Welcome to Investing Across Borders with Lauren Cowen. Every week she will share valuable information that you need to know in order to successfully invest in real estate and other business endeavors in North America. We believe in helping clients invest live, work and play across borders. And now, your host, Lauren Cohen.
Lauren Cohen 0:24
Good morning, everybody from sunny South Florida. We are here today on Investing Across Borders with my guest Charles Carrillo from St. Petersburg, Florida. Charles, is that where you grew up as well?
Charles Carillo 0:37
No, I grew up in Connecticut. I’ve been in Florida since 2012.
Lauren Cohen 0:40
Okay, cool. So you’re probably happy to be here at this time of year, right?
Charles Carillo 0:44
Yep. Since we got like a foot and a half of snow, just a few days ago.
Lauren Cohen 0:49
I know, I actually have an extended family member who bought her husband for Christmas, one of those tractors that clears the snow. He’s a periodontist, and they live somewhere in Connecticut, and they got pummeled with snow. So he was the most excited person because he got to use this new toy to clean the snow. And I’m thinking, I don’t miss that stuff for a minute. As you can see from my background, I’m originally from Canada. But now that I’m in South Florida, I don’t miss the snow for one minute. Honestly, I don’t want to see it. Maybe if it was outside, and I could see it for a minute, I’d be okay with that. But I’m done. I’ve had enough years spent in snow. So anyway, Charles, tell us a little bit about yourself. You’ve been here in Florida since 2012. You have your own podcast. Tell us a little bit about that. And let’s see how we can bring some value to our listeners today.
Charles Carillo 1:45
Where to start… I’m a multifamily investor, mainly, I started investing in multifamily in 2006. And I self-manage some properties. I have Central Connecticut, I haven’t professionally managed now, I’ve been down in Florida since 2012. And we’re doing larger projects down here now. Our last deal was 90 units that we bought in Tampa with some investors. We work a lot from what I did prior, my brother really manages that whole business now. I ran a payment processing business, and I had a lot of clients in Europe, mainly Eastern Europe. So I would spend two to three months a year over there working with these clients and partners. And they would always ask: “What else do you got going on, what’s going on?” And they’d asked me about real estate, and then they they’d ask how to invest? I was like: “I have no idea how YOU would do it.” I know, I just went through all the benefits that we get as US investors. So it was like, okay, this is going to be something when we’re doing deals, I have a lot of investors that come in that are expats or some of them are foreign nationals. I have that on my last deal, actually. And then you have some people that are just us investors. But what I do is most people will reach out to me when they have questions about it. I’ll bring professionals on my show, and it’s something where I usually point it back to someone like yourself, Lauren, that can actually answer the questions and I kind of point in the right direction. Hey, here’s someone that works that can help handle financing for you. Here’s this over here, if you want to be active, and then obviously if they want to be passive, it’s another conversation that we can have.
Lauren Cohen 3:14
Yeah, a lot of people don’t realize that there are two conversations to be had, one is active, and one is the passive conversation. I deal more with the active investors in my business just because I’m working with them to get them visas very often. But passive investors on the real estate side, I’m also a real estate coach, so it’s definitely something that we work with on a daily basis. And that’s going to grow, I’m sure you would agree with me with all of the forbearances that are going on. You’re in North Central Florida, and I’m in Southeast Florida, but with all of the changes that are going on in the forbearance and mortgage industry, there’s going to be a lot of distressed properties coming on the market. Now, I hear people saying that it’s not going to happen that way. But I think it is, because people right now they’re just keeping their heads in the sand. So far, there’s going to be a new president, no matter what the current president says, it’s going to happen. Whether we have to pull him out kicking and screaming. But there’s going to be a lot of changes. And there already is. I see it up there. I’ve spent a lot of time in Central Florida, there’s a lot of businesses that are unfortunately going under and there’s a lot of people that are not paying their mortgage. Now right now they’re still under the radar, but that’s not going to continue and I specialize in subject twos. That’s why I’m bringing this up. So there’s a huge amount of opportunity, not only on the side of getting access to these properties, but also on the positive side of taking these people out of their traumatic, potentially disastrous credit situation, foreclosure. You know, when we come in, so I would think that’s going to also bring people to you and your syndication practice business because you’re going to be making additional investments that meet your profile, and then they’re going to be relying on you.
