There are important factors to consider when you assess deals and underwrite as a passive investor. This episode’s guest is Charles Seaman, the Senior Acquisition Manager and Asset Manager at Three Oaks Management. Charles discusses with Lisa Hylton some of the key things you need to think about when someone presents a deal to you. You need to understand how they operate, look into their background, and check if they are competent to run a deal. Join in the conversation to learn more about the importance of having a good management team, the difference between agency financing and bridge financing, and why you should invest your time in growing your network.

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Building A Nationwide Underwriting Community With Charles Seaman

I’m super excited to bring another amazing episode. I have on the show, Charles Seaman. He is a native of Brooklyn, New York and resides in Charlotte, North Carolina. He serves as a Senior Acquisitions Manager and Asset Manager of Three Oaks Management LLC, in which he actively works to locate high-performing, multifamily real estate deals throughout the Southeast region of the United States. He’s responsible for performing all of the companies’ initial underwriting and analysis of these deals which ultimately determines whether or not the deal will be a good fit for the company. He is also involved with contract negotiation and capital raising to make sure that the deal is closed. He remains involved after the closing to manage the assets so that they perform in a manner that provides investors with exceptional returns.

He has fourteen years of prior experience working for a commercial real estate investor in New York City. During this time, he assisted the investor with acquiring deals, obtaining financing for them, managing and leasing after all the deals were closed. While he was there, he also assisted the investor with the management of numerous businesses that he owned, including plumbing, several bars and restaurants. In his spare time, he also actively traded stocks from 2009 to 2014. Charles, I didn’t know that you were a stock trader for a while.

I like to be diversified.

Welcome to the show. I appreciate you coming on.

Thanks so much for having me. It’s an honor and a pleasure to be here.

For the readers, Charles has an underwriting class where he underwrites real-time, soup to nuts, property every single week. I ran across a quote, “The plan doesn’t need to be extreme, but the commitment does.” It takes commitment to continue to show up every week.

Oftentimes, that is the single greatest difference between somebody who gets to the finish line of somebody who quits right before the finish line.

The episode is broken out into three parts. The background, experience and then reflections. We’re going to get to know Charles. We do know that he lives in North Carolina. What do you do for fun?

I probably spend too much time working. Eventually, I like to get back to a little more fun but in my previous life, I have always been a big professional wrestling fan. It was usually a combination of watching or attending wrestling events, at least pre-COVID. Other than that, spending some quality time with my dog and going from there.

What kind of dog do you have?

My dog is a little guy. I don’t fully know what he is but most people suspect he’s part Chihuahua and part Jack Russell Terrier. I tend to agree with that.

I have only heard him in the background sometimes when I join on those Saturdays but I don’t think I have seen him.

He does take after me. He’s very vocal.

How long have you been in the North Carolina area?

I have been here for years. I moved down here in June of 2019. My primary reason for doing so was to focus on multifamily down here in this region and it’s worked out well.

That’s perfect because this leads us right into the experience. It sounded like you discovered real estate investing from the job that you were working in, in New York. Is that accurate?

Always be open to learning. Click To Tweet

That would 100% be correct. Unlike most people that actively sort it out, I was probably more the opposite. When I was twenty years old, I was young, dumb, broke and I needed a job that would pay the bills. I was a bank teller in my younger years from the age of 18, 19 and 20. I realized at that point, my mother became disabled and I said, “I’m not going to be able to keep a roof over our heads and put food on the table and do all those wonderful things on the $8.83 I was making as a bank teller.” I started working for a successful investor in New York that also owned other businesses. When I first started there, I wasn’t sure what I was going to be doing because he owned several different businesses. I didn’t know exactly what my role would entail but at that point, it paid more so I was open to learning.

When I first started, what happened is within a few months, my role expanded significantly and then that would continue happening throughout my time there because the gentleman that I worked for was very successful and had done very well for himself owning and operating several businesses. One of the things that he took to me was because I never complained, always asked him more, and I always took on more responsibility. Sometimes probably too much but I never shied away from learning new things and taking on different responsibilities that I didn’t have previously. With that, I also got to spend a lot of time with him.

There were many nights where I was the last one in the office with him. I’m not talking about normal hours. It’s 10:00 PM, 11:00 PM, midnight and 1:00 in the morning sometimes. I get to work very closely with him and to learn a lot from him. Anytime you have the chance to work with a guy who was highly successful and to learn what they have learned I say, “I couldn’t have got that same experience in any class or more traditional job setting than I would have had.” There was a lot of hard work and a lot of lessons learned but they were good lessons.

At what point did you determine that, “I would like to do this on my own.”

I determined that when I was twenty. I first started there and my intention was, “I’ll be there for 2 to 3 years and then do my own thing.” Sometimes what happens in life is, things change. What happened is I started making a little more money. I started gaining more success there. Perhaps I became complacent to an extent because all of a sudden, I must’ve forgotten what I initially set out to do. As I hit my early 30s, I said, “I’m not getting any younger. The time to do this is sooner than later if I am going to do it.” Around 2014 or 2015, I started dabbling and looking into single-family and wholesaling them.

For me, I realized a couple of things quickly. One was, I don’t like single-family. Part of it was because I was working on these big commercial deals at work and I’m saying, “This stink. Now, I’m going out and starting with single-family on my own.” To an extent, I felt it was a step-down. For anybody out there who does single-family, keep in mind this isn’t a knock at them. It was personal preference. The second thing was, I also didn’t have the skillset for single-family. It would have required me to develop a brand-new skillset aside from what I already had. I took a step back from that after determining those weren’t the right fit for me. Lo and behold, syndication came into my life and I started learning about that.

How did syndication come into your life?

