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Show Summary
In this conversation, Chris Larsen, founder of Next Level Income, shares his extensive experience in real estate investment, particularly in the multifamily and senior housing sectors. He discusses the challenges posed by black swan events, such as COVID-19, and how they have impacted the real estate market. Chris emphasizes the importance of being prepared for unforeseen circumstances and the need for diversification and reserves. He also highlights current opportunities in the multifamily market, the various financing strategies available, and the future trends in housing investment.
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Investor Fuel Show Transcript:
Chris Larsen Next-Level Income (00:00)
So definitely have learned a lot of lessons along the way. By the way, Asheville, North Carolina, where I live got hit by Helene last year.And we survived that with our local businesses, with our Airbnb’s and our office and car washes in town. it’s been, yeah, it’s, and I will say there’s a lot of stuff in there, but you know, all the underwriting, all the knowledge goes out the window when the black Swan events hit black Swan events hits that no one’s ever known, you know, yeah. COVID it’s like I was running a medical device business and we had all our apartments and who would guess that there’d be no surgeries.
Dylan Silver (00:07)
F.COVID.
Hey folks, welcome back to the show. Today’s guest, Chris Larsen is the founder of Next Level Income. He’s been investing in real estate over 20 years and is active in the multifamily and senior housing space. Chris, welcome to the show.
Chris Larsen Next-Level Income (02:23)
Dylan, thank you. I gotta correct you. I hate to say it, but it’s been over 25 years now. It’s crazy. Crazy. The years just keep clicking. Yeah, I bought my first property at 21 and I’m 47 now, so yeah.Dylan Silver (02:28)
25. That’s a full cycle.So I wanna dig into this actually, because when people talk about the multifamily space or real estate in general, the common theme that I hear is if you’ve been able to survive 25 years, that you’ll be able to survive anything. Is that true in the real estate space?
Chris Larsen Next-Level Income (02:50)
You know what? I don’t think I can survive anything. You know, just I’m mortal like like all of us. But yeah, I’ve seen a lot. I’ve seen a lot. I’ve seen 9-11. I’ve seen the great financial crisis. I’ve seen COVID. I’ve seen, you know, the rates go up here with this, this, you know, record inflation that we’ve seen.So definitely have learned a lot of lessons along the way. By the way, Asheville, North Carolina, where I live got hit by Helene last year.
And we survived that with our local businesses, with our Airbnb’s and our office and car washes in town. it’s been, yeah, it’s, and I will say there’s a lot of stuff in there, but you know, all the underwriting, all the knowledge goes out the window when the black Swan events hit black Swan events hits that no one’s ever known, you know, yeah. COVID it’s like I was running a medical device business and we had all our apartments and who would guess that there’d be no surgeries.
Dylan Silver (03:15)
F.COVID.
Chris Larsen Next-Level Income (03:44)
and our residents would be told by the government that they didn’t have to pay rent. Who would guess that during Hulleen we’d have no property damage, but we couldn’t supply utilities. So legally our residents didn’t have to pay us. Who would guess that in a place like Asheville, North Carolina, where you have ⁓ Airbnbs and you’ve been running them for five years with great success that everything would dry up for six months. yeah, there’s some wild stuff that happens out there. So it’s always those unknown unknowns that get you.Dylan Silver (04:11)
Now, when people talk about these black swan events, they took a lot of people out. In a multifamily space in particular, no one thought there was going to be like a moratorium on rents in apartments. Why would that ever happen if it’s not affordable housing or Section 8? Do you almost give folks a pass in that regard as far as folks who bought too deep during that time period? Or do you have to have some type of ability toChris Larsen Next-Level Income (04:28)
Mm-hmm.Dylan Silver (04:37)
to manage that risk.Chris Larsen Next-Level Income (05:26)
