Chad Zdenek has always been inspired by the need for multifamily properties while growing up in Los Angeles. As a registered Professional Engineer and licensed General Contractor, he founded CSQ Properties in order to acquire, reposition and manage multifamily properties throughout the United States.
In this episode, Chad shares his story of getting into real estate, how to make the most of your deals, and the power of real estate to build wealth over time.
Listen to the podcast here:
Multifamily Investing and Other Deals with Chad Zdenek
Shannon Robnett 00:45
Hey, everybody, welcome back to another episode of The Real Estate Rundown today I’ve got the privilege of interviewing a friend of mine, you know, it’s funny, you get to know people in the business, but you never really understand their story until you get to meet guys like Chad Zdenek who have really come from a background and and every time I talk to this guy, there’s another facet of him that I find to be amazing. From his movie career to you know, what he’s doing in the past what he’s doing in the present, how he’s… the family that he’s raising. But, Chad, I want to welcome you to the show, and I can’t wait to get into the details with you.
Chad Zdenek 01:22
Yeah, sounds good. Shannon, super excited to be on here. I think you’re one of the few guys that actually has more kids than me. So I’m not sure I’m gonna SimulScan on that one. But yeah…
Shannon Robnett 01:31
There you go. Well, so Chad, kind of give us a little bit of a rundown on where you started in real estate and where, where life’s taking you and what, what your, your W2or your entrepreneurial role. What part of that was played into that whole deal?
Chad Zdenek 01:50
Sure. So yeah, I definitely have had a meandering path. And I’ll give you the nickel tour on that. So technically, I started out as a rocket scientist working as a structural dynamics engineer for Rocketdyne on the space shuttle main engines, and did that for seven years before starting a business with my brother, which was a lighting business. And did that started basically from nothing. While I was getting my MBA, used his company as kind of a pet project, he recruited me over to be a partner with him and help grow and scale that business. We grew that to be, employ about 75 people and have three different warehouses in about 15 years. And then he bought me out of that business in 2018. And I went into real estate full time, I like to say, going back to real estate, because I was in construction management and structural engineering before that, but went back into real estate as an investor and a syndicator. And 2018, in, in multifamily, primarily here in Southern California, where I live, and then eventually started doing bigger deals out of state, in the multifamily strip space, and now self storage space.
Shannon Robnett 03:14
So Chad, let’s, let’s talk about that a little bit. You know, you’ve, you’ve done some multifamily, you’ve done some industrial stuff, you’ve done some mini storage. Why are you involved in so many different types of deals?
Chad Zdenek 03:31
Well, I think, I think diversity is pretty important, especially, you know, in the dynamic market that we’re in, we’re filming this in April 2023 it’s certainly a dynamic time to be involved in real estate, a lot of unknowns with interest rates with what the Fed is going to do with, with what, you know, the banking industry, what’s going on in the banking industry. So there’s a lot of issues right now. And I think it’s good to be diversified. I love real estate, so that, that’s really where the bulk of my investments in time and money are. But you can diversify quite a bit within real estate, which is pretty attractive. And I know you’ve done a fair amount of that as well. So…
Shannon Robnett 04:20
Yeah, listen, I was gonna say that’s a loaded question, man. Because I’m in, I’m very diversified. But, you know, I think we can all agree that multifamily has been quite a bit oversold, you know, it’s, it’s the only asset class that I’m currently seeing where cap rates are below interest rates, right? It’s actually trading at between a four and a half and a five and a half, depending on the market. You’re in on interest rates at six. Right? And it’s just boggle in my mind that people keep piling in lemming after lemming after lemming on deals that that are in this negative position. You know, we’ve got a ton of this stuff that’s going to come up for renewal on a rewrite on the bridge debt or whatever, whatever else they had going on, and currently, we’re, we’re sitting on a lack of inventory, which keeps driving stuff, right. So, so there’s this, there’s this angst in the market about what are we going to do? How are we going to do it, but yet, there’s so much that is still trading, you know. And, you know, when you hear guys like Ken McElroy who, you know, $2 billion portfolio bought one deal last year, you wonder what everybody else sees in the market, you know, so I can understand the pivot. And I was really setting you up for that, because I know, I knew you knew the answer. But you know, there’s that pivot in the market where you’ve got to go to multiple classes to see what else there is. And real estate still has intrinsic value, it’s still an asset in and of itself, you’re just using maybe a different model or a different, you know, a different avenue. Tell me why you, why you look at, why you’re looking at self storage favorably in this market.
