LUR 120 | Diversified Portfolio

 

Nowadays, no more income can be acquired from the traditional real estate portfolio. With that in mind, investors should seek larger yields and build a diversified portfolio. Lisa Hylton sits down with Christopher Nelson, Co-Founder of Wealthward Capital. He discusses working for equity by going for more than one asset class and presents strategies for hiring the right tax strategist. Christopher also talks about the benefits of investing in mobile home parks and why they must never be underestimated.

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Unlocking Working For Equity & Investing In Real Estate With Christopher Nelson

I’m super excited to have Christopher Nelson on the show. Christopher is an experienced technology executive to IPOs, real estate investor, author, and the Cofounder of Wealthward Capital, a real estate investment firm with a diverse portfolio of over 3,000 multifamily units, mobile home parks, and ATMs. Chris shows technology employees how to achieve financial independence through financial education and creating passive income portfolios. He’s finishing his book called the From No Dough to IPO. I’m super excited to have you on. Welcome to the show, Chris.

Thank you so much. I’m excited to be here, Lisa.

You and I are in several circles together. I admire a lot of your work. I’m excited to have you on. I know that my guests are going to learn so much from your journey in real estate. To kick things off a little bit, we’re going to learn a little bit about you from a background perspective and jump into the episode and finish up things with the level of questions. To get started, where in the US do you and your family live?

We live now in Austin, Texas.

What do you folks like to do for fun?

We like to hike and bike. We’re a hike and bike family.

I remember seeing some baking shots of you and your sons on LinkedIn as well. I’m pretty sure that there’s some of that you folks like to do as well.

That’s right. We like to do some of that too.

Get us started here. How did you get started investing in real estate? What attracted you?

What attracted me to real estate was the four streams of income. When I started learning about real estate, I was blown away that when you look at traditional investments like stock, these tremendous growth vehicles, they don’t have these four awesome benefits of cashflow, appreciation, and depreciation. You can also have in some that equity pay down. When I saw how versatile this investment was, I thought, “I needed to get some of that. I need to have some of that in my portfolio.”

LUR 120 | Diversified Portfolio

Diversified Portfolio: Having a mindset to live on your salary and save equity is the number one requirement in building a portfolio.

 

As a tech executive in the tech space, can you talk a little bit about the inspiration behind your book From No dough to IPO?

The inspiration for the book is the fact that there’s not a playbook out there that tells people how you go to work for equity. There were a lot of technology employees, myself included, when I decided that I wanted to intentionally go to work for equity and realize how I could leverage my W-2 not only to be an employee but also be an owner at the same time, which is interesting. In these companies, you can be in the Kiyosaki’s quadrants 2 and 3. Get the best of both worlds, but how do you do that in a way where you can intentionally be building wealth?

There was no playbook. The first time that I did it, I failed miserably. Out of failure, we always try and learn and say, “What can I do differently to get a different result?” It was in doing that and thinking like an investor that I went towards my second IPO. That’s how I was able to go from not having anything in the bank to having multiple seven figures.

There are a couple of things there that I wanted to touch on. For someone reading who is a tech employee and thinking about investing in real estate for a while, what advice would you give to them as they are, first, wanting to focus on managing their career to be in a position to then invest in different real estate projects to generate passive streams of income?

First and foremost, I read your stuff too, Lisa. It’s having a structure, especially for technology employees, of saying, “I want to live on my salary and within my bonus, but I want to then preserve and save that equity.” That mindset is so important of, “Let me leverage the equity to build a portfolio,” then start getting into real estate. It’s around having a diversification strategy.

A lot of people who go into companies maybe have an IPO or go to work for a public company, and they get very overexposed in a single stock. There’s not a lot of teaching that says, “You should start taking and harvesting some of that equity, turning it into dollars, and investing it into income-producing real estate.” The fundamental thing in front of people that we need to talk about is that there’s no more income in the traditional portfolio.

It used to be stocks and bonds. You notice bonds aren’t talked about anymore because there’s no real yield. Any of that yield could be consumed very quickly if somebody has a wealth advisor or if you think about inflation. That’s gone right away. You need to seek a larger yield. That’s only going to be found nowadays in real estate.

Before we move into the different aspects of real estate, let’s come back to something that you mentioned for that tech employee who’s reading. They’re like, “Tap into my equity.” They’re thinking like, “How do I go about doing that?” I’m sure your book goes into further detail about how to do it. At a high-level taste, what are one of the key things they can do to tap into that?