Charles Carillo 5:10
So it’s funny that you bring that up. Because Florida is like the ninth state for having the most forbearances and that’s not current, I think we’re at about eight and a half percent of all mortgages, and that’s on a one to four unit residential side, that are in forbearance right now, or they’re not current or delinquent. However, they’re not paying their mortgage. And with a renter, for us, that’s an eviction moratorium, which is very minimal right now, which is actually kind of interesting. But what we’re doing is, we know they’re not going to catch up. So, when it’s all done there, they’re leaving, and that’s what it is. And with the forbearances, someone that couldn’t pay their mortgage in March, they’re not paying their mortgage in February.
Lauren Cohen 5:50
And they’re definitely not going to be paying the 10 payments that they owe! That’s the biggest challenge, and people don’t realize. I’ll be honest with you, I took advantage of the forbearance because I thought, okay, I’ll be able to delay the payments. And then, all of a sudden, in September, I had five payments due at once. That’s a big hit! And not everybody can do that. It wasn’t easy for me. I know, if you’re already in a position of having to delay your payments, that’s only going to escalate and the payments are ballooning. In Canada, it’s a very different system, because they’re having mortgage forgiveness, or they’re putting the mortgage payments at the back end of the mortgage, which would have made more sense here. But unfortunately, that’s just not the way it worked.
Charles Carillo 6:36
It would have been better to do what they did with a lot of mortgages in 2008. They made them from 30 year to 40 year mortgages. Which was something that would make more sense. There’s probably so many reasons I’m not even aware of from residential mortgages why they did that, but it would make sense to tack them on the back. And that’s how it usually works, if you called your bank. I called because I had commercial mortgages, I had residential, multifamily mortgages. And no one really had any idea what was going on in March, so I called ALL my banks!
Lauren Cohen 7:01
Now, let’s be honest, let’s think about this: I was supposed to be in Toronto now, and I decided not to go because my mom’s like, “Oh, this is almost over, and blah, blah, blah.” And I’m like, “Well, I still really miss you. I haven’t been home in a year.” And we were just talking about how this can’t go on much longer. This just can’t go on much longer. And then you look at the other side in March. Did we have any clue? Then December at Christmas time, when we’re about to go into a new year through the whole election into a new president. We still have Coronavirus, now they’re starting to administer the vaccines. But it’s not widely available. And there’s a lot of panic about how that works. Do you want the vaccine and everything, but it’s just like a crazy thing, because in March, nobody knew what was going on. And I gotta be honest with you, here we are at the end of December, not a lot of people know what’s going on. Right now in the real estate world you’re seeing these things, ebbs and flows and a lot of volatility. I don’t know if it’s the same in the markets that you’re working in. But certainly in the markets I’m working in, the tax auctions are closed, and there’s gonna be a lot of backlog there. I mean, there’s just so many changes in our industry.
Charles Carillo 8:25
The other thing too, that people aren’t noticing is that the prices are being elevated, so high right now, it’s a lot because there’s a lack of supply on the market right now. And when people start moving again, normally, and you have more properties that are coming on the market, along with the properties that are now leaving, or being foreclosed on, there’s going to be even more supply in the market, because people are going to continue what they were doing in 2019, which is moving, which is selling the properties, which is buying their properties, and everything like that. So I think that’s gonna be something else that adds to the whole pile of what’s happening. Going back to the forbearances. Even they didn’t know about this. When I would call banks, I said, “If I need to do this, everything’s fine right now, but if I need to do that, (and I didn’t have to do it). And they told me to just pay my escrow. Then I would call him, a week later, because you just don’t trust anybody. Then they’re like, “No, if you don’t pay the full amount, it all goes in.” Like, oh, okay, so you’re not even there. Then it was “It’s all gonna go on the back.” And THEN it’s like, “No, no, you have to then catch up on it.” Then finally you couldn’t even get through to the banks to hear it. With that problem, you’re on hold. It was just complete chaos. So at that point, you just say “I hope I don’t have to.” Because anything that you’re told, you know, it’s not 100% correct.