Yeah, that’s an excellent question, Dylan. ⁓ you know, the senior housing space that we’re in now as well, you take that, right? And you say, you should have known that you’d lose 10 or 20 % of your residents and you couldn’t replace them. Like, how do you underwrite for that? You if you underwrite for something like that, and I was just having this discussion actually, ⁓ yesterday, you underwrite for that and you say, we’re just gonna have these wild reserves, you know, we’re gonna have, you know, we’re gonna have30-40 % reserves on hand just in case there’s a black swan event. Well, you can’t underwrite like that because the deals don’t make sense anymore. You it’s just it’s like you’ve got so much cash, nobody’s going to want to invest. ⁓ So you do you give do you give people a pass? ⁓ In a sense, you do. ⁓ You know, it’s it’s challenging when you say, well, you know, could you predicted that interest rates, you know, the feds fund, fed funds rate would go up 500 basis points. ⁓
No, it’s never happened before. know, COVID hits never happened before. ⁓ You know, Helene hits Asheville can’t provide utilities never happened before. ⁓ I think you know, it’s understandable that that investors, especially if you have investors would be upset in that situation. But you know, as I as I look at rec, you know, the records and ⁓ of operators and owners, you know, I look at that and I say, Okay, you know what happened during this time. And five years ago, if somebody said, I’ve never had a cap, you know,
Dylan Silver (06:35)
Yeah.Chris Larsen Next-Level Income (06:48)
I’ve had a capital call. I’d be like, that’s a, that’s a really bad operator. Whereas, you know, during COVID or, know, after the past couple of years with, with rates going up, you know, if you have a capital call, that’s probably more than norm than not.Dylan Silver (06:59)
want to ask you specifically about that capital calls working with lenders. mean, there was a was a moratorium on rents, right? So I mean, that’s going to destroy your entire business model as a multifamily investor. Were lenders working with their investors at this point in time? Were they understanding of this? I’ve also I’ve heard a mixed bag on this. I’ve heard lenders that just said, Hey, we’re just going to call this do basically that we’re we’re we’re pinched andChris Larsen Next-Level Income (07:26)
Yeah.Dylan Silver (07:27)
This is a tough bag, but it is what it is.Chris Larsen Next-Level Income (07:27)
Yeah. Yeah. Yeah, I’ve seen it and I’ve got I’ve got a few different scenarios I can discuss. But yeah, I’ve seen I’ve seen both sides. So I’ve seen lenders work like we’ve had lenders work with us during COVID. You know, work with us as interest rates, you know, increase like I have our office downtown. And my loan actually goes in the process of refinancing when Halene hit. And, you know, we got we got a loan extension from our from our ⁓ bank and work through that.process. ⁓ But, you for instance, my my primary mortgage on our house, you know, the the, you know, we weren’t even living here. And I told the bank, said, Hey, like, we’ve got this and this and this happening. You know, do you have any ability to defer payments? said, No, like you can, you can miss your payments and go into default, and then we’ll work with you. You’re like, Really? ⁓ Same thing with commercial lenders, some commercial lenders are more willing to work with you than others. And, you know, that’s just that’s kind of kind of how it works.
⁓ In the business and like you said it depends on what they’re going through as well. They may not have the ability to work with you
Dylan Silver (08:29)
So, mean, of course, hindsight is 20-20 and it’s easy to Monday morning quarterback that type of thing. But if there is a moratorium on rents, that just shifts the burden to it. Like no one else is feeling the burden other than investors, right? So, I mean, was that I mean, could that have been done better? Could there have been a moratorium on rents and making your premium payments on like, you know,Chris Larsen Next-Level Income (08:32)
Mm-hmm. Yeah.Hahaha.
We had deferred.
Yeah. So during COVID, ⁓ our lenders, most of them allowed us to defer our payments, just put them on the back of the loan payment. So they said, okay, you can skip say three payments, but you got to make them up. then with COVID, we had a lot of help because we were able to get COVID loans or PPP loans and then defer payments. And we were able to make up some of the shortfalls with respect to all that.
⁓ Yeah, so that that situation was more manageable because because of the government assistance. ⁓ Helene Helene from a local perspective was actually more challenging because, you know, you know, the the lenders basically said, no, we’re not really going to work with you. ⁓ The city said, hey, we need our tax revenue because we just took a beating. Insurance companies, you know, they said, sorry, like there’s not you didn’t have any property damage. It’s not our fault. You don’t have utilities.
