Mastering Cash Flow and Multifamily Investment with Charles Seaman: Diversify Like a Champ and Gain a Competitive Edge

Unlock the strategies of multifamily investing and property management with Charles Seaman from Cashflow Champs in our latest episode. Charles isn't just another investor; he's a seasoned pro who's mastered the art of cash flow, an essential element often overshadowed by the allure of appreciation. As we sit down with him, you'll be privy to his expert take on handling the unique challenges of the current property market. Learn how to maintain and boost your cash flow, the importance of hands-on management, and what it truly means to have a robust operating system in place. This conversation is a must for passive investors keen on evaluating an operator's active involvement and understanding how to scrutinize performance through asset management strategies and portfolio diversity.

The investment landscape can be as diverse as it is daunting, but we've got the insights you need to navigate it like a champ. In a deep dive into diversification, we discuss how spreading your investments across different asset classes can mitigate risk and optimize returns. I open up about my personal investment switch from real estate to stock trading, sharing how joy and commitment are critical to mastering any investment area. We also tackle the role of self-awareness in finding your unique place in the investment ecosystem—be it as a trailblazer like Steve Jobs or a different kind of market participant. 

To cap it off, we're dissecting the competitive advantage in real estate. Gone are the days of complex strategies; sometimes, it's as simple as outworking your competition. We'll talk about the significance of deal finding, asset management, and why fostering robust relationships may be your golden ticket in the industry. The discussion also touches upon the concept of 'legal insider trading' in real estate and how effective communication is paramount in asset management. Remember, every discomfort and challenge faced today could be your stepping stone to tomorrow's success. For more sharp strategies, Charles invites you to visit cashflowchamps.com and join his quest for financial liberation. Tune in, subscribe, and let's equip you with the financial tools for freedom.

Follow David McIlwaine's Socials

YouTube | LinkedIn | Instagram | Facebook

Join my newsletter @ MAC Assets

Transcript

Speaker 1: 0:02

Hey everybody, david McElwain, with another episode of Break a Go on Handcuffs podcast. Today, I'm joined by Charles Seaman. Charles resides in Charlotte, north Carolina, and serves as a managing partner of Cashflow Champs. He's responsible for building and maintaining broker relationships, as well as performing and overseeing the company's underwriting activities. He's also involved with contract negotiation and capital raising to make sure the deals close, remaining involved after closing to manage the assets so that they perform in a manner that provides investors with exceptional returns. He's currently a general partner in six multifamily properties totaling 711 units, having gone full cycle on five multifamily properties previously.

Speaker 1: 0:45

He has 14 years of prior experience working for Camille's commercial real estate investor in New York City. During this time, he assisted the investor with acquiring, obtaining, financing, and managing and leasing them after the deals were closed. While there, he also assisted the investors with the management of numerous other businesses that he owned, including a plumbing company, several bars and restaurants. During his spare time, he also actively traded stocks from 2009 to 2014. Charles, welcome to the show. It's a pleasure to be here, so I got to dive in a little bit. Plumbing company, bars and restaurants. What do those things have in common with commercial real estate?

Speaker 2: 1:27

Not really too much. Probably the biggest commonality is that one fixes commercial real estate and the other occupies it. But beyond that not too much. The gentleman I worked for was a big fan of cash flowing assets and he kept a pretty open mind as far as what he bought, so that expanded the list of things that I got the opportunity to interact with.

Speaker 1: 1:50

That sounds like a really great learning experience. So he was a cash flow fan and your company's named Cash Flow Champs, so is that a pretty good inference that you two are a cash flow fan?

Speaker 2: 2:05

Yes, absolutely. You may as well go for the portion of it that's easier to control. The appreciation is always nice, but you want to look at that as more of an added bonus than a foregone conclusion.

Speaker 1: 2:16

And why do you think the cash flow is easier to control than appreciation? I know that we see a lot of times, especially value-added multifamily, that people say I can force appreciation, I can ensure an appreciation return and I can perform to that. Clearly you have a little different thought process perhaps.

Speaker 2: 2:38

What I preface the answer with is that it really depends on what you're investing in. It really depends on what you're investing in. So the last couple of years, I think cash flow has been a little more challenging to control in the multifamily space because, no secret, we've had a lot of increased expenses and what's happened over the last two years specifically is that we've seen a lot of new supply come online and that's that's affected our ability to increase rent while at the same time still having expense growth exceed and sometimes uh, in many cases exceed rent growth over the last two years. So it's become more challenging. But I think the key with that is always buying right and then figuring out where you can, where you can lean out the operations and the expenses to be able to keep the cash flow steady.