Lauren Cohen 9:38
100% and you can’t still, still there’s just so much upheaval. We just got a new stimulus bill yesterday, and so now, what does this mean? Can we get access, I was helping people at the beginning of COVID, access all of this SBA money and the PPP and so on. And now, well, how do we get access to this, and for every Issue, there’s 25,000 opinions. It’s been very challenging because here we are, some states are on lockdown and others are not. What does that mean? Then there’s so much talk. Like my mom, she thinks that we are just running around getting viruses every minute of every day. Because she’s in Canada. She’s keeps telling me I need to come home. Every day, it’s a new story. One day, she writes in all capital letters “COME HOME NOW” on different lines. And then next time she says, “Don’t come home!” So there’s just so much pandemonium. Now, the beauty of it is, although there have definitely been some blips in the real estate industry, at the end of the day, no matter what, real estate is always cyclical. It’s always gonna come back, the cruise line, stocks are probably not coming back for a long time. But real estate is good and real estate is solid. I’m with a real estate company, it’s cloud based, ESP. And we have gone like gangbusters because we are not driven only by real estate, but also by tech, and by diversification. And that’s, I think one of the lessons, wouldn’t you agree, that we’ve all learned in this, is that you can’t be fully invested in any one thing. You have to diversify, you have multifamily, you have multiple investment streams, and income streams. That’s how you’re going to be successful. So tell me a little bit about how you market to international investors, is there a special marketing approach that you have? How does that work?
Charles Carillo 11:36
Well, what we do, is I have the global investor podcast, which is similar to yours, but much more with passive investors. And when we used to be able to travel, for example, we’d spend two months a year for my wife’s work in in Hong Kong. And that would be something where I did all types of meetups and meetings with people. And that was completely different getting into. Just like you’re saying, Canada, a completely different mindset of someone when you’re talking to them, when they’re talking about what they hear from the United States. And I think a lot of people out there don’t understand what international investors are looking for, for the most part. I mean, you have some of them that are looking for a higher rate of return, you have a lot that are looking for a safe place to put money. And there’s a lot of places in the world, that you can’t just cash flow on property. You cannot make that positive cash flow every month. It’s very small, or it’s negative.
Lauren Cohen 12:30
And you’re just paying for it also, like the government steps in and doesn’t even allow you to have access to the income.
Charles Carillo 12:38
That’s a good thing, like in Sweden. I have an investor from Sweden, and he has some properties there. What happens is that his increases on rent has to go through the government. So the government tells him what he can increase the rent to. That happens in a lot of these, especially Scandinavian countries. There’s something in the United States, where you can make your deal on your renewal with your tenant. And you can you work it out among you without having government, which obviously, no one wants to have government in their business as much as possible.
Lauren Cohen 13:09
Unless you’re in Scandinavia, or Canada right? What excites you most about dealing with international investors, or people that are looking to invest from other countries, for example?
