Chris Lento's Leap to Financial Freedom: Escaping Corporate Handcuffs for Multifamily Real Estate Mastery

Ever found yourself handcuffed to a job that pays the bills but shackles your soul? That's where Chris Lento stood before he leaped into the world of multifamily real estate. Today's episode is an exhilarating ride through Chris's transformative journey from a 17-year corporate grind to the founder of EM Capital, where he's rewriting his own rules on financial freedom. Imagine exchanging the predictability of a salary for the thrills and challenges of real estate investing; Chris did just that, and he's here to tell us all about managing the risks, embracing the responsibilities, and the absolute game-changer that is third-party property management.

Hold on tight as we traverse the landscape of apartment building investments with a seasoned pro. Chris Lento doesn't shy away from the grittier truths: the competitive nature of the business, the initial inertia in moving away from a steady paycheck, and the reality that liquidity is a luxury not often afforded in real estate. But it's not all tough terrain. We'll also uncover the gems of real estate's stable asset class, the critical importance of assembling the right team to propel you forward, and the 'who, not how' philosophy that could revolutionize how you approach your real estate ambitions. Whether you're a seasoned investor or just starting to entertain the idea of breaking free from your own golden handcuffs, this episode promises a wealth of insights to fuel your journey.

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Transcript

Speaker 1: 0:01

Hey everybody, david McElwain, with another episode of Baker-Golen Handcuffs Today. I'm super excited to have with me Chris Lento. Chris has over 20 years of experience in multifamily ownership management and investing. He brings a unique perspective to the multifamily real estate investment approach and he is the founder at EM Capital. Chris, welcome to the show.

Speaker 2: 0:24

Hi, I'm David.

Speaker 1: 0:25

Well, thanks for joining us, and I try to start every program with kind of the same kind of question, and that question is have you ever had golden handcuffs?

Speaker 2: 0:37

Yeah, I mean absolutely. I had a W2 job right out of college with the same company for 17 years, so I definitely felt constricted and didn't know how to get out of that situation.

Speaker 1: 0:54

And okay, 17 years in corporate America doing the grind. So what are the things that you felt like you had handcuffs on when you were in that world?

Speaker 2: 1:06

I think, salary or income potential. So when you're in a W2 job and it's not other than sales, I think sales can be a whole different world. But it was not a commission-based position. I graduated with a mechanical engineering degree. I was an engineer for say, seven years and then kind of went up the ladder to a program manager or project manager, then program manager and your compensation is market-based. It's not performance-based as much as people will tell you. It's performance-based. It's really what is the market willing to pay for? Someone in your position and then you could be replaced. That really. So if you have an amazing year, you're not getting a 50% salary increase, you're getting a market salary increase and that market salary increase might be 1%, could be 5%.

Speaker 1: 2:00

Yeah, exactly, could be a third of a percent. Yeah, I spent 17 years at one employer in 20-plus years in corporate America until I was shown the door through mergers. And then I went into the tech startup world and I was shown the door through lack of funding, and so I always talk about if you're a golden handcuff wearer or you're a highly compensated employee. It's not a matter of if you lose your job, it's when and how. I don't know if you had that same kind of experience or not. I was in sales leadership and sales management in the ad business for a long time, so it's a little bit different industry, but did you have some of that as well?

Speaker 2: 2:42

That was a little different. So I worked for a research and development company that used to be part of MIT and spun off in the 70s mainly because we did a lot of defense work. So we had these big 20 to 40 year programs that we were working on with the Navy. So it was almost the opposite. I mean I was never getting fired, which was part of the golden handcuffs, right, I mean you could see this path and it was steady, it was like a treasury bell, steady, eddie.

Speaker 2: 3:18

It was a three to five percent a year, hopefully, but probably forever. But it was not exciting, it was and it was hard to impact. Change right. So you have, we built guidance systems for nuclear missiles. Okay, there was a lot of problems with the procurement cycle and our contracting, but I was not changing anything. I mean, these forces were huge, so having a personal impact was really not there. But no, I wasn't worried about losing my job. I was more worried that I had no control with it. Kind, of like my world.