Chad Zdenek 06:02
Sure, so, so, as part of my diversification strategy is self storage. And if you look back at 2008, 2010, self storage was actually one of the best performing real estate asset classes out there. And it did really well, during the Great Recession, it barely felt felt a bump. So for your listeners who are worried about where the economy might be headed, or, you know, are we really headed… Are we in a recession depends on how you’re qualified these days. But certainly, if you’re worried about a recession, and if you think that history tends to rhyme, maybe not repeat, but at least rhyme, then that would lead you to sell storage, because it did really well, in ’08. So right now, I’m working on a big deal in Texas, in self storage, 2600 units. And, and I’m excited about that part of the market. So self storage, for me is a big part of that diversification play that I’m doing right now.
Shannon Robnett 07:02
You know, and I agree with you, you know, I built several mini storage projects, I’ve seen where, you know, a lot of markets get kind of saturated with owner users or not owner users, but owner operators. Even with the number of kids we have, we don’t need 2600 units. But you know, there’s a lot of people out there that that, you know, they want to they want this for their retirement. And so they do what they have in their retirement. You know, they they slow down, they get a mini storage, they operate that that provides them with cash flow. But you know, that new that, that new thought process of hey, you know, what these can be automated, these can be, you know, run remotely, there’s a lot of automation that that goes into that, when you’re looking at buying 2600 units, what is your business plan moving forward to obviously bring more value to them, and thereby bringing more value to investors?
Chad Zdenek 07:55
Sure. So if you look at like I said, ’08 and how well self storage did during that recession, that’s one big positive, the other big positive is looking for where you might be able to provide value on certain properties. And if you look at the multifamily space, there’s something like 90%, owned by institutional owners at this point, which was not the case, even 10 years ago, if you look at self storage, only 25% of the market is owned by institutional owners. So, so 75% of the owners are, you know, Mom and Pop smaller operators that have had these properties for a long period of time. And for better, for worse, they’re just run inefficiently at this point, right? There’s a lot of technology that you can add into these properties. There’s a lot of efficiencies that can be created, if you take an institutional type approach and incorporate some of these technologies and improvements into these Mom and Pop run properties. And so that’s what we’re doing and then just happens to be a lot of low hanging fruit right now in this self storage space, because it’s not overrun by institutional quality, you know, high professional operator investors at this point.
Shannon Robnett 09:15
So…but is that part of your plan is to gather this these units up, get them running better? And then exit to an institutional buyer? Or are you guys planning a long term hold on this?
Chad Zdenek 09:26
So that really depends on where the interest rates are at in five years. So we’ve we secured a five year fixed rate debt on this particular project we’re talking about and, and depending on where interest rates are at is going to dictate what our exit exit is. We do have multiple options at an exit. Ideally, if if interest rates do come down, and we create the value with that we think we can create we would refinance, return 100% of investors equity, and hang on to the properties for passive income trading. What, what Ken McElroy, as you mentioned earlier would be called infinite returns, that would be like Plan A, if we can’t do that, then we would, we would most likely exit, maybe refinance. But that would probably be Plan C. So we’ve got a few different options on how we would exit the, exit the the project, which I think is really important, when you’re when you’re getting into a deal, it’s good to have a lot of options on the exit. And those are some of the ones that we’re looking at.
Shannon Robnett 10:28
Yeah, you know, speaking of exits, you know, a lot of people right now are winding up in trouble because they got three year, five year debt. And here they are three years, four years, five years down the road, and it’s not a favorable time to sell. What, what about that is… how are you guys safeguarding yourself from that when you’re looking at, okay, we’re taking on five year debt, we’re going we’re still in a climbing interest rate environment, we know that the Fed is going to continue for at least a short duration. But could it be as long as what happened in the late 70s, early 80s? What, what is the, what is the thought process behind that opportunity to exit on really just a five year debt?