Charles Carillo 13:19
I think it’s opening their eyes to the possibilities here in the United States that aren’t available in other places. That’s a huge thing, because people are always asking questions. Then they’re usually comparing it to maybe what they’ve heard, they’ve read, or a story from a family member. And it’s always someone who’s always got a family member that was a landlord that got a call at 11:30pm, one night over their 10 year period, and hates doing it afterwards. And it’s kind of just saying there’s different ways of investing, like you were saying, there’s multiple income streams, different ways of going about it. If you want to deal with just single family properties, and then you have someone there that manages them for you, if you want to go with a little smaller of a small multifamily like apartment building. So there’s different ways that work for your risk tolerance that you can get involved with. Then really just aligning yourself with professionals that are seasoned, whether they’re licensed professionals like yourself, or whether I’m a licensed real estate agent in Florida. It’s something where as to, I can now have access, and I can tell investors, and speak to other people about different investments, and what’s happening, and what you can foresee for the future with where we are.
Lauren Cohen 14:32
So you mentioned earlier about the benefits of investing in US real estate, can you list the top three benefits that you would say you are seeing on almost every project you work on?
Charles Carillo 14:45
Well, the US is very friendly with depreciation, which is great when you’re investing into cash flowing real estate, we’re able to kind of push off its paper losses, so you actually will make money. And actually, when you’re filing It’s a k-one that gets filed. When that gets filed, it actually comes up as a loss, and when you’re giving it to the government. So that’s a huge plus, it can offset some income. And that’s a big thing for a lot of investors. So you’re actually getting money and you’re actually not paying taxes on it. The other thing would be that we have a lot of long term fixed debt here in the United States. It’s similar to that in other countries, but it’s a much shorter timeframe. So shorter term on it, which can be riskier, when you have shorter term debt, it’s just a riskier proposition. A kind of staying up at night worrying kind of thing that you don’t want part of. Then the other thing, is having the ability to actually cash flow and make a cash on cash return. That’s actually overinflation. 5, 7, 8, 10%, whatever it is, where in certain countries, it’s 1 or 2%. And then you’re just investing for appreciation, which is just a gamble. At that point, if you’re not flipping the property, it’s a whole different business.
Lauren Cohen 16:00
Do you see a huge difference when you’re dealing with a US investor versus a foreign investor in terms of their approach and their expectations?
Charles Carillo 16:13
I think the return expectations are lower among foreign investors. And especially if they’re coming from a country, that’s probably not as stable. Maybe it’s different coming from Canada, but for investors I have from former Yugoslavia, or from China, or from Hong Kong, or Macau. Where they’re coming from is not as stable of a country, I guess you would say. Those countries are pretty stable. First of all, you have to get the money out of the country. That’s a huge hurdle. Argentina is a huge thing, too. So they’re coming in, they’re just trying to keep their money. That’s the thing too, you’re in South Florida, so much international money comes in there. And that’s something people always ask me, “Oh, I’d love to invest in multifamily in southeast Florida.” I would love to! It’s just that every time I see a deal from there, there’s a cash buyer that comes from like Venezuela or Colombia. And that’s just what it is. They’re coming in, they’re buying these unfinished condos in Miami and all these different things. Or for example, when one of the best tennis players in the world, he’s from Serbia. First thing he does when he gets his first paycheck, is he buys two penthouses in Miami, and one in New York. He’s not leaving his money in Serbia, he’s bringing it here and what will happen is: no matter what, a large percentage of that’s going to be left even if it loses a few percent, or he’s paying management fees. He doesn’t care. He just wants to have his money and not lose it.
