Subscribe via:
Show Summary
In this episode of the Real Estate Pros Podcast, host Michelle Kesil interviews Michael Kharlab of CFP Group, who specializes in capital investment for real estate projects. Michael discusses the importance of building long-term relationships with investors, CFP Group’s unique investment model, and the types of projects they focus on, including hospitality and build-to-rent developments. He also shares insights on common challenges in real estate investing and the importance of acting on opportunities. The conversation highlights the referral-based nature of their business and strategies for future growth.
Resources and Links from this show:
-
Listen to the Audio Version of this Episode
Investor Fuel Show Transcript:
Michael (00:00)
The investors who want to become somebody like us, I always advise to start small, maybe to invest in a deal with somebody who’s done many deals previously and learn on the go. somebody who wants to do it on their own, the biggest advice is to act.Many, many people take courses, they study, they do the analysis, but they never cross the line just to act. And this is the biggest mistake. So you can do a very small deal, but you need to act. the biggest and the fastest ways to learn is by doing things.
Michelle Kesil (02:02)
Hey everybody, welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil. Today I’m joined by someone I’m looking forward to chatting with, Michael Kharlab of CFP Group, who helps find capital and works on funds for investing projects. So excited to have you here today, Michael.Michael (02:26)
Thank you, Michelle. Well to be here.Michelle Kesil (02:27)
Awesome. So let’s dive in. First off, for those who are not familiar with you and your work yet, can you share what your main focus is?Michael (02:38)
Yeah,CFP Group is a capital house out of Toronto. Our model is to partner up with project sponsors across Canada and the United States.
And we normally bring equity, we syndicate deals, bring equity to the project that sponsors. So on one side we work with project sponsors looking for capital. On the other side, we have a group of investors that have been participating in our deals over the years. We have over 200 investors being part of our deals over the years.
Michelle Kesil (03:06)
Awesome. And you work throughout the whole USA.Michael (03:11)
Yes,pretty much nationwide. So we we’re trying to be what I call professional investors. A professional investor does not depend on the location and does not depend on the strategy. So it’s an opportunistic point of view, but we will typically would look at any deals located anywhere.
Michelle Kesil (03:26)
Awesome. And so what types of projects are you typically working with?Michael (03:30)
Over the years we’ve done many development projects. One strategy is something called build for rent. Similar to multi-family but you do not build multiple floors. So usually build town homes.We’ve done many projects of this kind in Arizona. We’re doing two of these projects in Oklahoma right now. Recently we opened a cell storage just south of Orlando with a project sponsor and for the past few years we started doing hospitality deals as well. So doing hotels as well.
Michelle Kesil (03:57)
Awesome. And what do you think are some of the main keys that make the biggest difference in allowing your business to be able to continue to grow?Michael (04:06)
Well, our model is built on the relationship. with us, it’s obviously a constant communication with the investors. And that’s the key. the reason we are not a mass market company, we do not advertise is because I want every investor to have an access to me and they can reach out to me at any point in time. many companies rely on advertising. Some people invest with them and…They invest with many other companies. With us, we try to build a long-term relationship with investors and they move with us from deal to deal. Some have been investing with us since we started doing this model for about nine years now. So long-term relationship is the key.
Michelle Kesil (05:32)
Yeah, definitely. And can you explain more about how the model works?Michael (05:38)
Typically,⁓ a project sponsor, they have, in every real estate deal, there’s three components. There’s something called skill, there is a deal itself, and the money component. Normally, not a single project sponsor would have all three available. Usually, they would have two, which is an ability to complete the deal, which is a skill, and finding a deal itself. They would not have funds to complete. And they would come to company like us.
And on the other side, we’ve been working with investors who are looking to place money. Mainly we work with what I call busy professionals. Those are the people, engineers, doctors, lawyers, they know they can build wealth with real estate investing. They don’t want to do it on their own. They either don’t have knowledge or time.
So it’s sort of a matchmaking business, but we’re not a broker. We become part of a deal and we represent our investors. So we become partner in a deal as well. So that’s our model. That’s what we’ve been doing for the past nine years.
