Podcast Episode 156 Transcript

Episode 156: The Wealth Architect: Unleashing Real Estate's Profit Potential with Chad Zdenek

hey everyone on this week's episode of the prereal podcast we're joined by Chad Zdenek he's the founder and CEO of CSQ properties Chad it was a rocket scientist turned entrepreneur unbelievable insights he really walks you through and and it was a real life story of how someone who had no experience in the real estate industry outside of Contracting who was a rocket scientist gets involved and recently just 10 years into his career 12 years into his career just closed on a 53 million dollar multi-family in Orlando so from no experience at all to 53 million dollar acquisition on one property Chad Zdenek founder and CEO csq properties you don't want to miss it are you ready to bring your real estate game to the next level my name is James Prendamano I'm the CEO and founder of pre-real and over the past 25 years I've closed over a billion dollars in transactional real estate each week a meeting with outstanding investors High performing individuals and Visionaries operating in the real estate space these are the people that are actually out there in the real estate game right now getting it done this podcast aims at bringing anyone's game to the next level this is the prereal podcast welcome everyone to the prereal podcast we're joined today by Chad Zdenek he is the CEO of csq properties and founder uh folks this is one of the stories that that we wanted to share we're so excited to to talk to Chad uh of someone that was involved in the periphery on the third party side of real estate and transactions uh not as an investor and has gone Full Tilt in uh from rocket scientists to a recent acquisition of 53 uh million dollar multi-family property in Orlando and I'm being literal when I say rocket scientist Chad thank you so much for taking the time and joining us today man I'm really excited to connect with you you bet Thanks James glad to be here yeah so you know uh like literally when we say rocket scientist you work for Boeing uh from what I understand you you were uh on a show on that Geo like this was this is your world this was you know what you were doing for a career uh you had your GC license you know for 25 years plus where's the pivot for you where's the moment or or what's that story about where you said you know what this isn't for me anymore I want to get into the real estate side of things sure yeah so I was a structural engineer uh working for Boeing on the space shuttle main engines program uh I did that for seven years and I did some Structural Engineering Consulting and general um General Contracting construction work as well um and for me it happened the switch when I I always knew I was an entrepreneur always knew I wanted to run my own business and my brother had started a lighting business uh which he kind of recruited me over to go work with him on and uh it was at the same time we actually both at UCLA so both my brothers were playing football at UCLA I was getting my MBA at UCLA so it's kind of rare to have three brothers at UCLA all at the same time we had one year where we all three of us overlapped and um and my MBA was focusing on entrepreneurial studies and using my my brother's business as kind of my my pet project and uh and eventually the bill the business started growing and he recruited me over so I left Boeing he promised to uh to pay me more than he was paying himself I wound up taking like a 50 pay cut to go work there and uh leaving Boeing and working with NASA and all this this stuff that that had a pretty good appeal to it and uh to just start a really really small company um but we grew that we grew that to about 75 employees three different Warehouse locations uh here in La the biggest um lighting company here in La doing uh mostly Christmas lighting event lighting landscape lighting and um and then in 2018 my brother took over you know bought me out took over the business and uh and I'm like I gotta get into real estate finally you know because I we worked with all these really wealthy clients and a lot of them made their wealth from Real Estate and so my brother and I had wanted to do that for like 10 years to get into it but we just never did and and I'm like you know what now's my opportunity I'm gonna jump into this thing full time I started uh csq properties which stands for the challenge status quo and uh and I did it and I just started doing my own uh local syndications here in Long Beach um I was a solo GP not doing everything from A to Z and um and which was really time consuming a lot of work but I learned a lot and then uh and then started partnering with people out of state to do bigger deals and uh and that's more or less what I do now I know you're in New York and and me here in La you know a lot of legislative issues especially during covid and it's gotten a lot a lot more difficult from a landlord's perspective and uh so right now I'm doing a lot more stuff out of state with with partners what's the draw what is the poll to to take you from a company like Boeing taking a 50 pay cut in in salary uh why I mean candidly what was the poll there yeah for me it's it's really um who I am as an entrepreneur I always really I've always been entrepreneurial I've started or helped run six different businesses now and um and that that's me in in my my true self and I love Boeing um worked with incredibly bright group of people did some amazing things so that had appeal from that standpoint but I'm I'm an entrepreneur and and so for me I always wanted to do that I always wanted to bet on myself and um you know there's a lot of red tape in these big companies they do amazing things but the red tape can be very frustrating especially for a guy who's got an entrepreneurial mindset um so for me that was the main driver to leave I've always been okay with risk when I'm betting on myself and um yeah I took a huge pay cut but then in the end wound up doing way better and just take a little time to there what are some of the things that you've seen come down the pipe out there Chad that that for you guys was okay we need to start placing