Chad Zdenek 11:09
I think the farther out you look, the more important is to look at the macro economic side of things. And certainly, we can look back to the late 70s, early 80s, to see what, how we dealt with the high inflationary environment as a country back then. And I think the major difference between then and now is when we had you know, interest rates at 18%, 19%. That was when our national debt payments were 25% of GDP, right, which is manageable GDP was much above what those interest rate what that debt was, today, we’re at 125% of, of the debt of our debt is 125% of the GDP, right, that’s a big shift. So the US cannot sustain high interest rates for a very long time. As of the recording of this, our, our interest rate payments are a trillion dollars a year just to service the debt that we have. That’s a completely different environment than we had in the 70s and 80s. And I think that’s going to dictate monetary policy going forward at the, at the macro level, that we just, we can’t we can’t get back up to 18%, we wouldn’t literally collapse our economy. So if you subscribe to that, then, then you’re looking out five years, you might be asking yourself, okay, where might we be? Personally, I don’t think we’re going to be anywhere near those interest rates, I think we’re gonna have to have lower interest rates. And if we didn’t have interest rates, we got a lot bigger problems and then having to sell a property, you know, five cap or seven cap or whatever.
Shannon Robnett 12:54
But let’s run down that rabbit hole, Chad, since you opened up the hole here, so so we’re in a position, you’re right, where, you know, we are the one that sets interest rates worldwide, because we are the default currency, or at least we were that’s rapidly changing. We we’ve got Russia, doing deals with India. You know, the that’s the largest economy, the growing economy in the world is the only one that’s still on the upside, both in growth of GDP and population. And yet, you’ve got, you know, you’ve got China and BRICS and all that kind of stuff going on, we will, we could very easily lose our foothold as the world currency. If that happens. What do you think we’re going to have as far as the ability to set interest rate policy, which is something that the US has kind of been at the center of what the World Bank’s and, you know, the IMF, and even the Federal Reserve has has done that, because we have been that reserve currency. But if we lose that status, what do you think’s going to happen?
Chad Zdenek 14:04
Well, that I think that’s a major, major risk that the US faces right now. And I agree 100%, we’re starting to see the erosion of the power of the US Dollar as the world reserve currency, I tend to believe it’s going to be more of a death by 1000 cuts, you know, these kind of side deals that these countries are making, rather than just, you know, just flip the switch off and move to a gold standard or central bank standard or something like that, or, you know, the Chinese Yuan taking over. Like, I don’t think it’s gonna be a flip the switch, I think it’s gonna be death by 1000 cuts and having less and less influence on the world stage. That being said, if I’m able to put my money into a fixed asset that produces cash on fixed debt, I think that’s a good, that’s a good investment, regardless of what happens on the world stage. So that’s what we’re trying to do, which by the way, is not what everyone’s doing. Some people say, hey, get into variable debt now, because interest rates are going to be forced to come down, and you’ll float it on the way down. Like some people think that…
Shannon Robnett 15:08
The only floaters we’re fighting in that economic growth are the ones that are face down and trying to breathe, you know. And, you know, I mean, I completely agree with you. And, you know, we both subscribe to the same thought process here, your three bedroom, two bath house did not change, it did not morph and grow a third, a third bathroom, it did not add a second floor. But if you really look at it, you know, I remember a time that my dad had a conversation with my son who was 16 at the time, and it got his first job. And he was making $7.25 an hour. And he was pretty ecstatic as you can imagine a young man would be. And he and my father sat down and compared when my dad got a job in his very first job in 68, 1968, just to be clear, he was making $3.20 an hour, washing dishes in an Italian restaurant, my son was making $7.25, and my son went on to say, Man, I make it twice as much as you. But then I asked the question, but what could you buy, my dad could buy 11 gallons of gas, right? 30 cents a gallon, he could get 11 gallons of gas, my son at the time 2010. Two, you know. And so when we look at that, whether we’re using 18% interest, whether we’re using this, the biggest hedge against that inflation, which inflation is is theft of the poor, left of the working class, the best hedge against that is to get into something that is servicing its own debt, putting off some cash. But it’s also something that will translate back into dollars, you know, we keep coming back to this currency, because that’s all we know, because we quit trading seashells and ox wheels, and all these other things that we used to do 1000s of years ago for something. So we got to this common currency called the US dollar. But when you, when you look at it, if interest rates go to 18%, you’ve got fixed debt, if, if inflation gets out of control, you’ve got an asset. So people are willing to trade the wheelbarrow full of money, so you’ll get more dollars coming back out, thereby protecting yourself because your debt didn’t increase, you have that fixed debt. So it’s a very solid game plan. And I really agree with what you’re doing there. I’m just asking, you know, some of those questions, because a lot of people are still wondering, Well, shouldn’t I… isn’t now a good time to be in cash isn’t now, you know, shouldn’t I liquefy some of my assets that have liabilities attached to them as far as bank debt and get into a place where I can be more liquid? So I’ve got dollars in the argument you seem to be making that I completely agree with this. You need to be asset rich right now. Because the asset has something of intrinsic value that will continue to go up regardless of what happens with the rest of the world and what happens with monetary policy.