Michelle Kesil (06:32)
Yeah, awesome. And what are some of the main kind of benefits that the investors receive from you that’s maybe different from others?Michael (06:43)
So this model allows people to participate in real estate deals with less money invested. let’s say you want to buy a house and with the house, normally let’s say house costs $500,000. So with that approach, you would need to bring a down payment, typically 20%, which is $100,000, but also you need to take a mortgage, which is $400,000. And even if you can’t take mortgage after buying few homes, the bonds will stop lending to you.With our model, you can become part of a deal with much smaller amount. You do not need to take a mortgage, but you do not control the deal. You’ve been part of a deal or larger deal alongside with other investors. So that’s the advantage. And if I call it disadvantageous, it’s the fact that you do not control the deal. So somebody else is in charge of starting and finishing the project.
Michelle Kesil (07:33)
Yeah, definitely. And so are there any sort of investors that you don’t work with?Michael (07:40)
Well, our minimum is $50,000. So anybody who cannot come up with $50,000 of investment money is not the right fit for us. That would mean the pretty much putting the last money into real estate. Now with all the good things, real estate is still an investment and every investment has a risk. So if somebody cannot,put a substantial amount of funds into the deal, they’re not a fee. We don’t want people to invest the last money into real estate because anything can happen. Everybody remembers COVID when many things went upside down, especially in the hospitality and the office space.
Michelle Kesil (08:17)
Yeah, absolutely. And so do your customers, like they can work in any type of investment?Michael (08:26)
Can you refresh the question, What do mean?Michelle Kesil (08:27)
Sure. You’re like investorcustomers. Can they be part of any type of investment strategy?
Michael (09:08)
Well, we do the analysis. I mentioned that we’re not brokers. So we take a lot of time to analyze and underwrite the deal that we receive. We co-invest with our investors as well. So usually it takes months, sometimes up to a year to say that this deal is a good option for our investors. normally every deal we send to our investor group is the deal we stand behind.that the analysis have been done. So the answer to your question is yes. They like the deal, they like the location, they like the potential return investment that they can make. Yeah, absolutely. As long as this is not the last money they’re going to invest with.
Michelle Kesil (09:43)
Awesome. And so what are you most focusing on solving or scaling next for your business?Michael (09:52)
Well, our model issince we’re not mass market company and there’s only so much or so many deals we can do, our focus is to do between three to five deals a year.
So for us, as I mentioned prior, we started looking into hospitality. So this is a new investment strategy for us and that’s going to be our focus for the coming year too. We’re also looking into undeveloped the land that can be purchased, entitled and sold for profit. I guess those are the two main strategies for CFP Group in the upcoming years.
Michelle Kesil (10:24)
Yeah, and why specifically are those the ones that you’re highlighting?Michael (10:29)
Well, the upside in both is extremely high. So with hotels, you’re not only buying a real estate, you’re also buying a business. And with business, there are some additional challenges because there are many companies that buy businesses, but they need to know how to operate them. And there are many mismanaged hotels that we can take an opportunity of.And land is traditionally has been the riskiest but the most rewarding. If you buy that untitled land and you entitle it, meaning you get all the permits and the approvals, typically the value of the land can go from three to ten times the purchase price. With that being said, it’s a risky investment. So you need to partner up with people that really know what they’re doing.
Michelle Kesil (11:09)
Yeah, definitely that makes sense. And so are you also facilitating providing people with the right partners?Michael (11:16)
Yes, so usually the partners come to us first and we underwrite their deals. Obviously we do background checking and everything else on the partner and only then we bring the opportunity to our investors. So we’ve been working with multiple partners over the years. So several partners in different areas, geographical areas, but also in different strategies. We continue working with multiple partners.We also believe in long-term relationship that goes to investors and to partners. If you do a deal and things work, why not continue? It’s much easier to continue work with somebody that things work rather than finding somebody new.
Michelle Kesil (11:53)
Yeah, definitely. What would you say are some of the challenges that you face in this role and how do you overcome them?Michael (12:01)
Well, the biggest challenge is to work with people and with investors. Everybody gets excited when things are projected well and everybody understands the risk. When challenges are coming, such as COVID, for example, suddenly, you know, many people forget about all the risk that they were aware of. So it’s work with people, which is good and challenging as well. And it takes time.Obviously building a long-term relationship helps and being open as you can, being in communication as much as you can. If the things are good or if the things are challenging, pretty much every project has challenges. If somebody tells you there’s no challenges, I would not believe that person. So we’re in the problem-solving mode all the time.