our dollars in other states yeah well and before I get there I think it's important to realize you're right I totally agree they they have good intentions of passing this legislation but with all good intentions there's unintended consequences and that's really what is the heart of what's driving our decisions between you and I we're coming to the same decisions in in two different uh parts of the country opposite parts of the country for that matter um so so for me you know uh going through covid owning properties here in Long Beach um I'm under the jurisdiction of the County of LA not the city of La it was very intentional for me not to do syndications in the city of La although I do own my own investment properties uh in the city of La I did not Syndicate those or bring other investment money into that uh in part because of of some of those uncertainties um but it's brutal I mean we still have in La we still have an eviction moratorium going on right now right now it's slated to end the end of January 2023 as we're filming this in the fall of 2022 it's still it's still going on and the City of La just passed a rent freeze that's going to continue on through all of 2023. so like you have you know that it's really almost become a misnomer about about property rights right I mean they've really in have have impacted property rights so they say okay you can't you can't raise rents right for for four years right but what have they done to your maintenance costs what have they done to any of your your pers your property management expenses right construction expenses none of that's capped the only thing they've capped is the The Profit side of of your income statement and the expense side is as we all know has been going crazy with inflation and so they're literally tying the hands of property owners um which which in my in my my opinion is not right and um I don't feel comfortable investing my money in that sort of situation certainly don't want to bring other people into that and uh so we're investing in business friendly sites Estates like the most of the country is right now there's a reason why these states are booming and um and that's where we're putting our investment dollars and it is going to have unintended consequences for these areas where in Investments are leaving from what I understand the percentages out your way are startlingly high of folks who have actually stopped paying rent like I'm hearing 30 40 plus percent of renters are not paying rent anymore well and it's gotten worse by the way the first 14 months of covid I had zero missed rent payments 14 months not a single missed rent payment right the rest of the world the rest of the the country at least is coming out of covid at that time and and now you have more and more tenants that are claiming in covet hardship which is really it's it's a verbal claim there has to be there doesn't need to be any documentation in terms of a coveted hardship you just have to attest to it and uh and they and then that's when covid um rent collection issues got worse was after that you know for me it was 14 months some people saw it earlier some people saw it maybe a little bit late or not much most people started seeing it get a lot worse in that year and a half time frame and to where we're still dealing with it now so you've got you've got um a high number of job openings right you've got unemployment low with with huge number of job openings and people still claiming uh making making a verbal attestment that they have a covid hardship they don't need to describe what that really means and then they don't have to pay they're not they're not liable for paying that rent right now um and and it's the landlords they're left holding the so the ability to acquire real estate in some of these secondary and tertiary markets we feel like this may be the greatest opportunity we've ever seen where pricing as the markets shift and we head into challenging Economic Times now we don't believe we're going to see that huge drop off in some of these secondary and tertiary markets has that been part of your your strategy and mindset also I agree 100 100 and and I I've actually done some talks on this um especially earlier on like before covid I was a big primary Market guy exactly for the reasons you're talking about and I would I would preach that real estate runs on 10-year cycles and people have seven year memories and they forget how clobbered these secondary and tertiary markets got so I'm I'm investing in Long Beach I'm investing in La SoCal right like like a solid primary Market that was all before covid and a lot has changed because of covid and and I think and time will tell but I think it's going to be a lot stickier than than what maybe people initially thought when we were a year into this thing and and by that I mean people are moving to where they want to live and working remotely and and forcing companies to figure out how to deal with a remote Workforce it might not be 100 remote Workforce but there is an element uh that companies are dealing with and uh and it's not it's not changing so I'm a I'm a member of a group called The entrepreneurs organization it's a 17 000 person uh organization worldwide I was actually president of my chapter last year and uh it's all million dollar and above businesses to be a part of EO and um and I so I'm dealing with these people there's there's 170 people between LA and La North 170 business owners that that I interact with on a regular basis and these business owners are being forced to learn the deal with a remote Workforce and um I think that's going to bode very well for these secondary and tertiary markets and what would normally happen on a downturn where they do get clobbered and they wind up dropping farther than a primary market and they stay down lower than the primary Market I think that story has shifted a bit and and for me I'm a lot more open to looking and investing in these secondary and tertiary markets because I think these migration patterns that we're seeing are gonna stick people aren't going to just all of a sudden decide okay now I'm gonna move back or now I'm going to go back to the