Speaker 1: 4:01

You had no, and I take away from this that the control you're talking about was impacting positive change, making systemic improvements controlling how your income grew, controlling how your family's net worth grew.

Speaker 2: 4:17

So it sounds like your control was yeah, yeah, net worth and just ability to make positive change. In that I could see things that needed to be improved or that groups that we should no longer partner with, and I just had no influence on that, or very, very minimal, and I could tell that it wasn't gonna change. So at one point I went to Washington DC for three years with my company and kind of saw the defense side of it, like I worked with the Navy on how they procure, so I got to see kind of the whole cycle, the belly of the beast of the US government in its back, in its procurement.

Speaker 1: 4:53

And what did we learn?

Speaker 2: 4:55

Oh well, I would say that whole waste, fraud and abuse the government doesn't know what they're doing thing is definitely overblown. I mean, there was good people in the government that were doing their best and trying to do the right thing, but the bureaucracy is huge, the problems are difficult and there's only so many groups out there that do these things. There's like five big defense companies and they're sort of colluding and they sort of have the government stuck in some ways. I mean, if you wanna pull the contract on a submarine, build well, who's your competitor? That's gonna come in.

Speaker 2: 5:32

There is a one. There's one company that builds them in the US. There's no market demand that you can say, well, this guy's building submarines, or Microsoft, we'll check them out. It's a tough problem.

Speaker 1: 5:43

Yeah, it's an interesting thing. So, okay, let's process this. You're in the belly of the beast. You've experienced, you know, I assume, decent career growth and all this, and you decide I finally hit my head against the wall. The cherry blossoms are pretty, but I'm gonna do something different, right? Tell me about the journey from where you were to EM Capital.

Speaker 2: 6:11

So right out of college, my first apartment that I moved into in Somerville, massachusetts. We have a lot of these three-deckers around here. They're like three apartments stacked on top of each other In a single building, a vertical triflex, yeah, yeah.

Speaker 1: 6:25

They're all over the place in the Boston area.

Speaker 2: 6:27

So I moved into one with some friends and we're paying $2,400 a month for our level. I sort of look around and like who owns this thing? How does this work? This seems like a great idea. There's three of these, this guy's raking it in. How much do they cost? What's the loan? So I didn't have any real estate background but I just sort of liked this idea and did a lot of research, met the owner of my building he was an electrician who wasn't a real estate guy, sort of like fell into this property and within two years, reading books, talking to people, I had bought a four-unit, a three-unit with an illegal basement unit.

Speaker 1: 7:06

We call this nonconforming. Let's call them nonconforming.

Speaker 2: 7:08

Chris, in-law apartments Right In a less desirable area of the city but still a little more affordable, and that's how I started. So, from there, for the next 10 years I was just building this Boston-based portfolio, kind of one property at a time, refinancing, saving up in parallel with my job, and I always thought of it as like another stream of income. I really didn't pay rent since the time I was 23 to well, I guess never I've paid rent since I was 23. So that was nice and maybe retirement bonus was what I was taking. This was.

Speaker 2: 7:49

And then, as I sort of saw the whole defense industry and I could see what he said, I was at the belly of the beast. I saw the other side of it. I came back, I got a big promotion and I could see all the different jobs that I could get as I climbed the ladder and then I think I was in a good position to get and none of them were interesting. None of them gave me that flexibility I wanted. None of them had gave me control of my salary. A lot of them had me traveling a lot to the West Coast, which I didn't want to do. So at that point I kind of said, all right. Well, I can see the landscape and I don't like what I see. I have this real estate thing on the side which I do like, and then, in parallel, actually, my company started this emotional intelligence leadership training, which was really good.

