art part of it being some of the things that I mentioned.

Michelle Kesil (24:04)
Absolutely. Thank you for sharing.

Well, before we begin to wrap up here, if someone wants to reach out, connect and learn more, where can people find you?

Chihiro G Kurokawa (24:18)
Yeah, I’m on Instagram as CG Kurokawa ⁓ CG Kurokawa and I can be found on LinkedIn, Facebook. I’m not I like to say I’m not hard to find the hardest part about finding me online is spelling my name correctly.

Michelle Kesil (24:40)
Yeah, that’s fair. Well, thank you so much for coming on and sharing your time and your story.

Chihiro G Kurokawa (24:49)
Amazing. Yeah. Thank you for your time, Michelle. I appreciate your thoughtful questions.

Michelle Kesil (24:55)
And for those tuning into the show, you got value, make sure you have subscribed. We’ve got more conversations with operators like Chihiro who are building real businesses and we’ll see you all on our next episode.