primary core I was before like that's that's not going to happen so I think that the uh these secondary and treasure markets are going to be insulated a lot more than they ever have been in the next downturn what are your requirements on the debt side of things rate locks uh considering the market and where this is headed what what do you want your deals to look like now to be strong enough to endure and get to if you will the other side of the rainbow yeah and there there's a lot of clouds before you get to the other side of the rainbow yeah um I mean this is this is a very very tough market for debt so a couple things that I would suggest to to your listeners um the first is you got to have a backup plan and um what I'm seeing right now out there is there's a lot of retrades on the debt and uh by retrades I mean okay you get an Loi from from your lender you know two months before you're gonna close and then they change it the week of the close like I mean this is like a disastrous disastrous uh issue to deal with um not so much if you have a plan B but you gotta you gotta really button up your plan B um the amount of deals I'm seeing retreated on the debt like literally um you could have like I mean we we've had it right so on another deal we had a um uh 30 35 million dollar debt um from a bank it might have been uh 72 LTV something like that and the week could close they they they reduced it by two million bucks right okay so maybe it's like eight percent you know okay eight percent drop okay it's still two million two million dollars that the GP teams got to come up with otherwise you're not closing and then you got to go talk to the seller and how much money do you have hard on your EMD money like it's a disaster so for me I'm looking at having um Gap funding or short-term uh hard money set up ahead of time so that if that does happen that you've already got your your secondary lender is kind of comfortable with the deal comfortable with the GP team and you can pull that trigger a little bit faster like like to me that that's key um you mentioned briefly about having rate caps that's mandatory um but very very expensive um so we had we had a uh six hundred thousand dollar rate cap just for two and a half points uh cost us 600 Grand whereas a year ago that probably would have cost us 50. so you got to have these rate cap numbers in your underwriting because it's huge and but you can't you can't do it without a rate cap like like who knows where these rates are going so you really want to have a rate cap um most recently something that we're doing that's pretty interesting sellers are always you know notorious for coming around a little bit slower than the buyers right in terms of a downturn right they always see it last um but they're starting to see it a little bit so one of the things we're doing on on two properties uh that we got under contract in Florida right now is uh we're actually approaching the sellers to do some carry back financing so we're doing a 50 LTV with the bank so the bank's happy with that their first in position and then doing a 25 carry back uh with the seller um at a modest interest rate maybe four or five percent and um and tell them the seller like hey you want your price we can do that price but you got to have some some seller financing here you got to carry back some of this loan and by the way we want it at four percent if you don't like that that's okay I understand if you want you know six percent or you don't you don't want to carry back anything well the price has to adjust because if we stick into our underwriting and we're trying to stick you know maybe the returns are a little bit lower but you got to have some returns then the price has to adjust if you're not willing to be flexible there and um at least with the last two deals we're looking at the sellers were open to it and we're able to get four and five percent seller carry back financing for um for 25 and they're second in position so the bank stays happy and at a 50 LTV you got a less likelihood of getting a retrade so so that's working pretty good we're just starting to roll that out and uh but you gotta watch the debt I mean that that that's a critical piece right now in this really really uncertain uh Market we're in how long are you shooting for in your rate locks how long do you think you need to be locked in for to get through these these difficult times yeah and look that's the that's the million dollar question right because you could rate lock you could do a five-year rate lock but you're gonna pay a five-year rate lock you know like yep your numbers your numbers aren't really going to pencil out if you're if you're being that conservative um so so it's just like anything else it's I think it's walking that fine line between you know uh how long of a rate lock you're gonna have or or how low is that ceiling gonna be because you know the more conservative you want to be the cost can get really really high so so there is going to be some element of of risk that we're still having so like for us we're doing a two to three year rate locks um we're trying to have more favorable options uh on the debt um if you have a you know three plus one or whatever might be for bridge financing um to really try to negotiate some of those options up front but uh and and so okay so we got to understand we had gonna have some element risk we're not going to purchase that that risk away because it would the deal wouldn't make sense but I come back to a comment you made earlier about the housing shortage that we're in right now right I I believe we are in a housing shortage actually everyone believes it the question is by how much so so if you have let's say four to six million units some really conservative estimates might say one million units that were short but we're short units right but what's happening right now you have builders that aren't building anymore they're slowing down again at the exact wrong time to be slowing down so you have inflation that's going on you have rents that are that are still going up really high especially in these markets that we're talking about and inflation is is driving that