JF2629: How to Vertically Integrate for Optimal Scalability with Chris Pomerleau

Chris Pomerleau got his start in real estate with a single-family flip that took over a year to complete. Now, he specializes in multifamily in seven different states with over 2,500 units. Today, Chris is talking about keeping his long-term investors happy with clear communication, how to identify consistent markets, and advice for getting into commercial real estate without a proven track record. 

 

Chris Pomerleau Real Estate Background:

 

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TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Chris Pomerleau. Chris is joining us from Omaha, Nebraska. He is a full-time real estate investor and has eight years of experience with syndications and joint ventures in multifamily. Chris’s portfolio consists of 2,500 units, with $190 million in assets under management.

Chris, thank you for joining us, and how are you today?

Chris Pomerleau: Thanks. I appreciate it. I’m doing fantastic.

Ash Patel: Good. Chris, before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Chris Pomerleau: Yeah, so we’re based in Omaha, Nebraska, here. It is basically where I grew up, and we specialize in multifamily. So we do a lot of joint ventures and syndications in seven different states right now. We own our own property management company, we own a third-party property management company, we have a hard money lending business. We’re vertically integrated, that’s for sure. We have a title company, and we’re looking to open an insurance company as well. You could call that FOMO or shiny object syndrome, but they’re all pieces of the real estate puzzle, if you will.

Ash Patel: Alright. You know, a lot of people say “be hyper-focused on one thing.”

Chris Pomerleau: Yeah. Well—

Ash Patel: I don’t agree with that, by the way, but you’re obviously not…

Chris Pomerleau: Yeah. I mean, you don’t want to be a jack of all trades. So if you only have 24 hours in the day, you don’t want to be trying to squeeze 30 hours of work into those 24 hours. But that’s what scalability is for, right? It’s not like I’m driving to Dallas to change the toilet. We have trusted experts from a property management there that can handle those things. So owning parts of these businesses and being vertically integrated doesn’t necessarily mean that I’m only performing at a B-minus at every level. My job is really to help the capital group, the equity group, which is our main focus, raise money and lock down these real estate opportunities for people.

Ash Patel: Chris, how did you get started?

Chris Pomerleau: Rich Dad, Poor Dad. I always liked to succeed if I could, however, but I read that in law school. So I’m an attorney. I like to call myself a recovering attorney. I practice about five hours a month. I’m still part of the firm I was heavily a part of throughout my legal career, but about five hours a month. I read Rich Dad during law school, and not only—so in the mornings, I was in the military; during the day, I was in law school, and at night, I was getting my master’s in negotiation. So reading Rich Dad, Poor Dad during that time, it clicked, I understood, but I just could not find that 25th hour of the day to squeeze in also real estate investing. So it wasn’t until I graduated law school and got out of the military thereafter where I said, “Okay, look, now I’m only doing the legal job. I’m only practicing as an attorney. Now, I can start dabbling into real estate.” So 2013 is when we started doing that.

Ash Patel: And what was your first venture in real estate?

Chris Pomerleau: A single-family home with my dad. We found a property really close to where he actually lives, and we did everything ourselves. We changed the cabinets and the flooring, and the toilets. It took us over a year on the single-family home, just to flip it, if you will. But from day one, our goal was always to implement the BRRR method, which I’m sure your listeners understand what that is. Refinance, pull our money out and own forever. And that was in 2013, and that was my first venture ever. In fact, my first four real estate transactions and ventures were all with my father, all single-family homes, all nearby where we lived.

Ash Patel: And what made you go beyond single-family homes?

Chris Pomerleau: The scalability. We were doing everything ourselves. I had four single-family homes in four years. And while that’s oftentimes four more than many other people, that still was not going to get me to that passive income that I had always read about and dreamed about. So it wasn’t until the 2017 when we said, “We’ve got to start looking more into multifamily”, and that’s what we just hit all out on as many units as we could.

Ash Patel: What was your first multifamily purchase?

Chris Pomerleau: 2017. It was a 20-unit with a couple of partners in town here; a 20-unit in Omaha, Nebraska.

Ash Patel: What were the numbers on that?