Chad Zdenek 17:55
Yeah, 100%. And, look, I think your dad story and your son story is a really good example of really what’s happening to purchasing power, right? Because that’s really what we’re talking about, where the rubber meets the road and strength of the dollar, where it meets Wall Street is what’s your purchasing power. And the reason why the Fed is so aggressive on fighting this inflation beast is because they know that is one of the worst things for, for the US is losing its purchasing power. And that’s been happening over time. And the Fed is okay with that at a rate of maybe 2% per year. But when we’re, you know, at 8% plus per year, 16%. If you go by the original CPI standards, that is a big erosion of purchasing power. So for me, I like to put that idle cash like I disagree, I don’t want to sit in cash right now, I’d rather put that cash into a, a cash producing asset, that by the way, when inflation continues to increase, so do my rents, or I started my storage costs, right? Those are going up with inflation. And so is my cash flow. So at least I can keep up with inflation at that point. And I don’t have any erosion of my purchasing power, because I’m already sitting on an asset, a cash producing asset.
Shannon Robnett 19:11
Well, you know, the other thing to back to your Self Storage strategy, you know, aren’t rents in self storage month to month?
Chad Zdenek 19:18
Shannon Robnett 19:19
So you have the most dynamic ability to adjust rents as any, I mean of any asset because I mean, an industrial you’re looking at three to five year leases. In multifamily you’re doing one year leases. So when you get into, getting into an asset class, like mini storage, you’re doing one month leases, so you know, if you’re not out by the, or if you’re not paid by the fifth, you’re locked out by the 10th, your auction by the 25th, or whatever the case may be, right? I mean, you’re bada boom, Bada bing, you’re out. But as things deteriorate if we wind up in a banana republic like Venezuela, where all of a sudden we’ve got 4,000% inflation, you’re gonna be the only guy that’s going to be keeping up with the Joneses, as far as you know, $9,000 a month for many storage rent. And I liked that number, by the way, I mean, that’d be fantastic, right? We got a 10 by 10, but it’s nine grand a month. So, you know, Chad, let’s talk about a little bit about why you’ve chosen real estate is your journey. I mean, look, you’re a rocket scientist. I mean, I really actually know. Actually, you’re the second rocket scientist. I know. But, you know, it’s not the rocket scientists fault that they know me. Right. But But when you’ve got this, this ability to do whatever you want, I mean, you’ve you’ve been in a couple of documentaries you’ve been in, you know, you’ve been on some, you know, some some movies. You’ve, you’re rocket scientists, you’ve, you’ve had an engineering firm. Why did you retire, retire from a job? To go into real estate? Help me understand that?
Chad Zdenek 20:50
Yeah, so that’s a good question. I have done quite a few different careers, as you mentioned there. And I’ll tell you, I think I finally settled in on the golden goose here, primarily for for two reasons. One, is the the advantage that you get with leverage with respect to real estate, you literally can borrow a lot of money to buy real estate, and you can’t do that to buy stocks, like you’re not going to get a loan to buy stocks, you’re not going to get a loan to buy bonds, right, you might get a loan to buy a business, but that’s a totally different loan. So the lending that you have to buy real estate is really advantageous. The other thing you have is the tax advantages with respect to real estate where you could shield a lot of your income through different strategies within real estate. So the more as we know, the more money you can keep, the more money, the wealthier you’re going to be. So within real estate, you’re able to shield a lot of that from taxes, which is why 90% of the world’s millionaires have some form of their income from, coming from real estate. So, for me, out of all the different things I’ve done, real estate, when you check those two big boxes, it is a really great place to be. And that’s why this will probably be my last stop, I’m happy to end up here.