The same way that you invest in stocks. There’s this strategy to divest in stocks as well. One of those popular strategies is called dollar-cost averaging for people who have invested in stocks. What that means is instead of trying to buy a dip when it’s low, you steadily buy over time, then you’re going to get a nice average price because you’re buying some highs in and some lows. In the same way as when you’re divesting, instead of constantly waiting for the stock to achieve new heights, it’s creating a target goal of, “I want to get $100,000 out of the market. I want to get $150,000 out of the market.”

It’s strategically going in, whether month by month or quarter by quarter and harvesting that until you reach your goal. Focus on that because many people get distracted by the highs and lows in the markets. I have been there. I’ve been in a situation where I’ve had over 90% of my wealth in a single stock. It plays with your head. Having a very specific plan that says, “I am going to achieve this. I’m going to pull this amount of money out of that particular stock, and then I’m going to set that aside to make investments,” is truly a step number one.

Every real estate investor must understand the math. If you don't understand its basics, you shouldn't be putting your money here. Click To Tweet

As that happens, the first thing that I think in my mind that this person is thinking now is, “Chris, I’m going to get hit with taxes. How do I manage myself now in this tax situation because I want to get into these real estate investments?”

That goes down to the double click level of complexity because that also depends on the type of stock you have. Many people don’t realize when you work for equity that you can have 3 or 4 different flavors, and each of them has different tax treatments. Number one is I believe in engaging and having a tax professional who understands equity and planning. What I said was very important because there are a lot of tax professionals who want to plan to get your next return out the door.

I’m not talking about those. I’m talking about tax strategists. There are different strategies depending on the different types of stocks that you have to get it out and reduce the tax. That truly needs to be part of your exit scenario. There are a couple of advanced strategies where this is what you’ll find in a lot of sports players. They create foundations. A personal foundation is a great way you can be philanthropic.

You can also very much lower your tax bill. There are also creative ways to create management in a holding company where you’re moving your assets there. There are different ways where you can reduce the tax burden there as well. At the end of the day, you’re going to need to engage a tax professional because the good news is you got big money. These are big money problems.

We’ve helped them tap into that equity and get that money out. Now, they’re getting to a place where they want to place it in different real estate projects. Can you talk about what attracted you to the strategies that you play now?

A couple of things attracted me. First and foremost, I started focusing on passive investing opportunities because of the fact that when I went through my first IPO. We were based as a family in California. We could not envision or understand buying the real estate there and how you would get that to cashflow. We started looking at out-of-state sponsors and passive opportunities in commercial real estate first. I was attracted to commercial real estate and multifamily in general because instead, I started understanding the risk of you having one door that’s vacant for a month, then you lose a month’s rent versus if you have 200 doors, there’s an expected vacancy rate, and you can still cashflow.

I got my head around very quickly that I wanted to do passive investing because I needed to be out of state, didn’t want to do active, and wanted to be in multifamily. The steps that I took and talked to a lot of investors who are getting started is to get educated. Understand the math. There are a lot of great resources and tools out there to help you understand the math fundamentally.

I don’t believe that you should be putting your money if you don’t at least understand the basics of how this investment works. You need to start creating relationships and networking. At some point, you have to take the plunge, get off the bench, and make an investment. Once you have that skin in the game, you’re going to start learning on the job as things happen.

Diving deeper into that, can you talk about some of the different asset classes you like to invest in and why?

I started off deep in multifamily. I loved multifamily. When I started investing in 2015 or 2016, the cycle was pretty mature, but there was still a lot of room to grow. We found that these buildings were giving off 8% to 9% cashflow. We were seeing these opportunities wherein 3 to 5 years, we could get a 2% or 2.5% equity multiple out of these transactions. What I looked for is I looked for markets. Multifamily is around jobs and people. We’re focused on areas that people were moving towards where they had great diversification in jobs. That led us to Central Texas, like Dallas, Austin, and San Antonio. That’s where from 2015 to even 2021, we’ve still been adding and have built our portfolio.

LUR 120 | Diversified Portfolio

Diversified Portfolio: There’s no more income in the traditional portfolio. It used to be stocks and bonds, but there’s no real yield there anymore.