Speaker 1: 8:38

It was great, it's one of the best things. Did you flunk it the first time?

Speaker 2: 8:40

or did you pass it the first time? I don't think it was pass-fail, I think it was just. You know, you just went.

Speaker 1: 8:46

But I thought it was great. I took an emotional intelligence thing a long time ago and the first time I took it I realized I had very poor emotional intelligence. And it took me about 10 years to really change that skill set Because I was just focused on one thing.

Speaker 2: 9:01

Yeah, yeah, I definitely learned a lot and I think I changed a lot as a result of it, and I think that those two things I think the emotional intelligence kind of allowed me to better understand, kind of how I was feeling and what I really wanted and what the source of my frustrations, and then that really kind of gave me the insight and the space to think about OK, what do I like to do, why is this job really driving me crazy, why am I so frustrated and what did you?

Speaker 1: 9:30

learn from that? This is fascinating because if you're investing and you're thinking about investing in real estate, there's more to this. In the math and the engineering and the mechanicals there's a whole lot of self-knowledge. You have to have to understand the ups and downs of the marketplace. So I'm fascinated, Chris. What did you learn from all of this about what was good and bad in the defense industry for you?

Speaker 2: 9:54

Well, what I learned was that my main struggle was against, or a desire for, freedom. I wanted more flexibility, I wanted to be able to go in directions that I wanted to go and make decisions that I wanted to make and sort of be more in charge of my own career destiny. And I just was not seeing a path to that in my company and then in my industry. When I looked around I'm like, oh, I could easily switch over to a Raytheon or a Lockheed and it's the same thing, there was no change, it would be just a different badge. So that's what I realized was that what I really want is more career freedom, time-free, freedom of time, freedom of money, freedom of opportunity.

Speaker 2: 10:39

And I was getting none of that in this job. And that's when I sort of the revelation came. And then I had this real estate career on the side, which I really enjoyed, and I started really diving into that and trying to figure out well, what's the model that gets me to a financial position where I can transition? And, as you do know, in real estate there's sort of infinite flexibility. You can play the game a lot of ways and it's very self-directed.

Speaker 1: 11:08

Yes, and it is a game, in some ways like every other piece of economic activity. There's risk, there's reward, there's gambling, throwing the dice and not quite knowing what's going to happen. And I think a lot of people hear that. Oh, I left my W2. But what you said is fascinating. You had 17 years in this company and during that entire set and it sounds like 15 of those years you spent having two jobs. In essence, yeah, and I would say yeah, you didn't wake up one day and say, oh, it's done.

Speaker 2: 11:43

No, and even you know, once I kind of was thinking, once I came across the idea that I wanted to syndicate you know aha moments where you could grow this thing a lot faster if you bring in outside capital. You know partner with people bring the capital you bring, the expertise that was a big you know moment and getting the confidence to actually imagine doing that you know, imagine approaching people and offering them investment opportunities and holding on that holding on that responsibility For me what I find is challenging is when I syndicate.

Speaker 1: 12:14

something is the responsibility I feel toward my investors. Oh, absolutely yeah. People think that that's all charlatans and snake oil salesmen, but the reality is that I have. I don't think I've met a single guy or person or woman who doesn't think that the responsibility is a myth. When you go out and you syndicate, it's huge. Yeah, it keeps us up at night. I actually think it helps.

Speaker 2: 12:37

I think it helps the underwriting too. Oh yeah, so you know, because I know that I have to, you know, deliver these returns, and if you don't, deliver the returns.

Speaker 1: 12:47

You've got to make phone calls to friends and family yeah, absolutely. And then you got to see them over Thanksgiving dinner, Yep.

Speaker 2: 12:54

And have a lot of conversations you don't want to have.

Speaker 1: 12:56

Right, yeah, you know it impacts my decision making a great great deal.