Shannon Robnett 22:09
Well, and you know, when you get into the place where you can create recurring income, while leveraging other people’s money, do the job, once borrow other people’s money to backfill, a majority of the outlay, lock in, you know, basically, it’s a forward purchase, right, they’ve stepped in as a bank, they’re taking their position, all you got to do is keep making the payments for the next 10 or 20 years, your asset is going to be free and clear, you’re gonna wind up in a situation where you’re getting residual income, you’ve got tax benefits, I mean, all those things play a huge role. And it’s, you know, when when you did your job as an engineer, you did the engineering once and you got paid? Well, just once, you know, it wasn’t a situation where you did the engineering once, and you got paid again and again and again. So you know, a lot of people can understand how that plays out. And that makes for a great career change, because you can do that and not have to be the guy on site every day. You’re not you know, even in your entrepreneurial business, when you had the business with your brother, how many employees did you have?
Chad Zdenek 23:14
Shannon Robnett 23:16
So you had the ability to leverage yourself kind of like bank leverage, but you know, with an attitude, you know, he had Larry over in cubicle seven, that was just not the guy, right? But you always had that that stuff going on where you could leverage but the minute you stop driving the company, the minute you stop bringing in new jobs, so the income, but the overhead didn’t, right. And while you step into assets, like real estate, you can definitely see where the income keeps coming in. Just because the asset is there, even if the asset is completely static, and doesn’t do anything, because people are using it. You know, I love what Robert Kiyosaki says about having other people pay for your things. And taking that to the level that real estate does is really an exceptional in-route around having to work, you know, forever and always. And so I definitely agree with you on that. Where do you see Chad, you guys are closing on your mini storage deal here shortly. You’re gonna be done with that very soon. But where do you see the next deal for you? And how are you sourcing your deals in the market? That’s as tumultuous as the one we are in?
Chad Zdenek 24:25
Yeah, so that’s a good question. For me, a big part of it is, is partnering with other people because like I said, I’m doing out of state deals right now. I’m not the guy with the boots on the ground. So it’s really important to establish relationships, get to know these other partners, leverage their expertise in the given markets to find out where are the good places to invest, what are the good sides of the street to buy in? Those sorts of things, which are really important details on a successful real estate deal. So I invest a lot of my time into these relationships and getting to know people and partnering with other people that have a complementary skill set than I do.
Shannon Robnett 25:08
Yeah, well, and you know, that’s the funny thing that you that I’ve seen a lot of here in the real estate game is that you’ve got a lot of people that are able to put forward five and six people together that all have a specialty, that all come together with one common cause, and are able to take down deals make deals happen, really changed the the trajectory of it, because you’ve got a specialist in every area, you’ve got somebody who’s a specialist on the on the finance side, you’ve got another specialist on the operation side, you know, maybe you’ve got somebody out there that’s, that’s on the acquisition team, that scouting markets and turning over rocks, like, you know, like nobody’s business, and then you’ve got the the capital raise portion of it. What Why is it? I mean, I tend to see that you stay in the capital raise side of things. What is it about that? That’s your superpower?
Chad Zdenek 26:03
Yeah, and I have more recently been in the capital raising side of it. However, I don’t, I don’t really think that is my superpower. I think it’s just kind of what I’m doing right now. Ultimately, I’d like to be more on the the entrepreneurial operator side. My first deals I did, I was the solo GP. So I didn’t, I did not bring any on any partners, I was, I was the only guy that did everything from A to Z. And, and ran my own deals. More recently, on these larger deals, I’ve been more on the capital raising side just because that’s been kind of the need in the market. But, but ultimately, I’m really looking to partner with other people to create a business and give, you know, really kind of leverage my entrepreneurial roots. I’ve, I’ve started six different companies over my years, and that’s really like, what I think my superpower is, is growing and running a business. And I want to do that within the real estate space. So you know, ultimately, I think I still will be doing some level of capital raising. But certainly, that’s not that’s not my only strength. And ultimately, I want to do a bit more than that.