Dylan Silver (09:26)
Yeah.Chris Larsen Next-Level Income (09:49)
⁓ which I understand like what’s an insurance company supposed to do? That’s not their responsibility. So, you know, the, the point in all this is you, you want to be diversified. You want to have ample reserves. You want to have a backstop in case something like this happens. but I always tell investors Dylan, know, they say, well, what am I not asking? And it’s like, well, what you’re not asking is what I don’t have an answer to, which is, you know, the thing that’s going to hurt us is something that we just can’t foresee. Can’t underwrite, can’t know.Dylan Silver (10:15)
Yeah.Chris Larsen Next-Level Income (10:17)
And, know, as an investor, just have to have that’s part of the risk that you take, ⁓ is not not having all the information, ⁓ which is why there’s a return commensurate with that.Dylan Silver (11:00)
That’s an interesting situation. There’s no utilities, people stop paying rent, what do do? I mean, that’s awful. Like there’s no real, no real solution. I’m imagining too that it’s not likeChris Larsen Next-Level Income (11:05)
Yeah, not fun.it’s
real awful. Yeah, it’s real awful. I’ll tell you that.
Dylan Silver (11:15)
youcan’t sell that deal because no one’s going to want to buy a deal where there’s no utilities connected and people either squatting or not paying. Right. So there’s got this mix of things. I don’t want to say that that that is a common thing that that happens, but it does seem, you know, to use that as a bridge that there are sellers who are facing some kind of distress from a variety of different angles in multifamily. And so
Chris Larsen Next-Level Income (11:24)
Yeah.No, no, it’s crazy. Yeah. Yeah.
Dylan Silver (11:44)
there may be more receptive to other types of offers. I was talking to you about this before the show. I’ve seen more and more people who are now interested in multifamily than I have in previous years. I think a lot because of this distress on the operator side. Are you seeing that as well? And then what advice do you have for folks like myself who are newer realtors, maybe looking to work with investors in this space and newer investors who are trying to get into the space?Chris Larsen Next-Level Income (12:13)
Yeah, great question. yeah, we just bought a deal 20 % below what the prior owner paid for it down the Houston market. you know, there are opportunities out there right now. And the market goes in cycles. The market typically goes in about 18 year macro cycles with two seven year cycles and typically kind of a down or sideways period following those seven year cycles. And you can trace this all the way back to the 1850s. you know, different…assets perform better at different times of the cycle and you prices are high right now interest rates are high right now. You know part of the problem with COVID and all the government stimulus and this is this is like a real problem in these economic cycles which is you know have your normal credit cycles that kind of underlie the real estate cycles is credit bills and price goes up you have more credit you know lands worth more you can build more you can sell a property buy another more expensive property.
repeat it over and over and over again. Works great. However, after COVID, the government pumped so much money into the system and rates were held artificially low that what they did was they created this environment where you had these rents that were increasing so rapidly because of the migration patterns within the country and the lack of supply that builders just jumped in because money was essentially free.
So, you know, owners like us were faced with this reality of seeing supply pop up at two, three times the rate that it had before. You know, now the pendulum is swinging back the other way. And what’s happening is supply is going to come back below absorption rate below the rate at which people ⁓ want and need to move into housing. And that that means that we’re going to have some tailwinds now in terms of rising rents.
