The Multifamily Danger Zone: Short-Term Debt, Bad Locations & Risky Deals Explained

Charles Carillo (00:00)
It just real estate’s a long term process. when people start, if you’re buying property and you’re holding it for less than 10 years, you’re really dabbling with in a danger zone. If you’re buying properties and you’re going to finance them and hold them for 10 plus years, you’ll do fine. And that’s usually how it works in every part of the market cycle. If you bought in 2006, 2016, in most areas you did fine.

Michelle Kesil (01:55)
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, Charles Carillo, partner of Harborside Partners firm, focusing on multifamily deals in the Florida area. So excited to have you here today, Charles.

Charles Carillo (02:15)
Thank you so much for having me on the show. It’s great to be here.

Michelle Kesil (02:17)
Awesome, let’s dive in. So first off, for those not familiar with you and your world, can you share what your main focus is?

Charles Carillo (02:26)
Yeah, so we are multifamily investors. I’ve been a multifamily investor since 2006. I started in Connecticut and I’ve been down in Florida since 2012. And since being down in Florida, we’ve been involved with syndications, I would say probably 2018. So 2018, we probably purchased our, I think it was 2018 or 2019, we purchased our first, I did our first syndication. ever since that we’ve, we work with investors, we buy properties mainly in Florida.

And right now we currently have properties as well in Greater Atlanta and we have one in Dallas as well.

Michelle Kesil (02:56)
Awesome. And what do you feel have been some of the main keys that have allowed your business to grow and run successfully?

Charles Carillo (03:06)
I think us being a smaller firm, don’t have to, we’re not forced to buy properties. So we buy properties when we find deals. And if that means going a year or two even without buying properties, it’s something that we do until we find value-wide deals that really pencil.

Michelle Kesil (03:24)
Yeah, and what do you consider a value add deal?

Charles Carillo (03:27)
So value ideals that we find would be deals where we’re able to go in, where we’re seeing rents that are somewhere between, I would say, at least 250 to $400 under market, and where we can go in strategically upgrade the property and upgrade those units, enable to, and the ability to achieve those higher rents over a set period of time. Not right away, but in, especially in today’s market, say over a three or five year period.

Michelle Kesil (03:55)
and how do you source the best deals?

Charles Carillo (03:58)
We buy our deals, I would say most of our deals are sourced from brokers and maybe consider that off-market if they’re not publicly advertised. that’s kind of on-market, off-market type thing. That’s normally how we source our properties.

Michelle Kesil (04:14)
And what are you focusing on now in terms of solving or scaling to the next thing?

Charles Carillo (04:24)
I mean, looking at buying more properties, we’re looking to… We used to have a number of holdings in Tampa, which over the years that we’ve sold. So looking really to build more of our portfolio of properties throughout central Florida. So that’s really what we’ve been focusing on over the last year or so. And also looking at buying smaller properties than we were before. That’s something recently, I guess, within the last few months, we’ve really made the decision of focusing on that as well.

Michelle Kesil (04:53)
And why do you want to focus on those properties?

Charles Carillo (04:56)
More opportunity, we believe, and we found that

it’s a little less of a competitive market with the typical syndicators that we normally have to compete with to buy properties.

Michelle Kesil (05:58)
obstacles or challenges that you’ve had to overcome in your investing journey.

Charles Carillo (06:04)
⁓ I would say, I mean, there’s been a number of them. mean, I guess it’s always the perfect balance between buying properties and finding money to buy them from your investors. That’s always kind of like the balancing act. And then the other thing too is the execution. So managing all of those three pieces, those two in the acquisition and then also that third piece with actually

executing that business plan and I would say making sure that all that runs together concurrently, it ⁓ can be very daunting sometimes with certain deals and ⁓ at certain times in the market.

Michelle Kesil (06:44)
And so what do you do to overcome that and accomplish that process?

Charles Carillo (06:49)
would say that we…

I would say mainly what we do is it’s a consistent, everything’s consistent. So we have to consistently be looking for deals. We have to be consistently looking for funds. And then with any of our deals that are currently, that we’re working on currently, it’s just, it’s always business as usual to make sure those deals are getting better. We are able to execute the business plan that we’ve put in place with them. And that’s an ongoing process that really doesn’t change as we’ve purchased that property.

really just making sure you’re consistent with everything running the firm and the marketing. And that’s for deal finding and also for finding investors.