Speaker 1: 3:28

And as you lean out those operational expenses to keep the cash flow steady, what sets one operator apart from another operator? Because that's clearly a skill set and a personal preference right.

Speaker 2: 3:41

Yeah, great question. So there's a few things. One I think is going to be the amount of time that they spend on the asset, and that's with any operator or any business. You know, if you have somebody who is totally hands-off and their business lacks the infrastructure to function in that capacity, then the business is going to suffer. So you have to put plans in place, and that plan is either going to be your own time, somebody else's time, but somebody's got to be babysitting it.

Speaker 2: 4:09

It's just like raising a child or doing anything else. The more you nurture it, the more successful it's going to be. So the more time you put into the business, the more time that you put into building the infrastructure, the more successful you'll be able to run with it. With any business, it really comes down to the right people and the right systems, and that's going to be the two things that you're always going to focus on. No different here in multifamily. You want to be out there seeing who the best person is to manage the property, who the best company is if you're using a third-party company to go out there and supervise them, and who's got the right systems in place to allow you to grow and scale with them.

Speaker 1: 4:46

Yeah, I couldn't agree more with the people and systems right, and there's a whole lot of learnings from every major business school in the world around these things. But I'm just curious you talk about that if someone is hands-off, they're going to have a hands-off business response, right or result. So as a passive investor. Some of our listeners may be wondering how can I check to see when an operator is hands-off versus hands-on? Do you know any telltale signs, charles, that you look at?

Speaker 2: 5:19

Yeah, good question. So I mean, the first thing I would do is start with a conversation.

Speaker 2: 5:24

Now, not everybody is going to be honest, unfortunately, so you can't always take their answers as gospel, but start with a simple conversation and see what their approach to the business is and how they plan to operate.

Speaker 2: 5:34

The second thing I would do is look at other properties or other assets that they're currently managing and see how they're performing. You know, a lot of times success leaves clues, as they say. So seeing somebody who's operating a property or multiple properties successful is usually a good indicator that they probably have a good handle on that aspect of it and they'll be able to replicate that success elsewhere. Another thing that I would also recommend and I wouldn't say this applies to all operators and all companies, but it applies probably to many in the syndication space companies, but it applies probably to many in the syndication space I would also look at the geography of where their portfolio is located, because the thing is you know in theory you could manage a property from anywhere, but in practicality becomes difficult. So it's a lot easier when you have all of your properties concentrated within a certain geographic region, versus spread apart in all different areas, because it's going to make it tougher for you to put your hands and feet on the property on a more regular basis.

Speaker 1: 6:30

Yeah, so I've seen operators do all kinds of different things. Somebody says I travel to it once a quarter. Somebody says that I'm on the asset management call once a week. Somebody says that we manage it all virtually. From a geographic point of view, I get the idea that having clustered property creates some intrinsic knowledge, if you will. What other benefits do you see to the clustered properties from a managerial and hands-on point of view.

Speaker 2: 7:01

You know it's funny because when people get into multifamily or commercial real estate in general multifamily specifically for the purpose of this point they always talk about economies of scale. And while it is true that you do get economies of scale with one apartment community, when you compare it through a single family home, you don't truly get the scale that you hope to achieve with just a single property most times, unless it's like a 400 unit property then maybe.

Speaker 2: 7:23

But right most times you know if you have 100 unit property, yes, you have more purchasing power than somebody who just has a single family home or 10 single family homes. But you start getting the benefit of economies of scale more as you get multiple properties in the same region. You can share staff. So one of the benefits is, you know, if you have 100 unit property, there's a good chance you have one maintenance person. But if you have three or 400 unit properties in the same area, you probably have a few different maintenance people and you might be able to swap the maintenance personnel back and forth between properties. So maybe if one property needs units turned, then you're able to use the maintenance personnel at different properties interchangeably. That gives you some more efficiency because you can do that in-house instead of outsourcing it.

Speaker 2: 8:15

Another thing is also materials. So if you're out there running a first party management operation, there's a good chance you're going to get more buying power with a lot of the suppliers and they'll give you preferential pricing because of that. And even if you're using third party management, you're able to negotiate better management rates. So if you bring somebody 100 in your property, maybe they're going to charge you four or five percent, but if you bring them three or four of them, maybe you can negotiate that fee down across the board to three percent, because now they're getting more revenue. They see you as a more valuable client because you're giving them more business and you're able to use that to gain leverage.