It was probably through some type of marketing, either a Facebook ad or a TV infomercial. I initially started with one of the many guru trainings that are out there. I said, “This makes sense because they said I could use the skills that I have. I can invest in the deals I want to invest.” For me, the biggest obstacle was I knew that I didn’t have a budget to go out there and buy commercial deals myself. It gave me the opportunity to use the skills I already had and to use other people’s money to fund these deals.

That brings us to where you’re at now. As I said in the bio, your focus is the acquisition underwriting of different deals. Can you talk a little bit about, as passive investors reading this, what are some of the key things that they need to think about when someone presents a deal to them?

The most important thing is the strength of the management team. The challenges when you are brand new to something, it may be tough to assess that from the beginning because how do you know what one group is telling you versus another? For me personally, before I would invest with anybody, I’d want to feel confident. I would probably have multiple conversations with the entire team so I could understand how they operate and what their backgrounds are and what makes them competent to run a deal. Any deal has three components to it. It has the management team, the deal itself and the area that the property’s located in. In my opinion, the management team is far and away from the most important. It’s often said that a good management team could take a bad deal and run it well, whereas a bad management team can take a good deal and run it into the ground, and I firmly agree with that.

Vet the team, feel confident in them that they have the experience needed to protect your money and to run the asset properly that way, they can make the return they’re projecting. Also, what I would look for is I would compare multiple deals. I personally would look at the underwriting and some people don’t. That’s a personal preference. I like to see where I perceive people to be conservative. Everybody says they’re conservative but I think there are certain things you can look at and say, “Are they conservative?” It’s April 2021, we’re at a time in the market where things seem to be booming but it is a unique time because, at the highest level, it appears things are booming but there are a lot of issues that are coming to light and that may become bigger issues.

I can make an argument for the market continuing in the incredible uptrend it’s had and I can also make an argument for things rolling over and resetting. I can go either way with it. One thing that I look for is the rent growth that I see people projecting. If I’m seeing people using 3%, 4% or 5% a year, it’s not to say that’s unrealistic depending on the market you’re investing in and the asset class it could be. If I’m looking at somebody that’s buying an A property, I would expect to see higher rent escalations there than if they’re buying a C property.

What I would also do is recommend getting familiar with the market and considering you’re doing this passive, you don’t have all day to spend on it. Maybe do some high-level research and see what has rent growth typically averaged in that market over the last five years? That past performance is no guarantee of future performance but it’s a good indicator. If a deal was only averaging 2% or 3% in 2017 and 2018, I’d be very cautious if I saw an operator putting down 4% now.

Can you talk a little bit about financing as well?

Financing is one of the key components of any deal. It is a very important aspect because these deals are so heavily financed. There’re two predominant types of financing that you’ll see most operators using. The first one is called agency financing, and that refers to a loan that’s backed by either Fannie Mae or Freddie Mac. They are not lenders. They are just the government entity that’s backing those loans. You do deal with the lender and you have to get approved by that lender’s underwriting guidelines. Generally speaking, those loans will loan no more than 80% LTV. Sometimes they do have hybrids where you may be able to get funding for CapEx to work as well but depending on the size of the market you’re in and the financial performance of the property, you’ll generally be somewhere between 70% and 80% loan-to-value.

LUR 78 | Assess Deals And Underwrite

Assess Deals And Underwrite: Before you invest with anybody, try to really understand how they operate, what their backgrounds are, and what makes them competent to run a deal.


The difference will be the downpayment that’s funded by the ELP. The second type of financing that’s common is bridge financing. That’s something I’m seeing more groups use on a regular basis. The benefit of the bridge is that it has much lower restrictions. Things that you wouldn’t necessarily be able to get approved for with agency financing, you can get approved for with bridge financing. Oftentimes you can also get more money for your CapEx. If you’re going into a project that has a big physical value add then a lot of times, bridge financing will be a good option because you can get a lot of that CapEX funded. To put it in perspective, debt is always cheaper than equity because debt may cost you 4%, 5%, 6%, depending on where you are versus equity. Oftentimes, you’re paying an investor at least 15%. In comparison, debt is always cheaper. The goal will be to use as much of it as it makes sense to without over-leveraging the asset.

As passive investors look at these deals and they look at the debt. We’re in a very low-interest-rate environment. The Fed is pumping money into the economy to keep it afloat. One of the things that concern me when I look at deals to invest in is when I see that the interest rate is floating, for instance, or they intend to refi the deal in 1, 2, or 3 years and the refinance is necessary to achieve the returns. I get a little concerned. Could you talk a little bit perhaps about that path and how passive investors should consider looking at some of that stuff?

I would agree with the high-level thoughts that you had because it makes me nervous that something like that would have happened as well. To me, in particular, bridge financing can be a great tool if used properly, but it could also be very dangerous. The same thing with an adjustable-rate loan. For many of us on here, we were probably old enough to remember the 2008 debacle we had with loans that had adjustable rates. Adjustable rates can be good things but you have to understand how to use them and a lot of people don’t. Even for myself, I stay away from them because there are always the market risk that’s hard to accurately assess.

Unfortunately, we don’t have insight connections with the Feds so it’s hard to see what their planning is. We can see from a high level what they’re thinking but their thinking can change on a whim based on what we see happening in the economy. The danger with that is all of a sudden, you may have a stupendous rate going in. You may have a 2.0% rate, which I’ve seen some groups get and it certainly made me rethink, “Maybe we should be using the adjustable-rate loans,” but the caveat is, that’s right now, whereas you said, rates are for the most part at historic lows. If we do see a drastic increase over the next 3, 4, 5 years, then that’s something that could certainly impact the rate.

From a passive investor standpoint, I wouldn’t say don’t invest in a deal with a refinance necessarily that has adjustable financing. What I would say is to assume that you will have an extra element of risk and that regardless of what the operator tells you, there isn’t a way to assess that because that’s market risk. It’s not something that’s within the operator’s control. There’re two types of risks with any syndication deal. One, are risks that the operator can control and the second is a market risk, which is something we have no control over. That’s something like the Fed changing the rate or an area. I always say, “We could control the property. If there is an issue at the property level, we can fix it but if it’s an area, we can’t change the area.” The same thing with this. We have no influence over the Fed and how they choose to move rates so that’s something you have to adjust and pivot.