Michelle Kesil (07:27)
What type of investors do you partner with?

Charles Carillo (07:29)
mainly partner with accredited investors.

Michelle Kesil (07:32)
and how do you find them and connect with them?

Charles Carillo (07:35)
I have a podcast and a YouTube channel that has been very helpful in finding investors and explaining a little bit about what we do. And then also a lot of them have been from previous businesses that I’ve been part of. then also ⁓ like local real estate groups and stuff like that was something not so recently we’ve found investors through, but it was something years back we have.

Michelle Kesil (07:59)
Yeah, and what do you share about on your podcast and YouTube?

Charles Carillo (08:03)
So our podcast is all about real estate investing. Some solo episodes I do, which are every other week, I do those on ⁓ multifamily specific strategies within multifamily investing.

Michelle Kesil (08:16)
What are some of the strategies that you share or recommend?

Charles Carillo (08:21)
buying properties, ⁓ how to buy properties, managing properties, ⁓ underwriting properties, selling properties, how to renovate properties, different strategies that we’ve utilized, different rules of thumb we use, a lot of due diligence, working with property management companies. There’s several hundred episodes I’ve done on these strategies that I do, I would say it’s all around

multifamily investing from start to finish with a big emphasis on property management.

Michelle Kesil (08:54)
Awesome and do you guys manage the properties that you invest in?

Charles Carillo (08:58)
Currently we don’t. We utilize third party management. ⁓ I self-managed properties myself for six years and now we are strictly asset managers and we work with third party managers.

Michelle Kesil (09:10)
And what are some of the common pitfalls that you see newer investors make?

Charles Carillo (09:17)
I would say

I would say not doing enough due diligence. would say short-term debt, ⁓ buying properties that don’t cashflow, those buying in bad locations.

Michelle Kesil (09:31)
Yeah, and why are some things an investor can do to prevent some of these outcomes?

Charles Carillo (09:40)
buy properties at cashflow, obtain long-term debt, and have reserves. And that pretty much covers the majority of any issues you might have.

Michelle Kesil (09:47)
Is there any advice you’d give to someone that’s newer in multifamily investing?

Charles Carillo (09:53)
I’d follow those three steps. I would always ⁓ buy in better areas than you think. ⁓ And it’s gonna be much easier to resell the property. It’s gonna be much easier to rent the property. It’s gonna be much easier to manage the property.

Michelle Kesil (10:40)
What is considered a better area?

Charles Carillo (10:42)
I mean, I guess like B, if you’re don’t buy in D class, don’t buy C minus buy something that’s C, C plus B. I mean, in that range, I just think that a lot of investors when they’re getting involved with multifamily, they’re seeing higher returns that they think are going to happen in let’s say less ideal markets. And these might change for different markets around the United States. But I would say that getting into additional

Getting in the markets that are a little better. I don’t know how to exactly explain it, but you’re saying that if you don’t want to deal with D-class properties, we don’t want to deal with lower C-class properties, we want to work with working class, C plus, the B minus properties are perfect. And how that ever pans out in your market, that are the type of properties that I would suggest buying where you have people there that are working, that are going to work every day, and that are in industry around your property.

⁓ This is the type of properties working class quote unquote that we like investing in. We’ve had the best experience and the best returns doing this.

Michelle Kesil (11:46)
Yeah, and what are some lessons that you learned through investing that you wish you had earlier on in your career?

Charles Carillo (11:53)
Pretty much the ones I’ve shared. ⁓ Buying in better areas. ⁓ I never had issues with ⁓ reserves or anything like that, but I would say buying better properties in better areas. So if not chasing returns of what I think they’re gonna be and buying properties that might have lower returns on paper, but will be less management intensive.

Michelle Kesil (12:15)
And what do you recommend for someone that’s just getting started? Like are there any foundational processes that they should educate themselves on or be into? Walk through.

Charles Carillo (12:28)
They should know the area in depth. I mean, they should drive the area. I wouldn’t buy something that you’ve never seen. I would never buy in an area that you’ve never been to. I would spend a lot of time in the actual neighborhoods and the part of the city that you’re buying before you start putting offers in to understand exactly what are the more ideal areas that you’d like to own within that city and what are some areas that you might not want to buy in.

