How to Manage Class C Assets w/Charles Seaman

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Episode Description

Welcome to the Freedom Point Real Estate podcast! In today's episode, Jeremy Dyer welcomes guest Charles Seaman to offer insight into building broker relationships, prioritizing the right things in underwriting, focussing on class c assets, attracting new investors, and maximizing returns.

Charles Seaman is a seasoned real estate investor, multifamily syndicator, and capital-raising expert with over two decades of experience in the industry. As the Managing Partner of Three Oaks Management LLC, he specializes in acquiring and operating value-add multifamily properties across the U.S. Charles has a deep understanding of underwriting, asset management, and investor relations, helping both new and experienced investors navigate the complexities of commercial real estate. Known for his hands-on approach and strategic insights, he is passionate about educating others on how to build wealth through multifamily investing.

CONNECT WITH CHARLES SEAMAN!

LinkedIn: https://www.linkedin.com/in/charles-seaman1/

Linktree: https://linktr.ee/charles_seaman

CONNECT WITH JEREMY DYER!

Website: https://startingpointcapital.com/

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LinkedIn: https://www.linkedin.com/in/jeremydyer

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Book a Call! https://calendly.com/startingpointcapital/discuss-investing-with-jeremy-dyer?month=2023-12

Summary

Tip #1: Prioritize Key Investment Metrics

"The first is your cash on cash return... the average annual return... and your IRR, which is, for lack of a better term, the risk-adjusted return that you're going to see."

Understanding these core metrics is crucial for evaluating any deal. Cash-on-cash return measures how effectively an investment generates cash flow relative to capital invested. IRR provides a clearer long-term picture by factoring in the time value of money. Investors should also consider the Debt Service Coverage Ratio (DSCR) as a safety measure to ensure deals remain financially viable.

Tip #2: Stress-Test Rent Growth Projections

"If you push the rents to achieve the NOI growth that you're looking for, can the residents that live there today—or the tenants in that local market—actually afford the increase in rents?"

Assuming rent growth without analyzing income demographics is a major risk. Investors must evaluate local affordability and ensure their projections align with economic realities. Overestimating rent increases without understanding tenant income levels can lead to increased delinquencies and occupancy issues.

Tip #3: Prepare for Market Fluctuations

"We purchased in early 2022... market conditions were starting to change, interest rates were rising, and it became very challenging with floating rate loans."

Real estate markets are unpredictable, and rising interest rates can quickly erode profitability. Investors should always plan for worst-case scenarios and consider fixed-rate financing options to mitigate risk. In times of economic uncertainty, having financial reserves and adaptable strategies can mean the difference between success and loss.

Tip #4: Understand the Challenges of C-Class Properties

"We were successful at pushing rents and leasing, but we consistently had collection troubles."

C-Class properties often provide high returns but come with increased risks, including tenant payment issues and economic instability. Investors should be aware that while these properties may offer strong cash flow, they also require hands-on management and contingency planning. Moving toward higher-quality properties (B-Class or A-Class) can lead to more stable returns over time.

Tip #5: Be Honest About Track Record & Market Conditions

"The last three to four years have not been incredibly rosy... there are operators who have lost investor capital, suspended distributions, and had to perform capital calls."

Transparency is key when discussing investment performance. Investors should not shy away from discussing past difficulties, as authenticity builds trust with capital partners. Acknowledging market downturns and lessons learned demonstrates credibility and resilience.

Tip #6: Build Investor Relationships Early

"If somebody's going out and gets their first deal, that isn’t the time to meet someone for the first time and say, 'Do you want to invest in my deal?'"

Raising capital is a long-term game that requires trust. The best time to engage potential investors is before an actual deal arises, allowing time to build confidence. Frequent communication, sharing market insights, and educating investors will create a stronger network when the time comes to raise funds.

Tip #7: Set Clear Expectations with Property Management

"Before closing, I'll reach out to property management companies and get their feedback... I want to set clear goals for the property."

A strong relationship with a property management company is essential for smooth operations. Investors should establish clear expectations, review reports regularly, and hold management accountable through weekly check-ins. Lack of communication often leads to operational failures, so proactive management is key.

Tip #8: Keep a Close Eye on Key Performance Indicators (KPIs)

"Occupancy and collections are always the cornerstones of property management and the basis for asset management."

Successful asset management requires tracking financial and operational KPIs, including occupancy rates, rental collections, and maintenance costs. Regular performance reviews help catch potential issues early, allowing for corrective actions before they impact profitability. Investors who stay engaged with their assets can react quickly to market shifts.

Tip #9: Avoid Common Underwriting Mistakes

"The single biggest mistake people make is not underwriting property taxes correctly."

Property taxes can significantly impact a deal’s profitability, yet many investors overlook them. Rather than relying on broker proformas, investors should contact county tax assessors to understand potential tax adjustments post-sale. Failing to account for tax increases can turn a promising deal into a financial burden.

Tip #10: Have Financial Reserves to Weather Uncertainty

"Yes, you can do this without money, but not everyone on the team can do it without money."

While real estate investing is accessible to those without personal wealth, at least one member of the team should have sufficient liquidity. Deals with inadequate reserves are highly vulnerable to unexpected expenses, vacancies, or market downturns. Having cash on hand ensures investors can navigate challenges without compromising long-term success.