 

As I got into this, I started realizing that, “If I wanted financial independence, it was not going to be a single investment. It’s not going to be two investments. I’m going to have to get serious and deploy $500,000 or $1 million in the capital.” You have to move when you want to think about these things cashflowing to support you. That’s when I started realizing multifamily in and of itself will only get me so far. I have to look at diversification, asset classes, and also geographies. That led us to create an investment around a diversified ATM portfolio. It was very cashflow heavy.

That came to complement some of the multifamilies that we’ve been purchasing that have great equity upside but do not have a lot of cashflow. In the last months, we have been heavily investing inside mobile home parks because we’re finding that asset class is like multifamily was in 2014 to 2015. There are still a ton of inefficiencies and a great opportunity to generate great cashflow and appreciation, then also have cash-out refinance where you’re able to continue to get some cashflow without the risk.

There’s one of the things I want to dive into what you said. You noted that you would need to be deploying some serious $500-ish into some of these deals to start generating. Can you talk about why? Is that primarily because of the returns and getting the returns to replace your salary or replace your family income?

That’s correct. When you think about financial independence and about doing something that can support your family, especially from tech, we’re generating a tremendous amount of equity. Our goal was, “How do we replace our income?” If we’re a combined income of $250,000 or $300,000 a year, our goal is how we replace that. With time and patience, you can do that.

This is where I think everyone has to ask themselves like, “How do you want to live in retirement? How do you want to live when you transition out of your W-2?” Is it then paring down your lifestyle and living within $100,000 a year of real estate income, or are you trying to get aggressive and say, “No, we want to be very focused on trying to replace a $200,000 to $300,000 combined income and a nice lifestyle?”

Let’s go into some of the asset classes you spoke about, diving into the mobile home parks specifically. For a lot of people, when they hear of mobile home parks, they don’t think, “Great investment opportunity.” For many people, they’re like, “Why would I even consider investing?” You mentioned that for you, it’s where multifamily was a few years ago in terms of the returns. Can you talk a little bit to investors about when they’re thinking about mobile home park assets or some of the things they’re probably underestimating or misconceptions about this asset class?

There are a lot of misconceptions out there. The first thing that is important is that these asset classes have the potential to cashflow tremendously because you think about a multifamily investment. Generally speaking, they’re estimating around 50% of the income is going to be allocated for expenses. In a well-run mobile home park, that’s going to be 35%, so it’s much lower.

There’s a much higher ability to cashflow from these things. It’s important for people to understand that there is a huge need now in this country for affordable housing. There are many people that are getting priced out of a one-bedroom apartments. You’ll find that the lot rent, what it costs to place a mobile home and rent the land underneath it, where you place your home is going to be half the cost of a B Class, one-bedroom in that area. You can have 1 bedroom and 2 to 3 baths so you can have a family in there. That’s super important. Understand that this is an asset class that has a huge demand and, when run well, has tremendous cashflow. It also has great depreciation. The opportunity is so many of these parks are run inefficiently that for experienced operators to turn these things around and turn them into great investments is possible.

Who else is investing in mobile home parks? For many people who are reading, they’re probably like, “I don’t know anyone who has invested in mobile home parks.” Burst some bubbles now.

Institutions are getting in. If anyone knows the story of Sam Zell, he was a very large institutional multifamily investor. I can’t remember the exact timing, but it was somewhere around the last recession when he sold out of all his multifamily and now has gone into mobile home parks. That’s where he is going to continue to play.

A personal foundation is a great way to be philanthropic and lower your tax bill significantly. Click To Tweet

Warren Buffet, who always sells the pickax to the miners, has bought Clayton Homes, which is the largest manufactured housing manufacturer in the United States. Big institutional players are getting in here and starting to buy these parks. However, there still are a ton of inefficiencies and a lot of opportunities for different levels of investment.

Continuing from there, you mentioned some of the higher returns that some of the mobile home park asset classes can generate. What are some of the risks as well in this asset class? How do operators seek to mitigate this?

The biggest risk you’ll find, like any other asset class, is the operator. It’s where passive investors are able to understand and partner with somebody who has been there, done that, and has healthy scar tissue. It’s important because the biggest risk I see is somebody getting over their skis and somebody who has come from multifamily and thinks, “This is a similar play.” It’s not. It’s a different play. You need to find somebody that has gotten that deep education in mobile home parks and is focused on building a community.