Chris Pomerleau: Round about figures, we purchased for about $850,000. And just saying that out loud is weird, right? 20 units for $850,000. You can’t really find that in 2021; but we bought it for about $850,000. We put about $150,00 into it. So I think we’re about a million in. And then it appraised at $1.3 million. So we did a refinance, we got all of our money back out… So we now, to this day, still own the 20-unit in Omaha for free, and it’s cash-flowing very well.

Ash Patel: What was your next progression?

Chris Pomerleau: I dabbled into a nine-unit after that, a couple of duplexes and then I jumped up to a 48-unit.

Ash Patel: And did you raise money or was it just friends and family on that deal?

Chris Pomerleau: You know, the way I got in was borrowing money from families. So that 20 unit was just me and our partner. It was a $200,000 downpayment; I brought $100,000, they brought $100,000. And it wasn’t $100,000 that I had at the time. So I had to borrow that from family and I paid interest to that family member, so that they weren’t just lending it for free. As you know, cash – it’s kind of trash, so they were to give it to me, it wouldn’t be making any money. So I paid them interest on that, and then at refinance, I paid them back. And I did that a couple times, I actually recycled that $100,000 a couple times. A big thank you to that family member.

But then after I had borrowed a couple of thousand dollars from different family members, I realized, I need to start getting into this syndication opportunity here. I partnered with somebody in town, his name’s Collins Schwartz. I think he’s actually been on the show, it was like three years ago. But we realized that we have a sphere of influence of people that are really interested in multifamily, and we’re done borrowing from family members, it’s time to start pooling money to buy these larger assets, and then I also take people on the ride with us. No one believed me that I owned a 20-unit for free. And now they see we’re doing that with 80s, 100s, 250 units. Now we’re doing that for free, after the work’s put in, and that’s super-rewarding.

Ash Patel: When you first raised money from outside people, how did you find those investors?

Chris Pomerleau: Well, my family… So that helped. And then I tried to attend meetups in town here; there’s a real estate meetup that’s in town here. I don’t have time for coffees anymore or lunches or anything really; that’s the combination of my full-time businesses, as well as having a family and a three year old and a one year old.

But I met with every banker and every agent, and every person I could – coffee, lunch, anytime that I possibly could to fit that into my law schedule, because I was still a full-time attorney. And I met as many people as I could, and as time went by and the more experienced we got, the more proven we became to not only agents and bankers, but now investors as well. They said, “Holy cow, these guys have accumulated 100 units in the last six months, and they’ve refi’d half of them. Let’s see what they’re a part of, what they’re about”, and that’s really helped us.

Break: [06:57] to [08:29]

Ash Patel: What was your latest deal?

Chris Pomerleau: We have 850 units under contract right now that will close by January 1st. The most recent closing was a 235-unit in Fort Worth.

Ash Patel: And right now, Chris, what are average returns for your investors?

Chris Pomerleau: Now, we’re not counting after the refi, right? Because every dollar return after refinance is kind of infinite. But as far as cash-on-cash return before the refinance, we’re anywhere between 7% and 10%.

Ash Patel: And are you finding additional investors that are okay with that kind of return? Because it’s a competitive landscape right now for syndications.

Chris Pomerleau: Yeah, that’s a great question. We have built such a large investor list, and I’ll tell you why, and I think it’s a little different. I know it’s certainly different than what a lot of the listeners have heard before… But we don’t flip apartments. I want to hold my apartments forever. I want that apartment to pay me, to not practice law anymore. I want it to pay my father who just retired, so he doesn’t have to work anymore. I wanted to help my children out. And because of that, we don’t flip apartments.

So the syndication model is still a syndication because legally, we’re pulling passive investors money, but we are refinancing, we are giving the capital back, and those same owners stay in as owners. Same percentage, nothing’s diluted. So that investor who’s receiving 7% to 10% cash flow throughout the life of the business plan, if it’s $100,000 investor, they get $7000, $8000, $9000 a year. But then once we refinance and they get all $100,000 back, if they continue to get $6000, $7000, $8000, $9,000 a year, they’re extremely happy. They don’t have any money in the deal anymore.