I want to pivot to talk about a deal that you and your team acquired. Can you share a little bit about where the deal was located and how many units to get us started?

It was two separate properties but they located right next to each other so we purchased them as one portfolio, totaling 64 units. It’s right in Charlotte, North Carolina. It’s in a section of Charlotte that is on the upswing. It’s an area that’s in transition but it’s starting to transition for the better. One of the benefits being that it’s in Charlotte is it’s seven minutes away from where I live so I can see that change happening.

Connected to that, would you say that your move to Charlotte has helped you in terms of understanding the city and probably even finding deals?

It’s both. In terms of understanding the city, my philosophy has always been, “How do you get to know any market better than by living and working in it every single day?” For me, I lived in New York. I had never been to Charlotte. I came here about three months before I moved and that was after I already made the decision to move. I leased an apartment sight unseen and had never even been in the city and said, “Let’s go for it and see what happens.” That being said, you get to understand the culture, people and areas as you get into it. Could I have done that remotely? The answer is yes, but it would have taken me a lot longer and I probably never would’ve got the same level of understanding as if I just immersed myself right in the center of it.

In terms of finding deals, it made it easier. One of the things I always tell people is that, “All of our deals come from broker relationships.” Could I have done that remotely? The answer is also yes. I could have made phone calls, sent emails and be persistent, but it’s a lot easier when I can do it in person. Perhaps my approach is more old school than most but I always take the approach of getting face time not the app but actual face time with brokers whenever I get the chance to. What I do for my brokers that I have good relationships with is I take them out for lunch or drinks, usually on a 2 to 3-month rotation. I also find other ways to get in front of them.

Some of those ways could be touring properties. I do that even for properties that I don’t necessarily have an interest in just to gain additional face time. For anybody reading who is looking to potentially be an active investor, I wouldn’t do that if it’s on the opposite side of the state. If it’s something you can get to easily and it’s not causing you a significant amount of time, I think it’s worth investing in it because you’re investing in that relationship. Other things as well, pre-COVID, we had a Super Bowl party at a bar. I said, “Let’s invite all of our good broker contacts.” We had a reason to get everybody together. I said, “We’ll all hang out and get to know each other a bit.” It was a good bonding experience. Our last two deals have been worked out over lunch meetings. Those have been very beneficial to have.

That brings me back to this deal. How were you able to find this one?

We initially got this deal through the broker that sold it to us in February of 2020. When we first looked at it, we knew that the area was starting to change. We could see some things happening and we felt that the seller’s number was a bit high and unrealistic. Keep in mind that we looked at it in February 2020 and they gave us financials from August 2018. I threw an offer out there to see if we could engage the seller and get his attention with the intent of getting current financials but that never happened. He came back with a higher price but we never got current financials. I said, “Give us current financials. I’ll see. Maybe we can come up to that.” Fast forward late September 2020, they take it to market. I see it come out there and I contact the broker and I said, “I see you finally got the current financials. At least that’s good.”

When you’re marketing it, they don’t want financials from a few years ago. Being that we had a headstart and I lived locally, it worked out that I already had a lunch booked with that broker for October 1, 2020 and this deal came to market in late September 2020. We decided to schedule a formal tour of the property for that same day, right before lunch. At lunch, I’ve been dealing with this broker for almost two years and he said, “When are we going to get a deal done?” I said, “How about this one?” We worked at the details from a high level over there at lunch. I went home and submitted an LOI after. We also were able to preempt the marketing process which is a significant advantage because as opposed to going to the end of it, where you’re competing against other groups, we’re able to circumvent that competition and prevent it from going through a further bidding war.

In terms of networking, was it something that you learned from when you were working in New York?

Market risk is something that you have no control over. You have to adjust and pivot as needed. Click To Tweet

Yes. It was learned from a lot of different people. The gentleman that I worked for in New York was highly successful. He certainly didn’t get hit by accident. There was a lot of hard work and contacts. I was able to pick up on that quickly. Also, the different mentors and coaches that I’ve hired and worked with through the years always drill into the importance of networking. It’s often said that, “Your network is your net worth.” There is a lot of truth to that, especially in a business like real estate that is heavily built on relationships.

Moving into this deal, you put in an LOI and then ultimately, you won the deal. Can you talk about the process of winning? Was it just a slam dunk or was there a point in time when you were like, “I don’t think this is going to go through?”

Precontract, I felt good about it going through. One thing I would say about the seller is, he is a good guy but he’s certainly a smart businessman and a good negotiator. Every time we put an offer in, initially, we started lower because my thing is it’s always easier to go up than to go down. I always prefer to start low and see if we can get it for a certain price and then work up. The seller was adamant about the number. He wanted $7.5 million.

I was high sixes. He then comes back and says, “No. I still want $7.5 million.” We then submitted another LOI. We go up to maybe $7 million or $7.1 million. He comes back again and says, “No. I still want $7.5 million.” We’re thinking it over myself and my two partners said, “We want to go closer on this.” I speak to the broker that we had a good relationship. I said, “Where do you think his head is at? Do you think he’s stuck on $7.5 million? Is there any wiggle room?”

He said, “You might be able to get it for $7.3 million or $7.4 million.” We got it for $7.4 million. That’s where it came down to. We got him down ever slightly, but not too slightly. In all fairness, he did have the highest rents in the area for any similar asset. That was a good thing that helped the property underwrite well. Sellers were asking for similar prices on a per-unit basis and their properties do not underwrite nearly as favorably because they’re not getting anywhere near the rents this guy was.