Dylan Silver (13:38)
Yeah.Chris Larsen Next-Level Income (13:59)
that are going up, the market’s becoming more stable. Yeah, interest rates are a little bit higher, but they’re workable. ⁓ you know, so if you have somebody that couldn’t weather that storm that had to sell for one reason or another, you can pick up a pretty good deal right now.Dylan Silver (14:10)
The ability, I would say, for folks to negotiate some of these deals, I mean, this is an interesting perspective, I’d say I have, because I’m looking at it from the retail lens, being a realtor, but I also have in the back of my mind, knowing what it was like as a wholesaler in the distressed seller space, you can pretty, if there’s enough distress, you can get someone to…Chris Larsen Next-Level Income (14:30)
Yeah.Dylan Silver (14:34)
a bite on a creative deal. And you only have to make so many offers and it is a numbers game. So I think that there’s this perspective out there that like because the property is listed on, you know, CREXI or somewhere else that they just would never entertain a seller finance offer. But I also know personally from talking with guests like yourself that there’s multifamily sellers out there who had their property listed on some of these platforms for like a year and have not gotten anything within striking distance of where it would make sense for them. So that’sChris Larsen Next-Level Income (14:37)
Yeah.Dylan Silver (15:03)
That’s distress right there. I need to sell this now because I’ve got investors who are upset with me and we’re not hitting our pro forma.Chris Larsen Next-Level Income (15:51)
Yeah, and you know, it’s there’s there’s different spaces, right? So like when you when you move into the assets that we’re buying and managing their larger assets, right? So you have, you know, our lender is a big institution, a private equity group, know, Fannie Mae, Freddie Mac loan. So, you know, we’re looking at a slightly different scenario where we can’t just sell one a whim, you know, if there’s if there’s a loan there, you have to be considerate of that, you know, the returns of the investors and those sorts of things.If you have a smaller property, a smaller operator, um, you know, just like I said, um, you know, with like our office, I was able to negotiate with the bank and, um, work the terms out on the loan or something like that. But, if you came to me and I couldn’t work that out with the loan and I had to pay the loan off, that’s a good time. That’s a good time to reach out to, um, a potential seller in the senior housing space. One of the things we’re doing, doing Dylan is after COVID, you you saw a lot of these operators get hit really, really hard.
And we’re looking at HUD loans. we’re doing a acquisition right now with a HUD loan assumption, 2.46%. There’s 31 years left on the HUD loan. So if you can go after a seller that is maybe dealing with some distress or coming out of COVID and saying like, I can finally get out of this property, get my investors out of this property. It’s been five years or seven years or 10 years. And investors are saying, all right.
Dylan Silver (17:00)
Yeah.Chris Larsen Next-Level Income (17:14)
You know, we didn’t make any money for the past four years, five years. had a couple of capital calls. You know, can you get us, can you, you sell this and get us our money back? You know, those are some, those are some good opportunities. So if you get creative and you overlay some of these data points, ⁓ you can find good deals out there.Dylan Silver (17:29)
Now, I want to talk about the sources of financing that people are using to take down these multifamily deals. It sounds like you’re working with institutional, know, more traditional financing. Getting to that point, though, did you use some of these other sources, whether it was syndication, working with, you know, accredited investors, this type of thing?And do you have any perspective on the various different ways that people are getting into these deals?
Chris Larsen Next-Level Income (17:58)
Yes, that’s our primary source of capital, Dylan. So we’re getting a loan on the property, right? We’re getting that first position loan, ⁓ but we’re bringing in investor capital through our syndications to purchase these properties and do that. Yes, that’s our primary business model.Dylan Silver (18:15)
Okay, so this is really, I would say you’re the right person to ask for this. Right now we’re seeing so many and it’s probably died down because of the distress in the space, but I’ve spoken with so many syndicators. The first couple tens of them, I thought, okay, this is really interesting, but now it almost seems like there’s a new syndicator everywhere. ⁓ Do you believe that there’s maybe too many people that either got into the space that were maybe a little bit underprepared and saw things through rose colored glasses?Chris Larsen Next-Level Income (18:18)
Yeah. Yeah. Yeah.Hmm.