So a lot of people like to press the IRR play or talk about cash flows that average 12 or 13, and those are oftentimes higher figures, which are attractive, but that factors in a sale at the end. We don’t sell. So to your question, that’s how we keep people excited, because a lot of these investors are finding out, they don’t want to be part-time banks; they want to own real estate, and they want to own it as long as they can, and they want to get passive income, and that’s how we’ve gained such a traction.

Ash Patel: That’s an interesting business model, because I’ve seen a lot of investors turn down seven-year holds. The max, they’ll go is five. Ideally, less than that, and they get their money back. Do you ever find investors that at some point, they’re like, “Hey, let’s just sell this thing. I want to cash out?”

Chris Pomerleau: That has not happened to us yet. And I think that’s because the most important thing to us, obviously, from day one, is to make sure they’re signing up for the same business plan that we are.

So for example, we’re in the middle of a raise right now, and it’s a portfolio. So it’s not a fund. But it is four different properties, three different states, it’s going to total about 262 units. And as you would imagine, every property is going to refinance at different times, as far as timelines are concerned. But I make sure they’re all comfortable with the money being frozen for 3-7 years. Maybe they get some of their money back from one property in the fourth year, and another property the fifth year. But these investors, they know from day one, what the plan here is. So if we ever didn’t get push back, and they said, “Well, we don’t want to invest, we want our money back in four years”, it just isn’t the right fit. And we’ve never had a current investor who’s already invested demand their money back, because we all knew from day one what the plan was. I think that’s kind of the most important thing is to make sure we’re on the same page.

Ash Patel: Good. And Chris, where do you find your deals from right now?

Chris Pomerleau: It’s a combination of agents, property management companies, and what I would call bird dogs or wholesalers. So a lot of agents who aren’t licensed to practice in that state, who know how to call owners directly… They’ll funnel it off to us. And look, when I first started, I had to claw tooth and nail to get that 20-unit. No one would pay attention to me; it didn’t matter that I was an attorney. I had only owned a couple single-family homes. But now we’re getting calls from people all over the country because we’ve done a good enough job, and this is a huge thanks to a number of people on our team… That they know if they bring us the deal, and we get it under contract, we’re going to close the deal.

So it’s a combination of agents on off-market, bird dogs or wholesalers. And then property management companies; we have a pretty good relationship with our property management companies, so they oftentimes have access to owners that may be flirting with getting rid of their property.

Ash Patel: What advice would you give somebody that’s starting out and doesn’t have the credibility or the track record? How do they try to establish themselves and get a broker to take them seriously?

Chris Pomerleau: Partner with somebody that has that experience. That’s exactly what I did. When I started with my partner on that 20-unit we didn’t necessarily have multifamily experience, although they do have 2, 3 or 4 unit apartments; but they owned their own property management company, and they had flipped houses. So we started with something smaller, but they took them seriously. They’re obviously liked my W-2 pay as an attorney… But that combination of a partner and money that was helpful to the banks. We’re taking in — every once in a while, we have partners on these syndications that they may bring a million dollars in investors, and then now they’re a part of the general partnership team, and that’s how they get their experience. And then it’s a lot easier for them to move on to the second deal, because they don’t need the first partner, because now they have that experience. It’s all about partnering people that know what they’re doing.

Ash Patel: Alright, let’s dive into this vertical integration. A property management company, I get that. Do you manage just your own properties or others as well?

Chris Pomerleau: So we had two management companies. My partner, Collin Schwartz, he started a property management company in 2017, which we both own. We manage our own properties, all 700 units here in Omaha, Nebraska. So that’s not third party. It’s only what we own in Omaha, and Council Bluffs, which is nearby.

We also have a third-party property management company we started recently and that manages over 500 units, from the Des Moines to Manhattan, Kansas, Wichita… And that is for anybody really, but we formed those partnerships with another property management company we had utilized in Kansas City. So there’s two different companies there.

Ash Patel: And you’re in seven different states. How do you identify what markets you want to purchase assets in?