Speaker 2: 13:02

Yeah, definitely. And then the other concept that I sort of became aware of was you know, then you didn't have to necessarily invest in your own backyard. You know, that's sort of a thing you always hear in real estate. You know, invest in your own backyard, invest in your own backyard. And Boston is a really good real estate market. It's, you know, strong appreciation, but it's a low cash flow market.

Speaker 1: 13:25

Okay.

Speaker 2: 13:25

And it's got a lot of old money and it's got a lot of inside transfers and every building's different and it's got okay, population growth but nothing like other areas of the country that have basically lower, higher cap rates. So I wanted to test out this idea of going to different emerging markets, which is what EM Capital stands for emerging markets capital where you know you have that holy grail of higher cap rates and transitioning into a more appreciation-based market. So those were the kind of two key insights that I was working to test out. While I was still working my job, I transferred some of my assets into some bigger properties out of state and had them professionally managed, you know with third-party management, and kind of put this is all my own capital and sort of tested it out to make sure that I was comfortable bringing investors in on my next go around.

Speaker 2: 14:20

And what was the biggest learning that you got out of all that, when you were doing that third-party professional and doing those experiments Spoken, by the way, like a true engineer- I would say one on the positive side just the freedom that comes with not doing the day-to-day management and really what goes into all that day-to-day management when you're doing it right.

Speaker 2: 14:46

So I was managing my 12-unit portfolio here in Boston and I was, in retrospect, sort of doing the bare minimum. I mean, I wasn't doing market evaluations on a quarterly basis and raising my rents accordingly. I didn't have a routine maintenance schedule. You know, I wasn't doing anything to kind of improve the residents opinion of the building, like a resident events or any sort of things to make it sticky, so they would like to stay there beyond, just the building, and so it was kind of, on a positive way, a double-edged sword right. So I moved to third-party management where I learned a lot about what you should be doing and it freed me up from doing a lot of the things I didn't want to be doing, like fixing things on a Sunday or just having the idea that someone might call me with a problem kind of hanging over my head.

Speaker 1: 15:43

The tennis, toilets and termites freed me.

Speaker 2: 15:45

Right, and there weren't many of those, to be honest. But even one every two months is enough that when the phone rings you're kind of like, oh, is that a problem that I have to deal with now? And then it's not. But you just, it was because you had that feeling for a minute.

Speaker 1: 16:03

So it sounds like you actually played really solid baseball to use an analogy here where you did a single and then you did a double, and then you advanced the runner and you did a triple, and you went through every base to learn every part of the process. Would that be a fair assessment?

Speaker 2: 16:24

Yeah, I think that's fair and I think I'm a relative conservative engineering background things need to work. I'm not a very let's bet it on hope kind of person.

Speaker 1: 16:36

Right, I used to say to Mike when I was in the sales business, I had a manager who worked for me who said, oh, I hope this happens, I hope this person calls me back. And I used to pound a phrase hope is not a strategy. But boy, she hated that. I can see the conversation now. You're right, you can't bet it on hope, but yeah, so tell me. You've talked about being a conservative underwriter and about all the experience you've had. What are some of the pros and cons in your mind of buying apartment buildings?

Speaker 2: 17:19

Well, there's a lot of competition. It's a competitive market, so I think it's not as easy, as maybe a lot of the educational material out there will have you believe what I mean you do.

Speaker 2: 17:32

What. It does take a lot of relationship development. It takes a lot of hard work to find these deals, to end the beginning of lenders be willing to lend on these deals. It takes a long time to get the knowledge and the track record and the relationships to make it a lucrative business. It's not an overnight thing. Pros and cons, I mean. I think that pros are that it's a very stable asset class. The US does have a relatively large housing shortage that is actually closing, but not closing fast and not getting any better, at least in the near term. Your demand is outstripping your supply, which is a great macro indicator that it's a good area to invest.