Overall, it was right around the six-cap. For anybody reading, if you’ve attended one of the various guru trainings out there, you’ll probably say, “That’s a lot lower than where it should be.” For anybody that’s active in the market, especially in a place as competitive as Charlotte, a six-cap isn’t bad at this point. It is a seller’s market. There’s no question about that. We are at a point in time where the sellers can more or less name their pricing and they’ll probably find any number of groups that are willing to pay that. Similar to the housing market. Oftentimes, they go above that even.

That brings me to two questions. One, that keeps us on this but I want to go off target. You have some other properties in the Charlotte area. Are you at a point where you have considered perhaps selling them?

No. The first property we purchased was in September of 2019. We were thinking about potentially selling that in 2021. The only caveat is that one has a CMBS loan. With that, we are more or less locked in for three years of interest either way. We’ll probably continue to hold it to minimize any unnecessary burden from that. We haven’t sold anything but we’re looking forward to the day where we could unload our first one and get a full turn on our track record.

Coming back to this property that you acquired, can you talk a little bit about the business plan because it sounded like the rents were ready to market?

The play with this one and for me personally, something that I have been favorable on since the pandemic is subsidized housing. I was both nervous and excited in 2020 that the market was going to roll over. I was nervous about the property I own but excited saying, “Things could go on sale.” That being said, subsidized housing, to me, has been the beacon of stability in real estate. Some people like subsidized and some don’t because there are arguments for and against like anything else. Sometimes, you may not get the most desirable tenant base. That’s true. You can screen tenants, and generally, through good screening and good management, you’re able to select the better ones of the bunch but there are always going to be some that get through that are less than desirable. Some people don’t invest in properties with those types of demographics solely because of that.

For me, I may have said that pre-pandemic with post-pandemic are my favorite types of properties. This property had 73% of the tenant base that was subsidized. The way I looked at that was, we may assume a high return. We may have some more control issues that we need to manage but we also have a stable cashflow. That’s valuable because, at a time in history where we have a lot of delinquency, especially in C-assets, I was looking at it and saying, “We could go out there and buy your market rate property.” You may have a market-rate component but that could be worse. It could be more risk because there is uncertainty.

I said, “With the subsidized base, what happens is we’re getting certainty of income.” There are a few things that we liked about it. There is no value add in the traditional sense of this property. One is to manage it a little bit differently, than to self-manage it. You did have some staff that he hired directly. We wind up retaining some of them because they were doing a good job. We’re also using a third-party property management company. The difference is that more oversight and experience are backing the property.

By having third-party property management, we went through a lot of different management companies. We found one that specialized in the size and type of asset that we were purchasing. The group that we hired manage both single-family and multifamily. The multifamily that they manage ranges from 15 to 80 units. For readers, if you’re looking at a 200-unit property, you’re going to want a different property manager than if you’re looking at a 60-unit property. It’s a big difference managing a property with on-site staff full-time versus no staff or part-time staff. Oftentimes, the company that does one will not be the company that does the other or at least not do it well. You want to find the company that fits your property’s needs.

We have been able to do that. Good management helps. The only real physical value add that we had is that two units were offline. One of which they used as a leasing office, the other is for maintenance storage. One of the things we’re working on is getting those two units back online and relocating the leasing office and the maintenance storage unit to a central area in the property. We have two more income-producing units that will be online in the next few months.

Also, being in an area that’s starting to turn. Being that myself and the other guys from Three Oaks are so close to it, we are able to see that change happening and feel good about it. It’s also an opportunity zone. The opportunity zone benefits won’t carry over to the passive investors, at least not in this particular case. Oftentimes, they’re designed for the ultra-wealthy but what will happen is that the ultra-wealthy will start investing in that area. They are going to start developing and improving.

LUR 78 | Assess Deals And Underwrite

Assess Deals And Underwrite: A good management team could take a bad deal and run it well, whereas a bad management team can take a good deal and run it into the ground.


As that happens, property values will start organically increasing, particularly with this property, where the 64 units are on the other side of the fence. I’m not even talking down the block in a different area. There is going to be a 148-unit townhome community built. It’s already approved and permitted. They’re going to be breaking ground. That is something that’s giving us a lot of encouragement because we could see all that change happening.

Can you talk about unit size in terms of what you and your team typically go after?

When we first started out, we would have told you 100 units and up. Ideally, that’s still the space that I like to play in because there are certain advantages. It’s easier managing a property with full-time on-site staff and there are benefits to it. What I would say and a lot of other groups may have found similar experiences, is that while we do want to play in that space, it is competitive at this point. There are no shortage of groups that are willing to buy, overpay and do all crazy things that, in most cases, I’m not willing to. It’s because of that we found is that we’ve had more success in the 50 to the 100-unit range. We still look at larger deals. We still submit offers on them. I submitted an offer on a 350-unit deal. I don’t think we’ll get it. I still want to be active and plant that seed for the future. We’ve had a lot more success in the 50 to the 100-unit range because there are a lot less competition.

What happens is, most times the competition we face, are brand new operators. The good news is even having closed only a few deals, we have a significant track record advantage over them. We’re able to get good deals. Brokers have trouble moving deals in that size range because most buyers want the 100 plus units. To put in comparison for everybody reading, if you’re looking at a deal that’s 100 units and up, a broker may get 30 offers from 30 different groups looking to buy it. That is typical here in the Carolinas. If you’re looking at a 50 to 100-unit property, you may get 5 to 10 offers. To put that in comparison for the readers. Keep in mind that you’re able to negotiate a better deal when you have a lot less competition.

When the unit size is less than 100, is hard money required as well?

Most times, no, which is another plus to touch on for everybody else reading. If you are a passive investor, it probably won’t make much of a difference to you. If you are looking to become active, non-refundable hard money on day one is typical in 100 plus units. That means you’re putting up a part or all of your earnest money deposit, which’s non-refundable as soon as you do that. Some standard conditions will allow you to get it back but a seller rarely says, “You’re right. Let me give that back to you.” Most times, it will wind up in a legal battle. We generally prefer to not putting it up, but if it is an exceptional deal, then we’ll make an exemption for it.