Chris Pomerleau: I’ve been on many of these podcasts, and I’m always hesitant, even on our website, to advertise us as a Midwestern investment company, because it just so happens all the seven states we’re in are Midwest. I’m sure sooner or later, we’ll find an asset that makes sense for us that’s not Midwest; but the reason we like the Midwest, is it’s just consistent. So if you have another 2008 or 2009, we’re not going to lose 40% of the value of our apartment, the rents aren’t going to go down. Maybe instead of 7% a year, maybe it levels off to 2%, but the value stays the same. All of our investors knew from day one this was a long-term play, so that one or two years of the next recession doesn’t really affect anybody, and then we’re right back up the gradual increase.

And what I like the most is that I’m not relying on the market, the group that we’re a part of. We’re forced-appreciating our assets. I don’t have to just buy something in San Diego and just know or count on tomorrow it being worth 40% more because it’s such a hot market. Nothing wrong with that… We feel comfortable with just knowing that It doesn’t really matter what we do, it’s going to stay relatively consistent in the Midwest, and then if we really want it to appreciate, that’s on us to forced-appreciate it. That’s why we like the Midwest so much.

Ash Patel: Yeah, I agree with you. Buying it 2-3 caps, banking on the what-if not happening, right? What if the economy collapses… — there’s not a lot of margin for error in some of these deals.

Chris Pomerleau: Agreed.

Ash Patel: A title company – why would you integrate with a title company? And what does that integration look like?

Chris Pomerleau: Yeah, so me and a handful of relatively high traffic, high business individuals in Omaha that are all real estate-related, we partnered with another title company in town that had the operational aspect down, and we formed a new property management company. Why do that? Because my partners that are a part of the traffic building part, we do so many transactions; hundreds upon hundreds upon hundreds transactions a year in real estate. So you’ll learn throughout the process of investing, why would we pay another title company all these fees? Why don’t we just own that title company? And it’s not like I’m driving down there and drafting the paperwork. The title company we teamed up with has the operational experts; they’re the ones who already know what they’re doing. It’s kind of on us to bring the traffic, which we do. So it’s great to know that over 95% of the time, we know exactly the people related to the title company, we know exactly how they’ll handle it, we trust what they do, they’re used to us, and then we’re not paying other people to do things that we can pay all of ourselves with.

Break: [16:25] to [19:18]

Ash Patel: You don’t want to leave any money on the table.

Chris Pomerleau: I’d rather not.

Ash Patel: Yeah. Hard money lending, you’ve got a lot going on. Why are you messing with that?

Chris Pomerleau: You know, I love this topic, because when you’re talking to people that aren’t that familiar with it, it kind of has a dirty name. I don’t know if it’s necessarily — if even a lot of syndicators work with it… But again, we have this meetup in Omaha here, we have a lot of traffic, and we have a lot of people here that are investing in real estate. And of course, as you imagine, there aren’t as many multifamily — there’s a lot of single-family or flippers or wholesalers, and they need access to capital. If you utilize hard money the right way, it’s the best financing. In fact, when I tell people about this… We charge 18%, that’s what our hard money lend is. The minimum is 30 days. Now, that sounds weird in a market where you can get a loan for 30, in the threes. But if you use it correctly, or intelligently, it’s the best situation ever.

Let me give you an example. I, myself, have borrowed over a million dollars from my own hard money lending company. And why did I do that? I bought a $450,000 strip mall that while I had it under contract, I went out and found somebody else to buy it for $550,000. So I closed on it in about four days… No bank will close on anything in four days, but I gave them the money in four days. 40 days later, I sold it for $550,000. We made $100,000.

So within 44 days, I utilized hard money, and I went out and made $100,000. A bank couldn’t even close in 44 days. So that’s an example of how I’ve used it. It just so happens that’s how we want our customers to use it. Most of our clients are house flippers, people who want to buy something really quickly, and then go to a bank and refinance it so they can do their own BRRR method… And it’s just another tool in the toolbox, really, so that everyone has access to capital and we can use it to invest in real estate.

Ash Patel: Chris, do you look at any commercial assets besides multifamily. The strip mall, for example.

Chris Pomerleau: What example?

Ash Patel: The strip mall, for example.

