Subscribe via:
Show Summary
In this episode of the Real Estate Pros Podcast, host Michelle Kesil interviews Chris Lento, founder of EM Capital, who shares his journey into multifamily real estate investing. Chris discusses the importance of strategic partnerships, the process of raising capital, and how AI is transforming the industry. He also reflects on challenges faced in real estate and offers valuable advice for new investors.
Resources and Links from this show:
-
Listen to the Audio Version of this Episode
Investor Fuel Show Transcript:
Chris Lento (00:00)
So having partnerships early on when you can leverage each other and not have to bring on staff that maybe your business can’t support yet.was huge and it gave me access to other people who were thinking big, were thinking about the future, who were thinking about problem solving, not getting ⁓ dissuaded by the problems that come at you every day.
Michelle Kesil (01:56)
Hey everybody, welcome to the Real Estate Pros Podcast. I’m your host, Michelle Kesil Today I’m joined by someone that I’m looking forward to chatting with, Chris Lento, who is the founder and managing member of EM Capital. So excited to have you here today, Chris.Chris Lento (02:11)
Yeah, I’m happy to be here, Michelle.Michelle Kesil (02:12)
Awesome, yeah, I think our listeners are really going to take something away from how you’re approaching investing in the multifamily space. So let’s dive in.First off, for those who are not familiar with you and your world, can you share what your main focus is?
Chris Lento (02:26)
Yeah, absolutely. So I’m a multifamily real estate investor. So we partner with investors to raise capital. We buy multifamily properties in the Carolinas and Atlanta metro area. Typically, we look for 1990s vintage or newer, ⁓ 15 million to 60 million acquisition price.buy those properties is usually some value add component, whether it’s exterior improvements, interior renovations, management improvements, or the opportunity to cut costs or add additional revenue. We hire third party property management. We run the properties for between three and seven years with a target of five years, giving investors quarterly returns along the way. And then we exit the property in a tax advantage manner, giving the investors ⁓ solid returns.
Michelle Kesil (03:14)
Awesome. And what markets are you primarily operating in?Chris Lento (03:19)
So right now our biggest market’s Atlanta. We also have properties in Columbia, South Carolina, Baltimore, Raleigh, Charlotte, and Louisville, Kentucky.Michelle Kesil (03:29)
Awesome. And so how did you fund ⁓ Capital? How did you come up with that idea and concept and get started?Chris Lento (03:38)
Yeah. ⁓ so I graduated from college with a mechanical engineering degree and started working for, ⁓ effectively a defense contractor here in Boston. live in Boston and, ⁓ I moved into, ⁓ a three unit apartment building. Boston has tons of these three deckers. There’s one apartment on top of each other. And I moved in with some friends and I thought we were paying pretty high rent and, you know, we these three other, two other units paying high rent. And I was just sort of like, how does this work? Who owns this building? I met the owner.He was got a very normal guy. and I just got intrigued. Like how, how does this whole industry work? This was the early 2000s. So I bought some books, started talking to some people, you know, there weren’t podcasts like this. were the internet was not that great for this kind of research and just dived in. And then about a year and a half later, I bought ⁓ a three family with, ⁓ like an illegal unit in the basement that I moved into in a not as nice area of town.
And then from there, I started building my portfolio. And then about 2017, I kind of hit a point in my career where I could see like the next steps and nothing was that exciting. And I decided I was going to try to figure out how to make real estate a full-time job. So started talking to people, kind of expanding my network, got onto the concept of
not necessarily investing just in your own backyard, but in diverse ⁓ locations that maybe have better economics, and ⁓ then also raising capital. And then once I sort of got those two key pieces, I started my own business. Six months later, quit my job, and I’ve been doing this for almost eight years now.
Michelle Kesil (06:07)
Amazing. That’s so cool that you went for it and were able to create success.Chris Lento (06:13)
It was a little scary, but it was okay.Michelle Kesil (06:14)
Sure, alwaysis.
What do you feel are some of the main keys that have made the biggest difference in allowing your business to be able to run successfully and grow?
Chris Lento (06:26)
I think strategic partnerships and relationships have been key because when you’re starting off, ⁓ it seems like maybe this is a business you could do on your own. And it’s just not. There’s so many moving parts. There’s a significant amount of work to do between raising capital, finding deals, managing the deals.So having partnerships early on when you can leverage each other and not have to bring on staff that maybe your business can’t support yet.
was huge and it gave me access to other people who were thinking big, were thinking about the future, who were thinking about problem solving, not getting ⁓ dissuaded by the problems that come at you every day.