Speaker 2: 18:23

It's very understandable, too. I find what I'm talking to investors. It's a very tangible asset to invest in. Almost everyone's rented something at one point. They've been in an apartment building. They're like I get it, someone owns it, I pay it rent. I mean it's not that complicated, it's literally not rocket science. It's not rocket science, right. That works with investors, though, because they can relate to it. They can understand it.

Speaker 1: 18:50

Yeah, if you are an investor, think about this. That makes sense to you too. I imagine Some of the pros are stability, understanding, demand supply constraint. What are some of the cons in your mind?

Speaker 2: 19:04

Like I said, the competition. There's a lot of people chasing deals out there that can drive prices up or make the numbers not work on a lot of deals, relative to other real estate asset classes at least, there's typically not huge upsides, meaning you can do a value add. In what I do, which is existing apartment buildings, okay, you can do a value add and increase the market rents, but you're not going to do some value adds like you might do in an industrial property or an office space where you can double the rents.

Speaker 1: 19:47

So you're talking about? Over the course of time you get a 2X return, and then in some of those other asset classes you might get a 3X return, but you've got a greater risk portfolio. Is that what you're saying? Yeah, exactly.

Speaker 2: 19:59

It's like it's relative to other asset classes. And then the other cause it's not a liquid investment Right. It's definitely illiquid. It's illiquid, Very illiquid.

Speaker 1: 20:08

If you don't understand that, pay attention to it. When someone calls as an investor and they say, oh, I want my capital out because Saudi is going to get married and I got to pay for a wedding, the answer is, oh, you can't have your capital back.

Speaker 2: 20:22

Right, right.

Speaker 1: 20:22

That means you didn't set expectations up front, right, correct, as an operator, that means that the operator made a mistake. But I've heard these stories many, many times over. Right, oh, I need the cash out for X, y or Z. Well, okay, there's only one way to get the cash out. That's to sell your shares at a discount Right To hoot to somebody right. Right, you got to find the buyer, and then it's an ugly process.

Speaker 2: 20:43

Yeah, agreed, so it is not liquid.

Speaker 1: 20:46

Yeah. So over this 20-year journey, when you look back a little bit, what kind of advice, what's the best thing that you know today that you wish you had known 10 years ago?

Speaker 2: 20:59

So this concept of who, not how. So when you have a problem or you need to do something, you have a book to add to the book. It's a good book, yeah, rather than banging your head against the wall and trying to figure it out and coming from an engineering background, I'm pretty confident I can figure most things out. But it's not whether I can figure it out, it's whether I should be figuring it out, and I had this before I read the book. This was told to me at certain points find the person who already knows the thing that you're trying to do and likes to do that thing, and then work with them, hire them, partner with them, leverage their experience, because people like to do different things.

Speaker 1: 21:42

Very much so.

Speaker 2: 21:44

Just because you don't like it doesn't mean you're dumping it on someone. You got to find someone that that's their thing, they're excited about that. And on one of my properties we had a third party manager that we fired and we had to hire our own W2 kind of leasing agent and maintenance man to run the property. We just could not find a professional company to do it.

Speaker 1: 22:05

Was it two people you were hiring, or two people, two people? Okay, two people, two people. One in, one out.

Speaker 2: 22:12

No, it was. It was we fired the PN company.

Speaker 1: 22:15

Well, one inside employee, one outside employee. Yes, correct, yes exactly.

Speaker 2: 22:20

So all of a sudden I became like a mini property manager of the company. I had to buy out Folio, I had to do all the stuff that the leasing agent didn't know how to do, and this was not what I wanted to do and I was. I know how to read out Folio. I don't want to be doing it Right. And I ended up going to one of my other third party property managers from a different property and there was a woman there that I had a good relationship with and I said, hey, would you work, you know, four hours a week for me in the evenings just reconciling accounts, making sure that this backend stuff that I don't understand is working correctly? And yeah, that she she knocked out of the park. So, like that idea that you don't have to do everything, I think that's. I wish I had known that earlier, I think that's a great skill and lesson to share.