Chris Pomerleau: Well, we certainly didn’t want to keep to own that. There were some units up top there, but we really just knew that we were getting it for much less than it was worth, so we wanted to get rid of it. Now, do we entertain the opportunity for other sectors in the commercial space? Yes. We’ve been looking at some industrials, some storage and some mobile home. But we haven’t taken that jump yet, and I think it’s a combination of two reasons. One, I don’t know how good our deal flow is on those; we haven’t really gained that respect from a number of people who would pass that our way. And to be honest, we’re not comfortable with it yet. So before I spend $7 million of our investors’ money, and my money, because we put our own money in our own deals, in the industrial space, I want to make sure we’re really confident about it. So look, if we talk again, in three years, we may have something outside of multifamily, but we haven’t taken that jump yet.

Ash Patel: Chris, what’s the hardest lesson you’ve learned on this journey?

Chris Pomerleau: The “I’mma” mentality, the mentality that I’m going to do everything myself – it only gets in your way. Thinking that everything needs to be perfect and a pinch to save every penny you possibly can before you make that first jump – I think that’s the wrong way to go.

There’s a phrase — I forgot how it goes, but basically, you’re going to be frozen if you don’t actually move forward and do something. And I think that that’s what I learned over the first four years; I owned four single-family homes in four years. That’s not going to really get you very far. Don’t get me wrong, I learned so much. I made some banking connections, we made some money off of those, and I got to spend a lot of quality time with my father. But it wasn’t going to help me build that. And that can be said whether it’s a single-family home to a 20-unit jump, or whether it’s a 20-unit to a 350-unit. You have to not be afraid, find the people who know how to do it, team yourself with them and just move forward. I wish I would have done that earlier.

Ash Patel: Chris, what is your best real estate investing advice ever?

Chris Pomerleau: Partner the right way. Look, this is kind of what I just said… Team up with people who know what they’re doing. And that does not mean necessarily go find a syndicator and be their co-GP. It could be you know a lot about how to underwrite and you have the balance sheet to be the syndicator. But you don’t have a property management company and you can’t find one; there’s only one in town that’s worth anything. See if they’ll be your partner. We throw some of our property management companies a little bit to the GP piece, because now their interests are aligned. And instead of me trying to learn everything myself, I trust the experts to do what they do. Well, I have a property management companies down in Dallas, [unintelligible [00:23:29].21] I’ll give them a shout-out. They’ll help us just to underwrite properties… I’m not going to go buy something unless they’re comfortable with it. I don’t need to teach myself for hours upon days the perfect way to underwrite a deal in Dallas; I need to know what I’m doing, and then I can also rely on experts who have done it already hundreds of times.

Ash Patel: Chris, are you ready for the Best Ever lightning round?

Chris Pomerleau: I am.

Ash Patel: Let’s do it. Chris, what’s the best ever book you’ve recently read?

Chris Pomerleau: Who, Not How.

Ash Patel: What was your biggest action item from that book?

Chris Pomerleau: A lot of my stress is my own fault. I don’t have to do everything myself, and a lot of times the reason we’re not growing is because I’m doing it myself, or our company is not hiring. So Who Not How is just basically, find the right people to get the stuff done. It may not be you, and you need to be willing to deal with that.

Ash Patel: What’s the best ever way you like to give back?

Chris Pomerleau: Gosh, [unintelligible [00:24:14].04] We’re volunteering our time over the holidays here to serve some food. We do that every single year. We also are starting to take a significant amount, a portion of our profits from our property management company here in town to give back and buy gifts and stuff for the holidays. We like to do that as much as we can.

Ash Patel: Chris, how can the Best Ever listeners reach out to you?

Chris Pomerleau: I’m on LinkedIn. I’m on Instagram, Twitter; you can find us at parkaveinvesting.com. I’m always wanting to talk. I can talk about this stuff forever. I feel like all I do is just talk this entire time; maybe that’s my nature, but I love real estate. I’m always willing to help anybody I can.

Ash Patel: Chris, thank you for sharing your story with us, from being an attorney, the four single-family flips, to hundreds of millions of dollars in assets under management. We appreciate your time today.

Chris Pomerleau: Thanks for having me. I appreciate it.

Ash Patel: Awesome. Best Ever listeners, thank you for joining us, and have a best ever day.

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