Speaker 1: 8:50

Yeah not to mention, you also get leverage in the market with the brokers, because the brokers know that you have multiple things at a similar trading radius. They're going to shop it off market to those people that they know like and trust and have done business with in the past. There's a natural synergy there. Curious, though, switching gears for a second. You traded stocks from 2009 to 2014. Yep, I have never yet met a stock trader who completely went cold turkey and quit trading, either with their own portfolio or otherwise. Did you go cold turkey?

Speaker 1: 9:27

or are you still kind of doing this for your own portfolio and therefore you don't want to talk about it anymore.

Speaker 2: 9:32

Good question. So I did go cold turkey, but I'm actually looking to get back into it. So I I do like stocks. You know, I know a lot of people who are very much into stocks or very much into real estate. My thought is I'm an equal opportunist. I like different things about both of them. Uh, I could find numerous arguments about why people invest in one or the other and, and I think it really just turns out the preference.

Speaker 2: 9:55

I'm a big fan of stocks and I think it's just finding the right strategy and the right companies to invest in that you can do well with.

Speaker 1: 10:03

So what would you say if someone hears the phrase you got to be all in on one thing? Either it's all in on alternative investments like real estate, or it's all in the stock market, and if you diversify excessively, you don't get any gains from any of it. What kind of advice do you have?

Speaker 2: 10:23

for that. So the first thing I would say if you're starting out and you're brand new, I would actually agree with that, because I think if you try to wear too many different hats too early on, you're going to be spreading yourself very thin, and it's a lot more challenging when you're learning something new. Once you've already developed some proficiency or some expertise at one of those fields, then I think it's easier to make the jump to the next one. So as you start becoming more successful, you start having the ability to scale more. Then you can look at some different asset classes. Secondly, I would always say I think it's probably good money management.

Speaker 2: 11:01

So you hear a lot of people talk about diversification, whether it's in stocks or in real estate.

Speaker 2: 11:06

I'm going to steal a Robert Kiyosaki item that I've always been a big believer in, and one thing he always said is that the poor know the poor and the middle class diversify by buying multiple assets in the same asset class. So let's say, if you go out and you invest in a mutual fund, would you say, oh well, that's going to do better if the market crashes? Well, maybe what you'll do is you won't do any better than the market does when it does well and you won't do any worse than it does when it does bad. So you'll never truly outperform, you'll just be mediocre at best. But the rich diversify by asset class, and the reason they do that is because every market's going to have peaks and valleys. But by being in different asset classes, if you see that one of those markets is about to crash, it can give you some time to pull that money out and still put it to work in a different action class while you're waiting for those cycles to change.

Speaker 1: 11:58

And that continues with the argument then, that diversification is beneficial and the rich get richer, right. So if you're not the rich guy, you're just average Joe, average Jane, what would you recommend they do?

Speaker 2: 12:17

It looks like it may have froze. I don't know if that's on your end or my end.

Speaker 1: 12:22

I can hear you just fine.

Speaker 2: 12:24

Can you repeat that last question? I didn't quite catch it then.

Speaker 1: 12:27

So if you're just average Jane or John Q, public, what do you do then, if you don't have the ability to go as deep as, say, the uber wealthy do?

Speaker 2: 12:40

Good question. So the first thing I would do is I would find a strategy that works with the budget you have. So if you have $50,000 of money to play with, that you can invest in something. I wouldn't go out and invest in a $10 million investment because it's probably not going to be the greatest way for you to scale up or grow Now. It doesn't mean that you can't get a good return. So let's say, if you took that money and you put it in a single syndication deal as an investment that basically ties up all the investable capital you have for a long period of time, so that may not be the best strategy starting now, but maybe you want to put in something more liquid. You know to be personal. I'll give a practical example.

Speaker 2: 13:23

When I first started in 2007, summer of 2007, I was looking at some real estate in New Jersey and at that point I was looking more single family and very small multifamily and I thought, okay, you know, we should be able to find something here and make it work, and in retrospect I'm glad I didn't find that. I think it was the summer of 07 would have probably been a pretty bad time. But what I realized after the market crashed, I wasn't in the financial position at that point to go out there and start buying expensive real estate properties. And my thinking was well, I live in New York. New Jersey is a lot cheaper than New York.