I’m curious about how do you stay informed in the ever-changing industry and marketplace of real estate investing?

In terms of the local market, it’s by immersing myself in it every single day. Speaking to brokers and investors, keeping an eye on what’s going on with different sales and any information we can get. Our property managers do a good job informing us of where things are heading in the market and what they’re seeing in their portfolios. That gives us a lot of good insight. On a larger scale, nationwide and even on a global level, it’s by reading articles and publications.

Many of the big brokerages will produce research reports as Marcus & Millichap, CBRE and Berkadia do. I will usually keep in touch and read the high-level points from those publications to make sure that I stay informed. You want to track key indicators. What’s happening with rents, collections, construction? If you’re in a market that’s seeing a lot of construction, it can be a good thing if the markets are booming but when the market is slowing down, not so much because then you may have an absorption issue. That happened short-term in the Charlotte issue.

Charlotte is one of the hottest markets in the country. Charlotte, Austin and 2 or 3 other markets had a problem where they had so much A-class product that was being built. Before the pandemic, that was great. After the pandemic, it led to rents temporarily dropping in those asset classes because you couldn’t fill them. It’s something to be cognizant to see what’s happening in different markets so you’re aware of the latest trends. Also, keeping in touch with the Fed, that’s always important. If they’re putting out a news briefing, you want to at least be aware of the high-level plan that they have because that could impact interest rates. That could ultimately impact how we choose to invest and how we choose to exit something.

I would also add, diving deeper into the construction, probably also labor costs and materials because as people continue to do more value add deals, how much they think that they’re going to end up spending is probably going to be impacted by that.

Coming to mind from a lot of my friends that do development and rehabs, I’m sure that all of them are complaining about the increase in lumber over 2020 to no avail. Lumber went up absurd amounts. It’s something like sixteen times from where it was in 2020. Things like that can have a major impact on your development. If it’s already in process, you’re probably not going to stop it but you are going to have a much higher cost than you anticipated. If you’re not yet starting it, you may certainly reconsider and say, “Let me wait until things cool down a bit before I start this project.”

I want to pivot a little bit to underwriting. A lot of passive investors don’t necessarily know much about underwriting. I want to start with what they should at least know, at a minimum. For those of us because we’re talking to many who are coming with a finance and accounting background, they might be interested in getting more into the underwriting of an asset. Learning how to do it a little bit more. We’ll start with what passive investors should know.

The big thing for me that I would recommend looking at, in terms of the purchase price, being in a strong seller’s market in most markets across the US, you are going to see things going on the high side of the range. Don’t be surprised by that. In and of itself, don’t let that scare you away. What you could do is if the operator hasn’t provided sales or rent comps, you may want to ask them for something to see that they are purchasing the price in line with what’s typical for the area.

There are two different metrics that you can use when assessing a sale price. One is the price per unit. You can find that easily in the sales comps. The second is cap rate. Generally, you want to see that the cap rate is in line with the market. You don’t want to have an unrealistic expectation that, “I’m looking to buy something at an eight cap in a market where things are going for four caps,” because that probably isn’t going to happen. If it does, there is usually a reason for it. I’d be more nervous about that. What I would say is that you want to see that it’s at least in line with the market. If it’s typical that a C asset in Charlotte is selling for a five cap, then you want to see that that property is being purchased somewhere around that cap, and not a two cap.

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Another thing I would also recommend is the terminal cap rate. Aside from purchase price, that is the single biggest factor that can move a return in a deal. There are some operators that are aggressive with their terminal cap rates. That would make me nervous about investing passively. I would look at that and say, “Is this realistic?” It could be realistic maybe if the market stays the way it is now.

As interest rates keep compressing, so the cap rates. They usually have a direct relationship. If interest rates go lower, cap rates go lower, which means that prices go up. Conversely, when interest rates start rising, so do cap rates. That can lead to a little bit of a problem because interest rates have been so low for so long. If we do see an increase in them, let’s say if you bought a property to four caps and now you’re selling it at a six cap, you’re automatically at a disadvantage.

Regardless of how well you operate the property, it’s one of those market risks that you have to bake in there and say, “What are the odds of this happening?” Be cognizant of that. Most times, you want to see a terminal cap rate that is higher than where it was purchased at. One rule of thumb that a lot of people use is to add ten basis points onto the cap rate for every year that you’re in the deal. You want to use the average market cap.

Let’s say if it’s 5% in that market and you’re going to be in the deal for five years, if you had ten basis points on each year, you should be selling it at least to 5.5 cap. Most times, depending on the asset that I’m looking at, I even like to do a little more conservative than that just because we are at our most unique time and there is a good chance that rates will rise in the next few years. It’s going to be unsustainable to keep them this low for too long. While I love to see that stay, I don’t see it as realistic. Be cognizant that that changes in rates could result in a change in cap rates and ultimately impact how somebody exits a property.

The other thing that I would look for is the annual rent escalations that they’re giving to make sure they’re in line with a particular market that you’re in. If the market is getting 3% annual escalations for a C-asset and they’re budgeting 5%, that may be unrealistic. Maybe it’s too aggressive. Maybe you need to dial this down a bit and see what my returns would look like if it was at 3%. If you’re still happy with that return, then you feel confident in the team that invests with them.

This then leads me to the passive investors or active who are like, “I want to learn more about underwriting.” Underneath that umbrella, I would like for you to talk about why you decided to start an underwriting meetup or class?