Michelle Kesil (12:54)
Are there any goals or opportunities that you’re excited about within your business?

Charles Carillo (13:00)
I think the next two years to three years we are going to have, we’re going to start seeing growth again with multifamily. It’s been quite the lull over the last few years and I think that a lot of investors have exited because of that and a lot of investors have lost money because of that and I feel that the investors that are still here, still looking at deals and ready to buy are going to be the ones that are going to make out in the long

Michelle Kesil (13:26)
Why do you project that specific shift?

Charles Carillo (13:30)
I would say that because you have, we’re having a lot of inventory. Inventory started to build a little bit now, or it gets the starts for inventory, which take about three years for them to come to fruition. Those have restarted now, but really from 25, 26, 27, we’re gonna have, during this time, we’ve seen a slowdown in new deliveries, and it’s gonna continue for the next couple of years. Maybe we’ll pick up a little bit.

after that point, but it’s not going to be, I think, anything like we saw ⁓ during COVID, right after COVID, stuff like that.

Michelle Kesil (14:03)
And how are you looking to continue growing? I know you mentioned to buy new buildings, but is there any other strategies or opportunities that you’re looking at expanding into?

Charles Carillo (14:17)
think just looking at smaller properties and bringing that also under the scope of what we’re looking for is ⁓ something different that we really haven’t actually executed before.

Michelle Kesil (14:27)
And what are some of the projects that you’ve worked on that have had like the most success?

Charles Carillo (14:36)
I would say projects that we’ve had, let’s say, let’s see.

one of the first ones I bought, I bought a property many years back, decades back, one of my first commercial properties, that was probably the best return I’ve ever had, because I bought it in the lull of 2009, and I paid maybe 20, 25 cents on a dollar from what it sold for a couple years before. that was probably, in terms of returns, that was probably the best I’ve ever

But some deals that we had done,

buying in 2018, 2019, and kind of just riding the market into where we sold them in 2021 and 2022 and 2023. Specifically, really in the Tampa market, we did really well there too. I wouldn’t say one specific deal there per se was better than others, but just kind of seeing the trend of what was happening and buying in areas that were gentrifying, I guess, is the big thing with a lot of money coming into those areas.

Michelle Kesil (16:13)
Yeah. And for newer investors, do you feel like it’s the same patterns now that for people to get into or is there like a different strategy that people have to use with how things are shifting?

Charles Carillo (16:29)
It just real estate’s a long term process. when people start, if you’re buying property and you’re holding it for less than 10 years, you’re really dabbling with in a danger zone. If you’re buying properties and you’re going to finance them and hold them for 10 plus years, you’ll do fine. And that’s usually how it works in every part of the market cycle. If you bought in 2006, 2016, in most areas you did fine.

2007.

2017, you probably did fine as well. And obviously, anything after that, you did great. But the thing though is that people that are trying to, when there’s short-term debt, when there’s tight windows, when the market has to be the same or better than when you sell it versus when you bought it, ⁓ that’s, it’s kind of a recipe for danger. Because there’s no way of figuring out what that’s going to be. We don’t know what interest rates will be and we don’t know what market

dynamics are going to be at that point and it’s really multifamily works. It’s just a long-term process and I believe when you start shortening that up, that’s when you really increase your risk as an investor. So that’s why one of the keys I always say is long-term debt, especially for new investors.

Michelle Kesil (17:33)
Yeah, absolutely. Thank you for sharing.

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

Charles Carillo (17:44)
You can reach us at Harborside Partners. So if you’re interested in learning more about multifamily investing, about what we do, if you’re learning, want to learn about actively or passively investing in multifamily real estate, you can go to harborsidepartners.com and you can set up a call with one of our team, most likely myself or one of my partners, and we can talk to you about that. And there is a wealth of information from our YouTube and also our podcast. So if anybody’s interested in getting started in real estate investing or more specifically multifamily investing,

All those links are on our website at harborsidepartners.com.

Michelle Kesil (18:15)
Perfect. Well, appreciate your time and your story. Thank you for being here.

Charles Carillo (18:20)
Thank you so much for having me on the show.

Michelle Kesil (18:21)
And for the listeners tuning in, you got value, make sure you have subscribed. We have more conversations with operators like Charles who are building real businesses and we’ll see you on the next episode.