Speaker 2: 14:02

But when I started really thinking about it I said, you know, I'm probably not even in the position to really start buying in Jersey at this point. And that's what made me shift and kind of look at stocks today. I said you know what, my money is going to go a lot further in stocks at that point than it would in real estate. And initially, as I, as I got into stocks, I was looking more of a long-term strategy. But market conditions were shifting. So it made me rethink things a bit anyway and I started looking more at a trading style where, like what I was doing, that was swing trading, so I'd be in positions from typically two days to two weeks, sometimes a little bit longer than that, but they were shorter term positions and things that I could, if done properly, be able to build my money up. That would give me more money to invest in other things afterwards.

Speaker 1: 14:48

And how did you come to know that that was going to be the right path for you? I'm kind of curious because you've gone down a couple of different paths and I see a lot of syndicators and a lot of alternative investing. People say that it's path A or path B, and I always find that I personally think the smarter path is to have a portfolio of public traded equities and also, as you can, a portfolio of alternative investments, so that you kind of balance the two instruments out. And how would you go about sharing your journey of what the right path was for you?

Speaker 2: 15:27

I think there's a few things that go into it. For every person it's going to look a little bit different. So for me personally, I might be in the minority when I say this, but I actually enjoy these things. So most people don't consider personal finance a hobby. I do, so I actually enjoy learning about them and being involved in different things. So I knew that I for one, I had to find something I enjoyed.

Speaker 2: 15:49

If it was something I didn't really have an interest in, I probably wasn't going to do the work that was needed to really learn about it and become proficient at it. So with anything you do in life, you need to spend literally thousands of hours at it before you become proficient. So that's a big time investment. If it's something that you don't like or something you don't believe in, you're probably not going to be willing to spend the time to actually do that. Believe in, you're probably not going to be willing to spend the time to actually do that.

Speaker 2: 16:15

The second thing for me you know what I've realized is you know, when I was younger and probably even now in my head I would like to be the person who changes the world, like a Steve Jobs or Bill Gates that just comes up with something revolutionary that's, you know, totally changed the world. Yeah, totally right, yeah right. But in practicality, what I've realized is that's not who I am. I'm more the guy who's going to take something that's been done hundreds or thousands of times and figure out, okay, what did these guys do before me? And copy that and do it again. So that's also what led me into stocks and then, ultimately, to real estate. Because it was something that I saw enough people achieve success with that I said, okay, you don't need to be totally unique to do this, you just need to be able to figure out what did all these people do that achieved success with it, and how can I copy them as effectively as possible to do some of that for myself.

Speaker 1: 17:15

I love that, I absolutely love that. So you kind of said I'm not going to be the originator of brand new market changing ideas. It's not who I am, but I can win at a game that I understand. Is that a good way to?

Speaker 1: 17:28

summarize that, yep. So okay, as you go to figuring out how you can win it's the same with investing right you laid out one key, I think, which was you win by doing something you have passion for Correct. Were there other things in the development of your winning style that came to bear and came to play in the creation of this strategy?

Speaker 2: 17:57

Not really. It probably should have been. But no, I've always been a big believer of you know. Once I get an idea in my head and I commit to it, I said let's just go all in and, as they say, give it the old college, try and see what happens. And you know, generally things have usually worked out well. A large part of it, I think, is simply because I've been willing to outwork the competition and because of that it probably does give a competitive advantage.

Speaker 1: 18:27

Yeah, so a competitive advantage can be pretty simple, right. It doesn't have to always be super complex, right? And so if the competitive advantage is outworking the competition, what does that look like in a multi-family space?

Speaker 2: 18:41

well, in the multi-family space it can be a lot of things. So for me, uh, what I realized earlier on, there's two things that I'm, that I'm good at on the multi-family side. So one is going to be the deal finding side and the other is going to be the asset management side.

Speaker 2: 18:55

And even with both of those things, when you you're first starting out, you can do both, but as you start to grow, it's going to be very challenging to do both effectively because they're both really full-time roles in and of themselves. So on the acquisition side, well, on a typical day, most days, I'm probably working no less than 16 hours a day on a weekday, and sometimes as many as maybe 20. So it's time consuming. It's a lot of time, for sure. But on the acquisition side, it's building relationships with brokers. It's building relationships with sellers. It's taking those deals and then underwriting them and just seeing if they actually make sense. With sellers, it's taking those deals and then underwriting them and just seeing if they actually make sense. The greatest thing I've always said that I've been able to do is build relationships, and that's a lot more relevant than real estate and stocks. Stock relationships don't work too well and if they do, you probably don't want to disclose those because you're getting some serious trouble.