There are a lot of different ways to learn about it. There are many different courses, articles, and things you can do out there. I do run a free underwriting session each Saturday at 4:00 PM Eastern, 1:00 PM Pacific. We meet on Zoom and it typically ranges anywhere from 90 minutes on the short side to three hours on the long side. What we do is we take an actual multifamily deal and we underwrite live. We look at deals in different markets, oftentimes, the attendees submit deals. We’ll see what may make sense and we do it for the benefit of education. There are different resources like that. For me personally, the reason that I started wasn’t something that was necessarily planned. Initially, we had brought us from team members and it was something that I was doing in-person pre-pandemic because a lot of our team members were based locally in Charlotte.

I said, “Let’s make sure we’re on the same page.” We would all get together on Saturday afternoons and sit down and hash it out. As the pandemic took shape, I said, “That’s not going to be an option. Let’s shift to Zoom.” I thought about it and said, “If we’re on Zoom, we’re doing it virtually. What’s the difference if I have 4, 40 or 100 people?” I said, “As long as it’s not any extra work for me and if it benefits other people, let’s open it up.”

I started mentioning it as I started appearing on different podcasts. That grew from there. In the first few months, we had fairly low attendance like 5 to 10 people, then it picked up. In most weeks, we’re probably in the 30 to 35 range. Organically, it’s grown because people like to learn and that it’s something that not too many other people are offering out there so it’s probably a unique space that people can find. For me, the reason that I do it, is I enjoy it. It gives me a chance to network with people to engage and also to teach, which I enjoy doing just not in the traditional sense.

As someone who benefits from coming to your class when you have them on Saturdays, they’re so amazing. I highly recommend it, even for someone who is investing passively and who wants to learn more about underwriting. It can only benefit you because it’s hard-earned money that you’re going to invest in these deals. That’s one of the ways you can better understand how things are. You can ask better questions because now you understand more about what’s going on.

One thing I would say to that, for anybody, whether it’s passive or active, the best way to mitigate risk is by educating yourself and knowing what you’re looking at because it’s easy to pull the wool over somebody’s eyes if they don’t know what they’re looking at. You can say something that, “If you don’t know whether or not it’s true, you may just assume that it is.” Once you start educating yourself and you start being more informed, then you realize, “This may not necessarily be true.”

That now brings me to the reflections section of my show. We’re going to reflect a bit. What are some of the challenges you’ve faced in multifamily investing and how did you overcome them?

There are a few that I can touch on. There are a lot of things that people tell you as you’re starting in this business and a lot of them are sensible. For me, I’m stubborn and I like learning the hard way. If you tell me the stove is hot, I have to stick my hand on it and get burned before I listen. The same thing kind of applied here. For anybody starting out on the active side, what I would say is, one, pick a target area.

Initially, my partners and I didn’t do that. We decided we would look at deals anywhere East of the Mississippi River. For anybody with a map, that covers a lot of ground. It’s like one month I was in Ohio, one month I was in Indiana, twice I went to Kentucky, one of my partners in Tennessee. After about a year of that, we decided to get smart and say, “Let’s pick a target area.” One of my partners already lived in Charlotte. As we were going through markets I said, “We’re making this too complicated. You live in one of the best markets in the country. It’s much more advantageous having a market you could drive to as to somewhere you have to constantly jump on a plane and get to. Let’s make that the market,” and we agreed on that.

The second thing I would say for anybody looking to be active is to find investors. One common mistake that many syndicators make and we also made it, is that they figured, “Let’s go out and find the deal first and then the money will come.” If I’m going out there flipping a single-family home or wholesaling a single-family home, that is true for a few reasons. One, it’s a smaller deal size that requires less money, generally, unless you’re in California. Secondly, there are also no restrictions that would prevent you from doing that legally.

LUR 78 | Assess Deals And Underwrite

Assess Deals And Underwrite: A lot of deals can come from broker relationships. Invest your time into growing these relationships.


In syndication, it’s a little bit different ballgame. The thing is, even though we are investing in real estate, we’re not buying real estate. What we are doing is selling security and what a passive investor is doing is buying security. There are a lot more rules and regulations around that. What that means is, in most cases, I couldn’t just find the deal now, getting on the contract, and then go meet somebody tomorrow and say, “Do you want to invest passively and put $100,000 in this deal.”

Unfortunately, that probably happens to people more than they care to admit. It is illegal. If it’s something that a person makes a habit of doing or even does once and gets caught, it can be a hefty lesson. They have to be fined or it could even result in a jail sentence. The point of this is, at the same time that you’re actively looking for deals, you want to also be actively looking for investors. You want to be finding both buckets and getting them filled at the same time. That way, you’re ready to go.

Initially, on our first deal, perhaps out of arrogance, naivety or wherever it may be, my partners and I assumed that our existing networks would be good enough to fund it. I knew a lot of people from New York that had money, but the people that I knew with money, in retrospect, wouldn’t be the right candidates because they’re people that have enough money to buy buildings like these themselves. They’re people that, quite frankly, don’t want to be passive. They’d rather control their investments and have an active say in them. They wouldn’t be the right fit for people to invest with us.

My partners came from a single-family background. They knew people that were active in the single-family space. Similar to my network, the people that are least likely to invest passively with you are the people that want to invest actively. It’s something to be aware of, being we had real estate networks that weren’t the right people. High-income earning professionals are probably your best source of investment funds as you’re starting out.

Having people like doctors, lawyers or accountants that generally have good six-figure incomes, they’re probably making good money. They’re not rich, not poor but they probably have good six-figure incomes, six figures stashed away either in a savings account or retirement account. There is something that is either not performing or underperforming. They don’t have the time, desire or expertise to run their own deals but they’re happy to give their money to somebody else in exchange for a good return. Always find investors. That’s another key thing.

Aside from that, what I would say for anybody looking to become active, is building sponsor relationships. More than the others, this would be the single biggest one I would tell anybody if you’re looking to be active because that’ll be the one thing that will fast track the growth of your business more than the others. A key principle, a sponsor, in essence, is just a person who signs on loan as a guarantor but if you do a good job building a relationship with them, you can get a lot more out of them.