Michelle Kesil (07:09)
Absolutely. When it comes to strategic partnerships, is that something that like your company is founded on or that you’re just working with as you invest?Chris Lento (07:21)
It wasn’t the intent to found the company on that. However, we did come across or I did come across some strategic partners very early on that have, we’ve stayed together for the past five years and done a number of deals together. The groups ⁓ just work well together and fill each other’s ⁓ deficiencies and it’s turned out to be kind of a key to the success of all three groups.Michelle Kesil (07:48)
And why specifically is multifamily the investment strategy that you have chosen?Chris Lento (07:58)
Yeah, that’s fair. A couple reasons. One, I think I just kind of came into it the way a lot of people do is that it’s very accessible. So nearly everyone in the country has rented an apartment at some point. Everybody needs a place to live. So the demand is very clear and there’s a deficiency. So there’s a housing shortage and a multifamily shortage in the country. You we have not been keeping up with the population growth and the household formation.in the last decade. So the demands there, there’s favorable economics. You can get good loans in the multifamily space that people in the office and industrial space would kill for.
And you can scale. So you can scale to large properties ⁓ relatively easily. And you can get used to the asset class and you can kind of understand ⁓ renovation scopes and scoping problems across markets relatively easily. Whereas some of the other asset classes have more unique property types.
Michelle Kesil (09:02)
Definitely that makes sense. And I know that you mentioned that raising capital is something that you’re really focused on. Can you expand on what that process looks like for you?Chris Lento (09:16)
Sure. ⁓ So typically our properties or our deals are 506C properties, which means we’re syndicating the investment. So our investors will bring ⁓ in $50,000 minimum investments and they get a limited partnership in the investment entity. And that’ll give them a right to a certain percentage of the property, meaning the cashflow and the profit at sale.So we get a property under contract. have ⁓ a group of investors who invested me, who have invested with me in the past and then another group that have expressed interest and then another group that I’m hoping will express interest. So we get a property under contract. Even in that pre period, I’ll start sending out ⁓ emails, you know, letting people know that, there’s something coming. I will post on LinkedIn. I will kind of just talk to connections.
and then start sending out repetitive emails with more information on the property as it becomes, we get it under contract as we, you know, finish the due diligence as we have our investor documents ready to sign and then just make phone calls, you know, call people, see if they’ve seen the emails, see if they like to speak further about it. And that’s just when a property is launched. Now, kind of consistently.
I’m talking to investors, getting their inputs, gauging interest, trying to expand that list so that when, and it’s, and trying to educate people, what don’t they understand about the space that would make them more comfortable? What are their goals? How could this fit into their goals for the future? And maybe it doesn’t, and that’s fine, but that also helps me understand that they’re not a good fit. And I can move on to people that we are a good fit. So it’s a pretty, it’s a pretty involved process.
It’s not one that I just gravitate towards. So it’s about setting up the right processes and getting support necessary to keep it consistent.
Michelle Kesil (11:46)
Yeah, absolutely. And how do you structure that deal in order to like protect the investors?Chris Lento (11:56)
couple ways. So one, the syndication structure ⁓ means the investors have limited liability, meaning their liability is restricted entirely to what they invest. So you can’t, if there was a horrific accident on the property or gross negligence on the part of the property manager and there was a big lawsuit, those investors cannot ⁓ be gone after individually.So they’re kind of walled off from the property through multiple levels, but very specifically in the syndication ⁓ operating agreement. And then, you know, really, but at a holistic level, it’s making sure that the investors are at the forefront of all the decisions. You know, there’s quite often decisions that come up. Like we just sold a cell phone tower contract on the top of one of our properties and we were kind of going back and forth.
whether we wanted to do it, it was going to be quite an effort. We’ve never done it before. But we had a group meeting and we said, well, we can give the investors a pretty good return after only three years. It only makes our investment better. And that is the kind of thing that will really make investors happy about this investment and investing with us. And it will definitely improve the total project returns for them because they’re getting their capital back early at a slightly higher rate than we had projected.
You know, there’s the structural elements, the legal documentation, but then there’s just the culture of, you know, what’s best for the investors here. What do the investors need to know? What kind of information do they want to know? What is the right decision to support the investors? Because we’re really aligned, right? These aren’t one-off deals. We want our investors to come back and enroll their investments right into the next deal. Or, you know,
They get a sales bonus. We’d love them to think about, how can I invest this into real estate?
Michelle Kesil (13:44)
Yeah, amazing. Sounds like an exciting opportunity.What are you most focused on solving or scaling to next in your business?
Chris Lento (13:53)
⁓Since I’m an engineer, ⁓ you know, by trade, I’m very excited about the opportunities that AI is opening up for scaling, ⁓ how to do things better, how to be more efficient with my time and see more opportunities. So, you know, a lot of this business is kind of a numbers game, like how many properties can you evaluate?
How many can you underwrite? Of the total, some small percentage are gonna work, get through your first line filters. So how do you make all of that faster and better? How do you improve your filters? How do you get better properties to buy? And that’s just on the acquisition side. And you can apply that in a number of areas. So I’m very excited about kind of the mechanics of how AI can be utilized.
And then I’m also very interested to see how it’s going to change the whole industry.