Michelle Kesil (13:27)
Yeah, definitely. What advice would you give to some of the newer investors that come to you?Michael (13:33)
The investors who want to become somebody like us, I always advise to start small, maybe to invest in a deal with somebody who’s done many deals previously and learn on the go. somebody who wants to do it on their own, the biggest advice is to act.Many, many people take courses, they study, they do the analysis, but they never cross the line just to act. And this is the biggest mistake. So you can do a very small deal, but you need to act. the biggest and the fastest ways to learn is by doing things.
So if you’re a new person, just looking to start, a strategy, find a location, do it on your own or partner up with somebody, but just do it.
Michelle Kesil (14:12)
Yeah, definitely, that’s important. Can you share maybe what types of projects you guys are up to or what your majority of the projects look like?Michael (14:21)
Well, the next project we’re working on is going to be a multifamily in the Orlando area. It’s one of our existing partners. We did a self-storage deal with them. And on the same piece of land, we’re going to build a multifamily, something called Class A. So it’s going to be brand new project that’s going to be rented. It’s 370 units.And that project is going to be sold to institutional investors once completed. So that’s our next deal. And we are converting an office building into Marriott Hotel in Phoenix. So those are the two projects we’re currently working on. So different geographical locations and two different strategies.
Michelle Kesil (14:58)
Yeah, awesome. And so what type of like partners do you bring in? Are you also working with lenders? Yeah, who else do you work with?Michael (15:11)
Well, usually the partner that comes to us with the deal has a responsibility to work with the lender. as a capital partner, our job is to bring funds.And the developer, the project sponsor, need to do everything else. With that being said, things do not go as planned always. And the reason we do a lot of work analyzing the projects is just to make sure we have a capability to help out when things don’t go as planned. normally we try to stay away from working with lenders or anybody else. So that would be a role of a general partner or the project sponsor, but we’re here to help.
done anything from bringing lenders or additional capital or working with developers, additional developers or constructors. So as a capital partner we must have this capability because we represent our investors.
Michelle Kesil (16:00)
Yeah, and how do you guys obtain all of the capital? there certain creative solutions or ways that you do that?Michael (16:10)
Well, we work with our investors. As I mentioned, we have over 200 people that have been working with us over the years. So typical structure or typical process for the new project is…We get a new deal, we analyze it, we underwrite it. And the moment the deal is structured, we just simply offer it to our investor pool. People look into that, look at the package, look at the documentation, and they decide if the deal is for them or not. And from time to time, we accept new investors, but mainly by referral. As I mentioned, we’re not mass market company. We’re not interested in working with thousands of investors.
We’re pretty much at the maximum at the moment. Maybe we can have room to grow a little bit, but we’re exactly where we need to be.
Michelle Kesil (16:51)
got it so you are not looking for new investors at this timeMichael (16:55)
We are, but we’re not trying to get to large number of investors. Because we made a decision that we’re going to keep CFP Group as a small company. And there’s only amount of investors we can work with.So it’s not going to be thousands of Maybe we can bring in 250, maybe 300 of investors working with us, but obviously it’s not going to be thousands.
Michelle Kesil (17:20)
Yeah, that makes sense to keep it small and knit. So where do most people find you?Michael (17:26)
Well, you can find it online, obviously, and social media. I’m pretty active on social media, LinkedIn, Facebook, or Instagram. So people who never met me, that’s how they can find or reach out to me.Michelle Kesil (17:37)
Yeah, and so is that how investors find you as well?Michael (17:41)
Sometimes, but mostly it’s a referral business. See, we’re in business of investing funds and people rarely invest with somebody they don’t know or do not have a relationship with somebody who invested with that person. So mainly we get new investors from referrals, from the other people that invested with us over the years.Michelle Kesil (18:01)
Yeah, definitely that makes sense. Awesome. Well, before we wrap up here, if somebody wants to reach out, connect, learn more, where are the best places to connect with you?Michael (18:12)
or you can go to our website which is www.cfpgroup.ca just simply google my name which is michaelkharlab k-h-a-r-l-a-b and you can reach out to me on any social media platform, linked in Instagram, Facebook I’m everywhereMichelle Kesil (18:26)
Perfect, well, appreciate your time and your story. Thank you so much for being here.Michael (18:31)
Thank you, Michelle. Thank you for inviting me.Michelle Kesil (18:33)
You’re welcome. And for the listeners tuning into the show, if you got value, make sure you have subscribed. We have more conversations with operators like Michael who are building real businesses and we’ll see you on the next episode.