Never do this without asking them. Let me be clear on that because you will lose their trust if you do. If you have a good relationship with that sponsor, you can ask them and say, “Mr. sponsor, do you mind if I use your name and your track record when I speak to brokers in this area or when I speak to investors?” If they tell you yes, that’s great. This business is 100% a track record business. Starting out, you have no track record. About anybody has to hitch their wagon to somebody else until they have their own track record. The sooner you can do that and the sooner you get somebody who’s in that position that’s willing to let you do that, then you want to start doing that because that will help you grow your business.

One last thing I would throw in there. The deal we closed was on February 5, 2021. About a week before that, our contract ran through January 28, 2021. About two weeks prior to that, we realized that we weren’t going to hit that deadline. We had the equity in place, the loan application was being processed, but we realized they were going to need a few extra days. Nothing substantial, but maybe 3, 4, or 5 days. It will be close to it but we wouldn’t hit it. We reached out to the broker to start negotiating an extension. Being that we’d had a fairly smooth experience with the seller up to that point, we expected it to stay that way but life does take twists and turns that you don’t necessarily expect.

He was leaning towards giving the extension but then he had some time to think about it and went back on it. He said, “If you don’t close by the 28th, I’m going to hold you in default.” By this point, we already had nearly $250,000 that was non-refundable in the deal. Technically, he was right that if we didn’t close by the 28th. Generally, it usually does work in good faith with both sides to get the deal done, especially if it’s a few days. It’s not like we’re asking for a month or two weeks. It is what it is. Legally, he would have been in the right.

I must say that the two days prior to that, January 27 and 28, 2021 were probably the two most stressful days in my professional life. You learn a lot during those times. I’m thinking to myself, “This is going to be a message. We’ll wind up losing potentially $250,000. We’ll have to return money from everybody we raised from,” which certainly doesn’t look good. We pulled out everything including the kitchen sink. Initially, as I was dealing with the broker, he told me that the seller is shooting it down at this point. It doesn’t matter what you throw at him. He has no interest in extending it. I said, “We’re running low on options.” Being that the seller is also based in Charlotte, I decided to see if I could stop by his office, catch him in person and see if I could talk to him. I went by the office but unfortunately, he wasn’t there. That one struck out.

In a last-ditch effort, the day before the 28th, during the evening, I sent him an email and I copied the broker and all the other pertinent team members on it. I said to him, “We want to get this deal done. I believe that you also want to get it done.” I threw out a few different options of things that I thought could entice him to potentially give us an extension for a few days so we wouldn’t be in default. I threw out five different options. Admittedly, I was expecting him to choose 1 or 2 of them but not all five.

He came back and more or less wanted a piece of all five. I said, “This is going to be tough.” I was able to get him down to three of the options. It cost us more than we would have liked. In retrospect potentially, we are losing $250,000, it didn’t impact the return on the deal. It’s allowed us to get the deal done, get it funded and close. It was certainly stressful and a trying time. Since then, we have been on good terms with the seller again. It was those two weeks where he went into shark mode.

That’s the other thing. You’re dealing with people who want to make sure that they get what they want to get from the transaction.

On the evening of the 28th, we had worked out an extension in principle. Around 6:00 Eastern Time, I had signed, scanned and sent it back. That night, I was a bit nervous. I said, “He didn’t send it back.” I wonder if he’s going to hold this in default because that was technically the end of the period. I reached out to the broker, I said, “What do you think? Is he going to sign it and send it back? I felt that where we left off, he was agreeing to it.” He said, “I think so but I don’t know.” I was pleasantly surprised when I checked my email around 8:00 the next morning that he did sign and sent it back. I said, “Crisis averted. That would have been a tough one.”

What would you say has been your biggest win? How do you make it happen? Would you say this last deal has been one of your biggest wins or maybe another one that you’ve done in the past?

If you don’t quit and you learn from your mistakes, you will eventually get to where you want to be. Click To Tweet

In terms of a particular deal, I would say yes, for two reasons. One, because even though it’s not our biggest deal in terms of the number of units, it was our biggest deal so far dollar size. Also, because it was our first in Charlotte. We have others that are in secondary and tertiary markets, but this was the first one in the city. We saw that as a big win. To an extent, it’s something that we use as a credibility booster as we speak with other brokers and say, “What do you have for us in Charlotte?” It opens up more doors. Each time you close the deal and you get something additional in your track record, it gives you access to new opportunities that you wouldn’t have had access to previously.

Is there anything else that I didn’t ask or cover that you would think would be good to share?

No, Lisa. You did a fantastic job. You’ve covered most of the essential points.

 We’ll move on to the last bit, which is the level-up questions that I ask all my guests. The first one is, What are you grateful for in your life now?

I’m grateful for having the opportunity to do this day in and day out. I’m grateful for having my health. Overall, things could be a lot worse. There are people in much worse positions, especially in 2020 with the pandemic, both financially and mentally. Overall, things aren’t too bad. I can’t complain. I’m grateful for all the things we do have. I rather look at what we do have versus what we don’t.

How did you meet your partners?

We met at a guru training event. There are many different ones out there. We had all attended some different courses with RE Mentor. We met on one of the courses up there in the Massachusetts area. We initially met in October 2017. We then saw each other at a few different events over the coming months. In November 2017, I said, “Maybe it’d be a good idea for us to work together.” We had good chemistry. We vibed. I said, “We all have different things going on.” At that time, I had a full-time job. My partner Adam runs another business out of the Philadelphia region. Our third partner, Wayne, had retired. He was a former CFO and VP of Finance for two major retail chains. We said, “We will make more sense because, from a time standpoint, we can combine efforts and get more done.”

When you were talking about all the different challenges, picking a target market area, finding investors, the question that came into my mind that I’m sure came into the mind of the readers is how do you find time to do all of this?

Lack of sleep.

I also think that focus as well.