Shannon Robnett 27:13
Yeah, you know, and that’s the amazing thing about real estate, you know, there’s so many facets to it. There’s always more to learn. There’s always more to do, there’s always, you know, another deal to do you know, I, somebody asked me the other day, where do you know, when are you going to quit? You know, what am I what am I gonna stop doing deals? And I told him, I said, You know what, I hope I die with an LOI in my pocket. I really do you know, because there’s no reason to stop doing deals. It’s not like I’m out here digging a ditch, you know? I mean, I watch it, you know, I’m fascinated by other people digging ditches, right? But that’s not you know, nobody knows anybody that knows me knows that I’m not gonna stroke out on a job site right? But, but you do have that ability to then look at it go wow, this is, this is an opportunity for me to grow for me to bring a different skill set everything like that. You know, as we look at what’s going on in 2023 with you know, the dollar changing and all those things where are you seeing pricing going in you know, we get we get this question a lot but but isn’t real estate isn’t now a bad time to buy real estate isn’t real estate? Isn’t… Aren’t prices dropping in real estate? What’s your answer to that question?
Chad Zdenek 28:29
You know, look, I get really, really frustrated by this, this perspective from investors, right? They don’t want, they want to be on the sidelines right now. I want to stay in cash. I’m gonna wait blah, blah, blah. It’s like, when, when your, when you go to a fourth of July sale for a car, you buy a car, you know, like when the pot roast is on sale at the market, you buy a little bit more of the stakes in the market, right? Like, like, everything when everything else goes on sale you buy when real estate’s on sale, you sit on the sidelines, like why why do people do that? I just got a $4 million discount on this deal. Which by the way, is get appraised two and a half million dollars higher than what we’re buying it. So we got a $4 million discount. And people want to be on the sidelines because they’re worried about it being on sale like, like Warren Buffett would totally disagree, right with blood in the streets be greedy, right? We know that saying, but but it just doesn’t resonate with investors for whatever reason, they want to sit on the sidelines. Meanwhile, the people that are actually doing deals, we’re getting massive discounts that we would never have gotten a year from now. And in my opinion, we’re not going to get a year later, right? I’m sorry, we got a year a year ago, we would not have gotten them and we’re not going to get a year from now. So this is like the sweet time to get some of these amazing deals, get really good discounts, real estates on sale, buy, buy, buy, you want, you want to marry the deal, and you want to date the debt. I’ll pay high debt right now because I know I can refinance it later if I need to, right, as long as I make fix, I do fix. So, so I’ve got that advantage right now. And for me, I’m picking up these deals right now. I’m super aggressive on it and excited, because I’m getting a lot of read trades. I’m getting a lot of discounts. And you know, this as good as anybody, you know, a year ago, we’re doing best and final offers, right? Okay, I’ll give you another, you know, 500k above asking, because I really want you to deal, right. I mean, that was a…
Shannon Robnett 30:27
It was just, how deep can you cut yourself? You know, how much? How much can I get out of you? Okay, look, I, I’ve only got one kidney the left, I can’t give you two kidneys, you know, gotta keep what…
Chad Zdenek 30:39
And now we’re on the flip side of the coin. Right now we’re getting discounts from buyers, we’re getting concessions. We’re getting amazing deals right now. And yet, you still have a lot of investors that aren’t comfortable right now. And they’re sitting on the sidelines. And those are those of the lemmings that are going to be paying for the high increases a year from now, when the people that understand about blood being in the streets, they’re the ones that are actively buying, and that’s when I’m doing.