and you have builders that are slowing down so this is a this is it's not a good recipe for for uh for rent renters or for homeowners for that matter but for investors is really good right so we we're having a built-in hedge one on inflation because rents are increasing and two on inventory because Builders are slowing down and we're already short right we're in this mess because of what happened in 08 Builders stop stop uh building and our 40-year average was was below for 10 years before we got back up to the 40-year average that's that's why we're left with these four to six million units short so so that problem's not going away anytime soon and those two things I think bowed very well for for investors so what I'm doing is okay there's a lot of uncertainty in the market right now but we've got two major major Tailwinds um that we can ride for a really long time and if we're able to negotiate a little bit better right now either on on pricing from the seller or on some of the seller back Finance uh seller carry back financing like let's let's run with it you know let's use this Market to negotiate the terms we try to mitigate some of the risks like we're talking about but lock these properties up because it's going to take a long time for inflation to come back down and as as you know James these prices are sticky right once they go up it's very very hard for them to come down if at all so I think anybody who's locking up property right now they're going to do very well in the long term uh how do you do it how do you go about pulling together the team you're you're a contractor by trade initially and you know what that's like right you've got your your team you've got your people on the ground in in SoCal but that's not helping you out in Kansas where I know you have some Holdings down in Orlando how do you how do you bridge those those miles literally yeah and and that's uh that that is a pretty serious issue especially for a guy like me who's an engineer and I like to really know what's going on and have my hands and everything it can be a bit limiting at times um but for me I think I see it as two main ways or two main things that that need to be done uh one is is you've really got to grow your network for me I've been to almost 20 different conferences this last year um so I'm traveling a lot meeting people spending a lot of face-to-face time with potential Partners uh I'm always always evaluating and and quote-unquote interviewing Partners like always you've got to be doing that and um uh because these are people that that you're going to be putting a lot a lot of trust in and the question isn't isn't is something going to go wrong with the property or deal the question is what is it going to be there's always something that goes wrong with the property right that's not the question so so the question is is how are you going to deal with it how's your team going to deal with it and for that you got to have a lot of trust and you really got to know your partners pretty well so for me conferences and traveling is is pretty Paramount to to connecting those dots uh the second part of that would be uh joining Mastermind groups I've had a lot of luck um joining Mastermind groups I'm a part of the real estate guys uh Inner Circle um and I've partnered with a guy from there um and it's it's been great just having having that kind of that Mastermind Network because you instantly have a level of trust set up if someone's in your Mastermind group uh like they basically have to sabotage themselves in that group if they're going to kind of go sideways on you on a deal right it's more than just me on a deal because they're a part of this group uh I'm also part of um Hunter Thompson's group race Masters and uh looking to partner with some people in in that group so I think if you can join a mastermind you know it's going to cost you some money but think of it as an investment um you're definitely gonna have to invest in yourself um but these These are groups that can really help compress time frames in terms of getting to that point where where you can really trust somebody and and start doing deals together and those two between conferences networking I count that as one but conferences and Mastermind groups those are the two main ways that I I'm trying to accelerate these Partnerships because I mean look I know what it's like running a deal right I've done it from A to Z I would never touch it outside outside of my my circle here right my geographical area I literally I'd be at the property every every weekend and um I'd be doing my investors a disservice if I had to do that so so if you have Partners that's really how you can you can really take down bigger deals and and do them out of state which for me is a win-win right now uh true tremendous what are some um what are some things folks can invest if they wanted to reach out and connect with csq um on the investment side what do the parameters look like yeah I mean look I think a great way to get into this business for some of your listeners that might be newer to it or kind of Dipping their toe in the water here I think a great way is to go as a limited partner right I mean that's like how I started doing deals and so you got to have some capital okay you gotta save up some money but to go in as a limited partner you follow the deal you're evaluating deals you're learning about it and you don't have any of the risk like on your own shoulders right you don't have other people's money on your shoulders which is a a very big burden uh responsibility probably better word um so investing is an LP in other people's deals is a great way to do that and I and I do that with my own money um of course I invest in my own deals um but but I think going in as an LP is a great way to do it um you know typically 75k sometimes as low as 50 maybe as high as 100 but 75k is a pretty common number right now um so you do have to have some Capital but you learn a lot that way for us csq properties um you know you can take a look at what we're doing uh website csqproperties.com or LinkedIn Instagram Facebook and uh and really and this isn't just for csq but for anybody