Focus does go a long way. For the last years, I have been largely working from home other than when I go out for appointments, meetings and things like that. Many of us have probably adjusted to this out of either choice or necessity in 2020 anyway, working from home can be a blessing and a curse. There are a lot more distractions and things that get in the way. When I first started doing it, it was an adjustment because I had to shift from being in an office and in a public setting to, “Stay focused, stay disciplined, you’re at home but you still have to put yourself in work mode. Otherwise, you’re not going to be productive.”

Over the first month or two, I figured that out. I made some adjustments and figured out how to stay focused but that’s one thing that goes a long way. What I realized is most days in general, there are a lot of things where I have scheduled appointments, I try to schedule and plan as much as possible in advance but then there are then other things that happened during the day that you have to adjust and pivot again. Most days, I figured from 9:00 AM to 9:00 PM, I’m probably going to be on the phone in some capacity. I assume that I’m not going to get as much done in terms of administrative things or anything that I need to think about or require through it. I usually use early mornings and late nights as my time to get things done. I use all of the peak hours during the daytime as hours where I’m on the phone or engaging with other people and dealing with different issues.

Those people aren’t going to be available early mornings and late at night.

Even when I was first starting out with this, that was similar to my philosophy at that time because at that point, I was working anywhere from 60 to 90 hours a week at my full-time job. I said, “I can go home and underwrite a deal at 11:00, 12:00, or 1:00 in the morning,” but nobody’s going to want to deal with me that time. I had to make it a priority to schedule some time in the afternoon. One thing I would tell anybody out there and I’m sure you probably realized this in your professional life already, always schedule appointments. There is more certainty. If I knew that I had a limited time window, I had to make sure that I made the most of it. Calling somebody up and not getting them wasn’t an acceptable answer. I had to schedule the appointment in advance. “Why don’t we set up a call here at 2:30? I’ll call you at that time.” That way, there are no confusion.

LUR 78 | Assess Deals And Underwrite

Assess Deals And Underwrite: If you’re looking at a 200 unit property, you’re going to want a different property manager because it’s a big difference managing a property with on-site or full-time staff versus no staff or part-time staff.


Continuing on my level up of questions, what has attributed to your success and continuous growth?

More than anything, work ethic and not quitting. I love to say that I have some exceptional talent that nobody else does but I don’t. What I do have that most people don’t is persistence. I always say, “You could probably hit me with a truck and I’d get up and walk away.” That’s the mindset that I have and maybe to an extent, I like challenges, probably too much. Don’t quit and if you don’t quit and you learn from your mistakes, you’ll eventually get to where you want to be.

What do you now know that you wish you knew at the beginning of your journey?

What I now know is that I probably should have started sooner. It took me a long time to get there. With many things, whether it’s business, a high-level job or whatever it might be, it does come down to mindset. It’s something that’s often said as cliché but there is truth to it. My mindset was good enough to get me to the point where I was earning a six-figure income at a job but it wasn’t good enough to get me past that because to an extent, I felt that that was all I was capable of.

I always knew that I’d become more successful and that was something I knew as a kid but I didn’t know-how and I didn’t have all the pieces put together. As I started hitting that six-figure salary, it became somewhat of a surprise that I did that. I then became complacent. From that point, I had to shift. I would go to meetup events on a regular basis and a lot of real estate meetup events. I would speak to people and people would always tell me what great advice I gave. A lot of them would tell me how they made money with advice that I gave them.

I’m thinking to myself, “Why is everybody else making money with my advice and I’m not?” It took me a good couple of years. I didn’t quite catch on to that too fast. Around 32 to 33, that’s when I started shifting and pivoting to syndication because I said, “I can do this. There is nothing different here that I’m not doing in my full-time job. I already know what I need to do. It’s shifting your mindset and saying, ‘I am worthy of this. I am deserving of this and I can do this.’” From that point, it’s taking those thoughts, putting them into action, and making it happen.

Walking away from the six-figure income is a big deal.

It is an adjustment. I knew my income was going to take a hit for the first year or two. I was right on that. If anything, it’s made me appreciate living a little bit cheaper. I’m probably not taking advantage of eating out and things like that like I used to. In that regard, it’s probably been a good thing.

I am appreciative that you came onto the show. There are so many gems here. In terms of underwriting as a passive investor, some of the key things I took away from that were purchase price, looking at the cap rates, checking that the cap rates are reasonable. You also have the terminal cap rate, checking whether that is reasonable as well. Looking at the sales and rent comps. Also, looking at the rent projections for that particular asset and more. I took many notes. That’s why I keep coming to your class because I enjoy so much information that is given. It’s knowledgeable. If my readers want to learn more about you and your offerings, what’s the best place for them to go?

If anybody does want to attend those, you can reach out by text (347)306-3278 or by email at and tell me that you have known me on the Level Up REI Podcast and that you’re interested in joining the session so we can get you access and get you plugged into those.

Thank you so much, Charles. I appreciate it.

Lisa, thanks for having me. It has been a blast.

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About Charles Seaman

LUR 78 | Assess Deals And UnderwriteHe is a native of Brooklyn, NY that currently resides in Charlotte, NC and serves as Senior Acquisition Manager and Asset Manager of Three Oaks Management LLC, in which he actively works to locate high-performing multifamily real estate deals throughout the Southeast region of the United States. He’s responsible for performing all of the company’s initial underwriting and analysis of these deals, which ultimately determines whether or not the deal will be a good fit for the company.

He’s also involved with contract negotiation and capital raising to make sure that 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 has 14 years of prior experience working for a commercial real estate investor in NYC. During this time, he assisted the investor with acquiring deals, obtaining financing for them, and managing and leasing them after the deals were closed. While there, he also assisted the investor with the management of numerous other businesses that he owned, including a plumbing company and several bars and restaurants. During his spare time, he also actively traded stocks from 2009 to 2014.

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