Michelle Kesil (14:52)
Absolutely. Is there like specific ways that you are currently working with it that you find really helpful to share?Chris Lento (14:59)
Yeah, so actually just hired someone to focus on process automation and AI integration. And so right now what they’re doing is making kind of an automation so that when our property managers release our financials, that they automatically get put into our operations or our asset tracking sheet, which has a number of like performance metrics and graphs. So that automatically updates that it notifies us.and creates an AI summary of kind of key property areas for the month that we can then quickly kind of put in a more digestible format. so just things that take per property, maybe like three hours per month before you can even kind of digest it. Now it’ll be real time. that three hours per property, we have 10 properties right now. That’s 30 hours of work that should happen kind of automatically. And it should be improved because it’s part of that prior activity.
We were the ones like digesting all the changes. And now we’ll still do that, but we’ll have like a tool evaluating that as well to give us kind of prompts.
Michelle Kesil (16:04)
Yeah, amazing to use it in that way.Chris Lento (16:06)
ThankMichelle Kesil (16:47)
Are there any obstacles or challenges that you’ve maybe recently faced that you now in hindsight have learned from?Chris Lento (16:58)
Yeah, of course. well, I, you know, I mentioned that cell phone tower activity. So that was very interesting. So we, um, this property is, has a Fannie Mae loan and which is an agency loan. And the first thing our lawyer, our broker said to do when we decided we wanted to sell this contract was, make sure the lender’s okay with this. So we reached out to the lender, our lender rep and said, this is what we’re planning to do. We’re planning to sell this cell phone tower contract.⁓ on the roof of the building and we got a verbal and an email that said, yeah, no problem there. So we went off, we hired a broker, we hired a lawyer, we marketed it, solicited bids, we got offers, we negotiated offers, we signed offers. And then as the purchaser was going through the due diligence, they said, we need your lender to sign this. You know, ⁓ agreement, they’re just this notification that says that they are okay with this sale. Cause it’s got kind of.
It’s got, in my opinion, nothing to do with the lender, but the building is the lender’s collateral and this is on the building. So it makes sense. And the lender came back and said, ⁓ Fannie Mae does not accept these kinds of sales. we won’t, it’s all, it’s completely dead. And, you know, at that point we, could have just, just said, well, you know, that’s, that’s the rules. And, and gone back to the seller who had spent a lot of time on this. had.
spent a lot of our broker’s time, who’s working on commission. I mean, like dozens and dozens of hours. And we had also probably accumulated $20,000 in legal fees to date. So we reached out to Connections and we really pushed on it. We hired a different lawyer and effectively over six months worked with the agency servicer to get approval and we just closed this week. So I guess like the lesson learned from that was
One, when there’s someone who can really stop a deal, make sure that they’re fully understand. We got the email that said we were fine, but we probably should have pushed at that point and said, hey, we need something on letterhead. At least that would have triggered that person to talk to their legal or get kind of beneficial. We just got the email and we’re like, perfect, lender’s good, next. But then on the flip side, I think it really did.
emphasize or reinforce the fact that you know a lot of times things that seem insurmountable are just hurdles like okay what other direction can we go at this thing you know if we just take the assumption this is gonna get done how do we get there and it was it was like a big win because this was a lot of effort over a long time with very uncertain outcomes
Michelle Kesil (19:30)
Yeah, absolutely. I think that those challenges are always going to come up and it’s great to be able to work through them and see the lesson.Chris Lento (19:40)
Yeah, absolutely.Michelle Kesil (19:41)
Awesome. So what is maybe some advice you have for those that are earlier on in their investing journey?Chris Lento (19:49)
I would say two things. One is if you want to do something, like say you want to get into real estate, whether it’s passive investing or buy a property or whatever the topic is, it doesn’t have to be real estate. ⁓ Tell people that you respect. Tell your spouse, your parents, like this is my plan. Because it sort of keeps you accountable. Because the next time you see that person, they’re going to say, how’s that last time we spoke, you were going to, you know, buy a strip mall. How’s that going?And it kind of keeps you moving when you might stall. ⁓ And I forgot the second one.
⁓ Take action, you know, like even if it’s not perfect Don’t get stuck kind of an analysis paralysis where you need to be the expert in everything before you can make the first step Just make an offer, you know, it’s not the you’ll learn something from it and you have a lot of opportunities to back out ⁓ You know my first property if I had underwrote it now I wouldn’t have bought it because I know so much more the financials didn’t
I mean it didn’t look terrible but I would be like, no it doesn’t meet the criteria. But at the time with what I knew seemed like a good idea, I felt like there was little risk and it worked out extremely well. And even if it had broken even I would have learned a ton.
Michelle Kesil (21:03)
Yeah, amazing. Thank you for sharing that. So before we wrap up here, if someone wants to reach out, connect, learn more, where can people find you and connect with you?Chris Lento (21:13)
So the best place is my website, emcapitalgroup.com, and then I’m also active on LinkedIn under Christopher Lento and ⁓ Capital.Michelle Kesil (21:22)
Perfect. Well, I appreciate your time and your story. Thank you so much for being here.Chris Lento (21:27)
Yeah, thanks for talking to you.Michelle Kesil (21:28)
And for the listeners tuning in, if you got value, make sure you’ve subscribed. We have more conversations with operators who are building real businesses, and we’ll see you on the next episode.