Shannon Robnett 31:05
Well you know, it’s the same people that got into Tesla at 800, that went to 900. You know, and now they can’t understand why it’s fallen all the way back down. But, you know, the thing that I look at too Chad is if the deal will cash flow from the beginning, if the deal makes sense today, if you don’t need I loved how you said it, you know, look, our plan A is that, you know, we hold this, we get some better debt later. But we have other plans, because the reality is, if your deal can go the distance today, it can cash split off cash right now today, give that to the investors, everybody wins. What’s wrong with that deal? Right? I mean, you can do that deal, you’ve got five years, four and a half years before you need to do anything with that deal. And if at that time, you have choices where a lot of people are looking at it going, well, you know what prices are falling. And you know, it’s funny because we look at statistically looked at the MLS numbers around where I’m at in Boise, Idaho, and we have a 1.9 month supply of housing. Now, that statistically tells you that we’re low on inventory. The thing is, when you dig in deeper on that anything under half a million bucks, three bedroom, two bath, four bedroom, three bath, whatever, anything under half a million bucks is still in a multiple offer situation. It’s the stuff that’s half a million and over the bigger stuff, the larger houses the million and a half dollar places, with those are the people that could potentially lose their Silicon Valley job or whatever going on like that. They’re the ones that are kind of holding off. But you’re seeing that of that 1.9 months supply of inventory 68% of that inventory is houses over 4000 or over 3000 square feet, right? So a little bit more than your starter family home. And those are the ones that are that are taking 1.9 months to sell even in this market. Right. And so when you look at that, I mean your your analogy of when to buy and when to do it is exactly right, because we still have people that are looking at it going man, now is a great time to buy a new single family home, it’s a great time to invest in real estate, as long as the deal is cash flowing, because we’re not dealing with 2.4% interest rate and appreciation for days. And we’ve got we’ve got some issues that are real life issues like they’ve been for most of your investing career, most of my investing career that this 2% interest rate wasn’t real. And we were always going to get back to these, we were always going to come to the day that we sat here and went, Yeah, that’s 7%. I don’t know what else you want. But then again, the other side is I’m looking at acquiring some industrial stuff, that’s a seven and a half cap. I’m actually going to make money, right, I’m still in the arbitrage situation, instead of buying that thing at a five and a half cap, I’m buying it at a seven and a half cap, which again reduces price, I might be paid a little bit more for the interest rate. Again, like you said, I can refi… I can do that later, or it cashflows right now, but the heat is out of the market. So instead of the realtors going, hey, you know, I’m actually getting pricing on stuff, right? You remember, remember Chad, we weren’t getting pricing 18 months ago, it was, you know, sending your offer, you know, call for offers. Guidance tells us you know, guidance was? Guidance was the guy that got closest to the cliff. We just hand him the bucket of rocks as he well. You know, that’s the guy that paid the most, you know, and you never wanted to be that guy. But here we are. We got prices back on things again. We’ve got deals that make sense. We’ve got due diligence that are back in place. We’ve got timelines that manage, you know, and you look at guys that had been doing this for years and they we didn’t get caught up in the hubbub of everything in the middle. There was a lot of deals that still got done in 2021-22 that even with the froth and the foam, but we’re back in a place where real estate is being done based on numbers and common sense and things like that. And we’ve got decent, we still have decent debt. I mean, you know, I was talking to somebody the other day and they were talking about what interest rates are in Peru. They’re like 30%. You can’t afford to finance in Peru at 30%. You wouldn’t think but then again, the deal would probably reflect that. So, you know, when when we’re looking at how deals keep going. My camera’s spazzing out, what are we looking at how deals keep going? I mean, it comes down to the fundamentals. Right, it comes down to the fundamentals of how you underwrite it, how you’re taking it down, how you’re communicating with your seller, about your price, my terms, you know, what that looks like getting things across the finish line? I still think there’s going to be a robust real estate market for the next two or three years, don’t you?
Chad Zdenek 35:48
Yeah, I mean, look, I subscribe to the idea that that real estate, is the best Get Rich Slowly scheme out there, right. I mean, whether whether you bought last year, this year in 10 years is really not going to matter. So, you know, debt, debt is a big question mark, you got to you got to watch your debt. But I think you and I are both smart enough to do that. But going back to your idea on, on where we are historically, a 7% debt is like 40 year average, right? Like, it’s not bad debt. If you have a cash producing asset at that fixed term debt, that’s a win.
Shannon Robnett 36:23
Yeah, no, I completely agree with you.