just start following them start listening to them start learning about what they're doing um and really getting comfortable with that that person or that group ahead of time because it's not something you're going to do on a weekend right it's not like you're gonna binge watch YouTube and all these podcasts and stuff to figure out who you want to invest with like it takes a lot of time and uh and sometimes you learn most about like problems that have happened and I know it's not not very common we don't like to talk about our problems but you get on some good podcasts and and we can talk about problems here but but you can find out find out what their problems have been and like I mentioned before the question isn't what uh winnings are going to be or what if there will be a problem the question is when there'll be a problem what is the problem because there's always problems I I know James you your deal is you guys have run into problems right um but the astute the astute um student or investor isn't really going to care about about the problems per se but like what did you do about the problems right how did you mitigate the risk how did you handle it as a team right and and how did you limit the downside of that problem those are all the really important questions that really can help you vet a good operator yeah it's a great Insight um anyone who tells you folks in this game that their operation is seamless and they don't have those problems either is completely lying or doesn't have a close enough eye on the portfolio that's what distinguishes us as as operators that's what separates the the good from the great and we won't go the other way but that that's what it is is how you deal with these problems they come up every day every hour sometimes that's that's that's what it's about right is is if you're not a problem solver at your core this isn't the industry for you and uh I think your advice of jumping in as a limited partner um and asking questions I I think a lot of people get intimidated uh and they don't realize like this industry at least with my experience everybody has been remarkably helpful friendly um these Mastermind groups are a great idea people want to uh to share their experiences their knowledge uh they want you to share and bring value also of course but um I've found it to be just a really wonderful community and uh you know we're having a hell of a time with it and this new new digital world uh has connected folks like you and I that otherwise wouldn't have had that opportunity and you know you never know what's around the next Corner man yeah yeah yeah you you mentioned before the I I've got a show on National Geographic called inside Mighty Machines and one of my side hustles I host TV shows and and I've been doing that for like 12 years now and I'll tell you like Hollywood like you hear about Hollywood like I don't like being part of Hollywood I love when I'm working and hosting and that stuff I love it but as an industry like I can't trust anybody like I'm sorry if my agent is listening to this but besides my agent like I can't trust anybody they'll tell you one thing and then they totally do something different and and I'll tell you now that I've been networking so much in real estate real estate is is totally different than that especially on the syndication side the operator side like we really want to help each other out we find new partners and you're constantly working with different groups like it's such a better environment than Hollywood and and for me it's been a a breath of fresh air because uh just like you James like I can call you up and say hey James you know I saw you were doing these out of New York's New York State deals like how's that been for you and like you'll talk to me you'll tell me the low down and dirty I know you're going to be honest with me I would do the same thing for you and I find that uh that syndicators are just really out there to help each other out and uh an open book and uh to me that's just it's been great because it's a lot different than Hollywood uh can you give me one or two suggestions books podcasts anything that you think would be helpful uh for folks either starting out now or as they're preparing to adapt their strategy for what's ahead yeah I mean that I think it kind of depends on their Journey you know we all hear about Robert kiyosaki's um you know book is is key a lot of his books are really good um he's a great place to first start if you're let's say like a W-2 person thinking about investing out out outside of your world if you will or stocks and bonds I think that's great uh for me personally I've gotten a lot out of the real estate guys they put on about six or seven conferences a year and in-person conferences um I'm kind of a groupie at this point I go to all of them um and multiple times by the way so so there's one that they put on called the secrets of successful syndication they do it twice a year I've gone four times um a really great spot uh one to kind of learn the ropes of this business but two just to meet other really good operators they get about 350 people a year over there um so I I think that's that's a a solid way to kind of get up to speed on on the syndication side of things um the other thing too is like listening to podcasts like like you're doing you've got some great great guests on your shows there's a lot of content out there YouTube videos uh which has been great um and I've learned a lot that way uh as you get more experience you might be a little bit more just learning about about the content you hear like well that's not quite my experience so some of that will take a little while to kind of get to that level but it's a great place to start and I've learned tons that way beautiful uh Chad what's the best way for folks to get a hold of you really csqproperties.com or uh you know any of the social media channels for for uh for csq properties uh email would just be info at csqproperties.com well really appreciate the time man best of luck cool thanks for having me on brother appreciate it now my pleasure as always everyone out there please stay safe foreign [Music] foreign [Music]