You’ll find that mobile home parks tend to have very high occupancy. I’m talking 95% and above. Tenants tend to be there for ten years or longer. There needs to be the ability to build a community and to be able to manage things over time because it’s going to be at a much different flow than any other asset class. Finding the right operator and ensuring that it’s not an operator who is getting into something they don’t understand is what I would consider the biggest risk at this point.

There are a couple of things here. One of the beautiful things about your journey is that you have evolved from investing in multifamilies, ATMs, and also mobile home parks. Someone reading now is thinking they might have invested in multifamily. Now, they’re getting ready. They see the writing on the wall and want to venture out into new asset classes. What advice you’d give to them on how to get educated in these new asset classes and even do due diligence on these new operators in these different asset classes?

That is a very intuitive question because I, myself, got into this. I started off being an accredited investor and doing a lot of investing. As you get into new asset classes, talk with a lot of operators. Not only talking to one and falling in love with their story but talking to multiple operators is important. Also, understand who is offering no-pitch education and is focused on educating investors, where they’re not looking for the upsell right at the end, but they’re having conversations. They want to make sure that investors truly understand this.

There also are some great resources I know. You can go on to BiggerPockets and find a lot about mobile home parks and some of the differences. I believe that as a passive investor, you should be able to know your way around an underwriting sheet and be able to walk through that with somebody who you’re going to invest with and understand what they’re proposing and where they’re calling out their own risks, the downside protection, and the upside.

Here’s the last question before we get into the level of questions. This is not a question you knew was coming but not that you knew any of the other questions were coming. Have you, in the past, ever invested via portals, such as CrowdStreet or any of those portals? Let’s start there. Have you done that before in the past?

I started doing some commercial investments through Fundrise. Fundrise is for non-accredited investors. It’s the ability to invest in commercial real estate. It has changed its model. Originally, you were able to go into individual transactions. The great news is that it was not for accredited investors. You could do a low dollar amount. You’d go in for $1,000, $2,000, or $3,000. As we were starting to get into real estate, we started placing some of those investments, reviewing the PPMs, and engaging with them. It was a wonderful platform. It is a great platform for non-accredited investors to get started and understand how real estate works.

From a crowdfunding platform, I looked at some of those, but I always hesitated because I could not connect and talk with the operators. It was hard for me not to touch and feel. Whereas at least on Fundrise, I was talking to investor relations, and they did own the result. I was talking to the person who owned the result.

LUR 120 | Diversified Portfolio

Diversified Portfolio: Many people get distracted by the highs and lows in the markets. You can avoid this by having a very specific plan. Set a particular amount to spend and determine which specific stock to invest in.

 

That’s very important. Connected to that, could you talk a little bit about how people can go about investing passively in mobile home parks specifically?

They can go about investing in mobile home parks. We have a fund called the Thrive Community Fund, where we are investing in mobile home parks. North Carolina is where we’re focused. We are truly building a product that is about building healthy communities. It’s about also serving our veterans. We have an operating team that is primarily a Special Forces veterans transitioning out of the military and operating our mobile home parks.

They’re well-made to be on a mission here in the United States to create safe environments for people to live in. They’re incredibly efficient. We’re providing tremendous returns to our investors. ThriveCommunity.fund is our URL. They can go there, get a free webinar and feel free to reach out and learn more.

It’s Thrive Fund. As a result, are there multiple mobile home parks inside the fund itself?

Yes, there are. Our strategy is we are acquiring smaller mobile home parks, 75 pads and under, and operate them as a larger portfolio. We’re finding tremendous inefficiencies there. Not a ton of competition. On top of that, we’re able to leverage that to provide great returns.

That also provides diversification for investors as well because now you have multiple different parks that their money is being spread across. Is it all focused on one market, or is it multiple markets?

Now, we are focused primarily on Fayetteville, North Carolina. We’ve found that it’s a secondary market outside of the Raleigh-Durham area and has tremendous growth. It also has a huge density. That’s one of the things we look for. In the Fayetteville, MSA, there are 400 mobile home parks, and 300 of them meet our particular criteria. We are truly trying to build a very large and strong portfolio there as we then start looking for other geographies that we can expand to.

That is so interesting because I’ve known that mobile home parks, someone else I interviewed noted that it was one of the asset classes that are decreasing in size because a lot of governments and people will sell their parks to other people who do other things with the park, like build multifamilies on them or parks or whatever.