Chad Zdenek 36:24
And I like, like, you’re the value add King right here development, guys. So guys, you and I that are creating value, like long term, that’s, that’s a win win, there’s no way around it, we, you know, we’re gonna be winners on that.
Shannon Robnett 36:38
Well, and especially when you’re coming in, you know, you’re taking an asset that’s maybe not managed to the potential, it’s not got the add ons, it’s not got the automation, and you bring that technology to it, you know, you’re coming up, showing up actually doing something, you know, the last year and a half, all you had to do was buy the asset, hold your breath for 90 days, and you were able to make money on it, you know, now you’re actually having to bring value to it. And there’s a lot of people that don’t understand. You got to bring value. So they don’t understand how to underwrite that value, how to bring that value. So, you know, Chad, when you’re looking at these out of state deals, and I know you’ve got a partnership group, are you, are you jumping in alongside the guys that are operating and seeing how they’re doing it? Or are you just are you just trusting that they’re doing it? How are you double checking your partners in situations like this?
Chad Zdenek 37:29
So I think it depends on the partnership. So and like I said, I’ve done everything from A to Z. So I’m kind of a chameleon in terms of what the partnership actually needs. Certainly, you always have to do kind of the sanity checks and keep an eye on things. But I like to do quite a bit more than that, as long as the the GP team can use my help. And oftentimes they can. So I tend to get really involved in the value add side of things. As you know, I’m also a licensed general contractor. So the the value added aspect of it with respect to construction I’m pretty active in and then on the asset management side, also very active in depending on the deal. Sometimes you got a really good GP team, and frankly, they don’t need my help on that part of it. And that’s okay, then only they don’t need my help there. But on other teams, when they do need my help, I’m happy to step in and I do fair a fair amount of work in that regard.
Shannon Robnett 38:26
Awesome. Well, you know, let’s let’s kind of wind this down on a, on a personal note, tell us a little bit more about… I’ve alluded to it several times, your, your, your acting career. Tell us a little bit about what you’ve done in that space.
Chad Zdenek 38:38
Yeah, so I started out just happenstance, I do live in Los Angeles, but that’s not really I guess that’s not where I came from it with respect to TV hosting and TV work, but I, they, I was auditioned for a gig as an engineering expert on the show. And this was only like, maybe 12 years ago now. But I auditioned for the job. Just vers referred to it from, from some professors at my undergraduate institution, Loyola Marymount University, applied, got it for that episode, and they wound up keeping me on for each episode. And then they wound up doing a second season I made me more like a co host. And then that production company did another show and they brought me on to co host another show. And then I wound up getting a Hollywood agent to help represent me for different things. And it just kind of grew from there. And and the last gig I did I think you saw the episode it was on the Smithsonian channel and National Geographic called Inside Mighty Machines. And we did, those were one hour episodes. I was the solo host on that show, just diving into giant machines to find out how they worked and worked with the contractors and demolition experts, which was a really cool show. And that was the last one I did so just I’ve always been kind I’ve done it on the side. But I’ve gotten to see some really amazing things amazing experiences. And it’s been a fun side hustle.
Shannon Robnett 40:10
Yeah, well, you know, it’s it’s good work if you can get it right. Obviously, I gotta face made for radio, but we still do these podcasts so. So Chad tell everybody where they can grab more information about what you’re doing and catch up with you.
Chad Zdenek 40:25
Sure, so yeah, our websites a good spot CSQ like challenge status quo properties.com (CSQproperties.com), or any social media sites is just @CSUproperties.
Shannon Robnett 40:37
Awesome. Well, thanks again, Chad for being on The Real Estate Rundown. And guys, thanks for tuning in. As always, like, subscribe where you get your podcasts, let us know what you think. And we’ll catch you guys next time on the next episode of The Real Estate Rundown.
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About Chad Zdenek:
Being born and raised in Los Angeles, Chad has witnessed first-hand the need (and shortage) of multifamily units. This was the impetus for him to get involved utilizing his extensive background in construction and engineering to assemble deals to improve apartment housing and maximize shareholder value.
Chad received his Bachelor’s of Science degree in Civil Engineering from Loyola Marymount University, Master’s of Science degree in Structural Engineering from USC, and MBA from UCLA.
Instagram: CSQ Properties