Speaker 1: 23:12

I know when I was younger in my life. I believe that the solution, if you want it done, you have to do it yourself Right, and that's an absolute fallacy. The most powerful leaders and most powerful organizations believe in tremendous delegation, in tremendous sharing and teamwork, and I think you know what you're talking about is the idea of who, not how, makes perfect sense, and I do some executive coaching as well, and I had a client that I had read the book and they came in three days later and they ran a business where they were the number one salesperson and the business owner. They gave all of their active accounts to their team because he realized he was keeping the company from growing I mean, and it's powerful and his world's changing exponentially every day because of it to the good.

Speaker 2: 24:04

Yeah, I believe it. I mean it's a pretty, pretty powerful concept.

Speaker 1: 24:08

Yes, so who, not how, is a great piece of advice? What's a piece of advice you followed that you wish you had ignored?

Speaker 2: 24:16

I think the idea that I mentioned earlier of that you know you always want to invest in your own backyard. For real estate specifically, you know there's advantages but there's a lot of disadvantages.

Speaker 1: 24:26

Especially depending on where you live, right?

Speaker 2: 24:28

Right. Right, you know there's some areas that are great to invest and there's some areas that aren't as good to invest, and you can usually find a deal in any market. But you'd rather be kind of with the tide than swimming against the tide. And then another thing you know how those two sort of best and worst come together is before I bought apartment comparts in Florida, I bought one about an hour outside of Boston with the idea that I'm gonna treat this like it's in Florida, I'm gonna visit it once a quarter, I'm gonna have my property manager do weekly calls with me. And I couldn't believe how freeing that was, because, even though I had property management on my Boston properties, if there was a little problem I just felt so compelled to go fix it or go look at it when, being an hour away, I had to rely on the property manager, which freed a ton of time up for me to do higher value activities.

Speaker 1: 25:21

What a great lesson for emerging act operators, because you can test your experience from an hour away, because you can get there in an hour, but it's not convenient.

Speaker 2: 25:34

Right, so any problem was at minimum two hours, or two hours and 20 minutes, right At minimum right, right.

Speaker 1: 25:41

Yeah, I love that. That's cool. Thanks for sharing that with us. So you know we're coming down to the end here. Is there a thought or a quote that drives you that you'd like to share with our listeners?

Speaker 2: 25:56

Yeah, there's this concept called praxis, or this gym I used to go to was called praxis, and the way that they describe the name was that you are what you repeatedly do. So, you know, a lot of times people say like I want to be something or I want to be good at this. Well, you tend to, or I want to. You know, I want to fly fish in my retirement, but now I'm going to work 80 hours a week. Well, you know, if you work 80 hours a week for long enough, who you are is someone who works 80 hours a week. So the idea that you know, do the thing that you want to be. You know, if you want to be a real estate investor, start investing in real estate and you'll eventually be that. So I like that idea.

Speaker 1: 26:38

Praxis is a great concept. Yeah, You're an attorney. You practice every day. You're an exercising guy. You exercise every day.

Speaker 2: 26:46

Yeah, Makes perfect sense, Right Praxis.

Speaker 1: 26:50

P-R-A-X-I-S right Praxis. Yeah, yeah, yeah, but you are practicing and then you become it through and you become and it's a present tense, is as opposed to a past tense, right, yeah, I love it. So tell us what is the best way to get a hold of you, chris, if we want to learn more about EM Capital and about you.

Speaker 2: 27:13

Well, you can find me at emcapitalgroupcom, which is my website. Has links on my contacts and I can reach that. Chris Lento, l-e-n-t-o at emcapitalgroupcom.

Speaker 1: 27:25

Awesome. Well, thank you so much for coming on and you've been listening to another episode of Brick or Golden Handcuffs. If you enjoy this show, hit the subscribe button down below and follow us on YouTube. Thanks for listening and have a great day.