I have a story for you right out of Fed. The demand for these is so high. We took a unit online and had 225 people reach out with interest. That’s the demand. When you talk about the demand and the need for affordable housing, not only from people now, but there are 10,000 Baby Boomers retiring a day, and 50% of them have saved nothing. They’re going to be living off of fixed income. This is being exacerbated.

There was a large 100-pad mobile home park in Fayetteville. In front of it, they’re building a Class A apartment building. They purchased the land to tear it down and build a park because they didn’t want to look at it. Those are all head or tailwinds pushing so that, as you, our park owners, the demand and the need for those parks will continue to increase.

It is never too late to start. There are still many great opportunities right now. If you can move quickly, you can definitely achieve them. Click To Tweet

It’s like a diamond in the rough.

There’s so much going on. A few years ago, I did not think that being so entrenched in Austin and Central Texas multifamily, I would be so bullish on mobile home parks. Once you get in there and start walking the ground and understanding the opportunity and the need, it’s powerful.

This is so good. Thank you so much. There is so much good information. This leads me right into my level-up questions that I ask all my guests. The first one is, what are you grateful for in your life now?

I am grateful for my family. They give me so much love, energy, and creativity. It’s all about the family.

The second question is, what has attributed to your success and continuous growth?

One of the things that have contributed to my success is being uncomfortable. My journey started with going through this tremendous IPO and being in this position of financial security and comfort. As I got into investing and had other people asking for help, I realized that for me to expand and grow, I had to get uncomfortable. I had to work for other people and help them understand some of the things that I was seeing. That’s how I continue to grow. I’m constantly trying to push myself and turn around and give that to other people. I’m realizing now that the more I do that, the more I can grow and provide for others.

Lastly, what do you now know you wish you knew at the beginning of your journey?

What I know now is, number one, I know about mobile home parks. It’s all these asset classes that, “If I would’ve known about these years ago.” It’s never too late to start. That’s one of the things. I hear people sometimes like, “If I had bought here, I would have bought then.” There are still great opportunities now. It’s being able to quickly, in my life, shake off whatever woes me and move forward and look for those next opportunities because they’re always there.

I want to throw in one bonus question that came up for me because people reading might be thinking to themselves, “You’re a tech executive. You make good money. You could continue riding this wave and keep doing more tech jobs.” Why build a business in this space, helping people gain this financial freedom? Why do this?

The fundamental thing that people may find shocking is I don’t believe in retirement. I don’t want to retire. I believe that retiring is taking a service offline. That’s what it technically means. I’ve seen it and witnessed people who go into retirement, and they don’t have any impact or purpose in their lives. They spin out. I feel blessed that this has been presented to me that, “I can transition into this from being a technology executive to being somebody who is facilitating the conversation around tech career and money and helping people get the most out of their life.”

LUR 120 | Diversified Portfolio

Diversified Portfolio: Mobile park homes have the potential to cash flow tremendously. Only around 35% of its income is allocated for expenses.

 

At the end of the day, Wealthward Capital was built to help technology employees grow a great careers, build wealth and make an impact. I don’t believe in the FIRE Movement. In my mind, it’s FIMAI, Financial Independence Makes An Impact. There still is so much to do. We can do it at a different speed. We can do it at a different pace. My goal is to get out there and make an impact. That’s where I don’t want to be comfortable. I do want to choose discomfort, and I’ll be comfortably uncomfortable. That’s why I’m choosing to do what I would do.

I love the FIMAI. I never heard of that one before.

I made it up. It’s the first time it’s been released publicly. Were’ founding it right here now, FIMAI.

I love it. If my audience wants to learn more about you, where’s the best place they can go to learn more?

They can go to ThriveCommunity.fund. They can click on that link. They can learn more about our fund. They can always go to Wealthward.com and get some time with me. I’d love to get to meet you.

Thank you so much, Chris, for coming on the show. It was great.

Thanks so much, Lisa. I appreciate it.

 

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About Christopher Nelson

LUR 120 | Diversified PortfolioChristopher Nelson is an experienced technology executive (2 x IPOs), real estate investor, author and the co-founder of Wealthward Capital, a real estate investment firm with diverse portfolio of over 3,000 multifamily units, mobile home parks, and ATMs.

Christopher shows technology employees how to achieve financial independence through financial education and creating passive income portfolios. He is currently finishing his book, From No Dough to IPO.