Speaker 1: 19:51

The government might not like that whole stock relationship, insider trading kind of thing.

Speaker 2: 19:56

They get, yeah, but in real estate you can use relationships because it's a different business model. So being able to go out and build relationships oftentimes can be the difference between winning a deal or not winning a deal. Uh, for me I know there's a few deals that have been won on relationships. There's one that comes to mind in 2021. Our group was not the highest bidder. We really had no competitive advantage, but simply having a better relationship with the broker. They really fought for us hard and sold us to the seller and the seller went with us, in spite of not really having any clear-cut advantage over a higher bidder.

Speaker 1: 20:35

And that is a competitive advantage if you have deeper relationships, right. You know, one of the things that's fascinating about parts of business that people don't tend to see is that there is legal insider trading in certain areas, and in the commercial real estate world it's almost all insider trading. To some extent, you know someone, you create some relationship, you make decisions based on what you believe to be the best thing for the buyer or the seller if you're the broker, and you try to influence those decisions, and that's all relationship building and maintaining.

Speaker 2: 21:11

So I think you're onto something there. Yeah, I've always said that's my greatest skill, so that's usually what certainly invests in the commercial real estate side.

Speaker 2: 21:19

And even on the asset management side. Asset management is definitely a different role. It's a different skill set, but you can go out there and you can find information that shows adjustments needs to be made. There's definitely things that will happen with the asset management for that, but knowing how to convey it to people and how to deliver the information can go a long way, because you can tell the same person the same message two very different ways and get a very different response. So knowing how to deliver the message and figure out how to, how to address it and how to work with somebody will oftentimes get you a better result than just screaming or hollering or giving them something that they don't take as well.

Speaker 1: 22:05

Right the old adage that you get more flies with honey is definitely applicable there. So, we've been talking for a little while. Just kind of curious as you look back on your career here in the business world, what piece of advice do you wish you had 10 years ago that you now know today?

Speaker 2: 22:29

Good question. So I think with many of us, probably one of the biggest things that holds us back is the voices in our own heads.

Speaker 2: 22:36

We all have doubts, probably one of the biggest things that holds us back is the voices in our own heads. We all have doubts. We all have certain perceptions of who we are and what our capability is, but sometimes you never truly know if you're going to push yourself and you're going to test yourself, and that's going to lead to becoming uncomfortable. So what I would tell anybody is to become uncomfortable as early as they can, so that way they can learn and become successful. And that doesn't mean you're not going to have failures along the way, because you might Most people do but the key is learning from those failures and then being able to rebound from them so that you become stronger in the process and you grow.

Speaker 2: 23:13

You'll never grow without failing so fail as often as you can, as early as you can.

Speaker 1: 23:18

Yeah, fail fast right.

Speaker 2: 23:20

Yeah.

Speaker 1: 23:22

And I love that mindset thing. You know, I do some executive coaching as well and what I find with my clients is that when someone approaches the problems from a growth mindset, they find quicker, simpler, more executable solutions than when they approach it from a fixed mindset. And I think that's a little bit of what you're saying. Is the curiosity helps spur creativity? Absolutely, yep, yeah, I think that's very true, and the converse is something you wish you knew. Then what's a piece of advice that you followed you wish you had ignored along the way in your career?

Speaker 2: 24:01

Well, this will be specific for multifamily and probably commercial real estate in general. I was always a big believer in the philosophy of not using floating rate debt for anything and I, you know, unfortunately I broke that rule. You know, and I would advise anybody unless you have a darn good reason, go with what you know. Long-term fixed rate debt may not always be sexy, but it doesn't need to be sexy to keep you safe.

Speaker 1: 24:28

It doesn't need to be sexy to keep you safe. I think that's great, and there was definitely a in the early 2020s where fixed rate debt was not of interest to most syndicators and the debts are coming due. People are in some pain points, right? Yeah, absolutely so, charles, it's been great chatting with you. If people want to learn more about Cashflow Champs and how to get in touch with you, what's? The best way to do that.

Speaker 2: 25:00

Yeah, the best way is to go to cashflowchampscom.

Speaker 1: 25:04

Well, there you have it. Thank you so much for joining us, Charles. You've been listening to another episode of Brick of Golden Handcuffs. If you like what you've heard and you want to learn more, go ahead and hit that like button and then follow us Subscribe now. We publish new episodes every Monday and Thursday. Thanks and have a great day.

Speaker 2: 25:22

Thanks, David.