Dylan Silver (18:45)
Or do you think that, there’s not enough multifamily housing out there. There’s this affordability crisis. We need more people to be looking at development.Chris Larsen Next-Level Income (18:50)
Yeah. Yeah. Yeah.I think it’s a great question. And yeah, one could argue that there was people that jumped into the space over the past few years and shouldn’t have been there. You we’ve been in the space. I’ve been in the space as an investor for 12, 13 years. ⁓ We syndicated our first deal almost 10 years ago. You know, one could argue that that track, you know, that’s a fairly short track record in terms of some of the operators in the space. ⁓ But
you know, there, there’s still a need like supply is starting to drop off. And, you know, I would argue that, you know, some, ⁓ have a friend and he said, private equity is ruining, you know, multifamily because rents are too high. And I’m like, aren’t doesn’t more money and more supply mean lower rents? And it was interesting, like his perspective was that more syndicators, more private equity was raising rents. But I made the case very convincingly with,
All you got to do is look up the data. I rents have been flat effectively for the past two years. know, so it’s actually, it’s, you know, the, the pain that investors are feeling is actually the opposite of the benefit that renters are getting. Now let’s, if I may kind of look at this from the senior housing space and you can go to our website, slinvestors.com for senior living, seniorlivinginvestors.com, slinvestors.com.
Dylan Silver (19:50)
Yeah.Chris Larsen Next-Level Income (20:11)
⁓ Dylan, we’re only set to supply 25 % of the needed supply for our seniors in this country. We’re gonna have a massive shortfall. Yeah, it is going to be a crisis. And our goal is to help solve that crisis. And I just was at the industry conference, ⁓ NIC or NIC in Austin a couple months ago. And the number one thing was,Dylan Silver (20:18)
Yeah, breakfast.Chris Larsen Next-Level Income (20:37)
we need more capital in the space to solve this. We need more capital. And that’s really what we need. We need capital from investors. We need capital from institutions. We need government ⁓ encouragement or support for loans and ⁓ approvals and those sorts of things. I’m a capitalist. feel like capital flows the problems and solve problems. And if there’s an opportunity, capital flows there. And what happens? It’s a pendulum, right? So sometimes too much capital flows there.and then the pendulum swings back the other way. you just have to kind of, and again, that’s why there are cycles to these things because ⁓ we always overshoot or undershoot as, you know, as ⁓ from capital flow perspective.
Dylan Silver (21:21)
We are coming up on time here, Chris. I do want to ask you, though, about some of your favorite markets or markets that you’re particularly bullish on. think, frankly, with senior housing, it’s everywhere, wherever there is aging population, which is everywhere. But are there any pockets that you’re particularly bullish on, either in multifamily or in the senior housing space?Chris Larsen Next-Level Income (21:23)
Yeah. Yeah.Yeah. Kind of is. Yeah. Yeah.
Yeah, so on the multifamily side, Dylan, we’re still heavily focused on Texas markets. We love Houston, which is one of the top three markets in the country. ⁓ Large growing market, Texas has great net immigration. have, ⁓ you know, the local governments are very supportive in terms of some of our affordable housing initiatives that they do. ⁓ You know, Texas is pro business as well. Florida is great. The Southeast is great. I live in North Carolina. The Carolinas are great.
So I think what you want to look at is net immigration. You can go to like, ⁓ you know, the, the annual mover reports that come out from the moving companies, which are really easy and cool to look at. you want to overlay that with, states that are pro business. ⁓ and then you say, Hey, what, what is, know, where are people moving? What states are easy to do business in? What have a good quality of life, you know, lower cost of living. You know, you can create a really great list of places to give you an opportunity just with that.
We’ve got a ton of information on our website as well at nextlevelincome.com. And if you search for that, you can find it, or we got a new tool. can go to chrislarsen.ai That’s Chris L A R S E N dot AI. And you can type in the same, any of your questions. It’s got everything from our website on there. You can even have a phone conversation with my clone on there as well.
Dylan Silver (22:58)
So did you clone your brain?Chris Larsen Next-Level Income (23:00)
I literally loaded, we’ve got, it’s been trained with five million of my words from my content at this point. basically everything I’ve said since, let’s see here, it’s 2025, over last seven years, basically everything I’ve said or written since November of 2018 is in there right now.Dylan Silver (23:07)
I’mI love that. ⁓ Chris, thank you so much for coming on the show here today.
Chris Larsen Next-Level Income (23:22)
Yeah,it’s been fun, Dylan. Thanks for having me.