Lauren Cohen 17:43
Definitely a big part of it. And you’re right for Canadians. Generally speaking, money is pretty safe in Canada. And we are able to come and go with the money as we please. Unlike in Venezuela, where there are a lot of countries where there’s currency restrictions, there’s export restrictions, you can’t bring certain amounts of cash out of Brazil. My sister-in-law is Brazilian, and of course, as an immigration lawyer, we are always dealing with source of funds that is so different from each country, which you probably have the same. You have to show where this money comes from, so you don’t have money laundering issues, when the money is coming into your syndication. The same concept. You know, in Russia, there’s just countries that have different disclosure requirements. And the mentality, the culture, as you mentioned, is different. We are our culture, especially Canadians. And obviously, at the end of the day, I’m Canadian, we over disclose. We’re very conservative, we’re very cautious as a rule. And when I say conservative, I mean small, not conservative like Americans who much more live on credit, and take advantage of opportunities. Not as willing to disclose, but they are required to disclose in each year, you have to file taxes, and there’s rules, and there’s, there’s laws, there’s rules of engagement. And then there’s rules of culture and the cultural differences between us in North America and even between Canadians and Americans. Because Canadians are much more risk averse. I’m sure you’ve seen that in working with us right? Always asking: “Well, are you sure? Like how safe is this?” Because we are, like I said, conservative small. See, conservative Americans are much more inclined to take risks, and face fear. So that’s a big difference that I see on a daily basis, certainly working with Canadian and American and for that matter, investors from literally everywhere in the country. So what are some of the biggest mistakes that you’ve seen investors make over time?
Charles Carillo 19:59
Not having their tax and legal structure set up.
Charles Carillo 20:05
And you know, they’re talking to me, because I’ll do a free 30 minute call with people that listen to the podcast. And, I tell them, “I’ll answer any questions you have, but listen, this is probably what you have to do, and you need to speak to, and you have to find this, you have to do that.” And when it gets down to that part of me, and how difficult that is, I imagine you being an attorney, and it’s just something of a nightmare that must be on the back end as myself being on the front and just saying “Wow, you’ve got a major problem, and you have to speak to people.” For example: with our taxes, especially like the estate tax and stuff like this, and you know, we have a $12 million, US citizen, and it’s $60,000, if you’re a foreign investor. Things like this, you have to know upfront, because if you’re going to make a meaningful investment in the United States, you have to know everything like that. And then you have to be set up, you want to be set up if you have money you’re investing, you want to be set correctly, if it’s a trust, if you have a lot of money, if you’re setting up through an entity. if you want some privacy and some protection. So everybody has their own thing. But I think it’s a tax and legal structure. Because that’s when people reach out to me first, when they want to invest, whether passively or actively. I always tell them first, CPA attorney, get that done right away. One that they know what they’re doing, worked with foreign investors before, Then we can continue our conversation after you’ve got that kind of going. Because, what are you going to do if it’s not set up correctly? You’re trying to make this investment as advantageous as possible for yourself, and it’s something that if you don’t have it correctly set up, you’re going to be in trouble.
Lauren Cohen 21:40
I see so many real estate investors from everywhere that invest in their personal lane here in the US. And the potential liability alone is so huge in doing that, even when you’re investing in a syndication, which is more passive, you want to do this through the proper structure. And I see a lot of people that are hesitant to spend the little bit of money to consult with that lawyer and that CPA. So in my process, for example, one of the first steps every single time no matter what, is to speak with not only a CPA, that’s US licensed, but also that you understand specifically the tax treaties and the tax requirements for that foreign country. So I have specialists on my team, for example, that understand the tax rules and are licensed dual licensed in Russia and Brazil and Argentina and Canada, you name it. And that’s super important, because you can’t just invest in the target country without considering how that’s going to impact your home country. So how long have you been investing in real estate?
Charles Carillo 22:51
I’ve been investing since 2006. So going on 15 years?
Lauren Cohen 22:56
And did you have a full time job when you started investing?
Charles Carillo 23:00
No, I’ve been self employed. And in 2006 I graduated college, and my dad had been investing in multifamily for years beforehand. So he kind of pushed me to do it and I didn’t really want to do it right off the bat. But then I really got the bug after that. And it’s definitely been a great investment.
Lauren Cohen 23:20
Yeah, everybody that is a real estate investor is thrilled with the opportunity, with the returns. You’re going to have a few failures in the process no matter what, but it’s only through failure, that we can know what real success is! So Charles, how do people reach you?
Charles Carillo 23:40
If you have questions, if you’re interested in investing actively or passively in US real estate, please reach out to me, you can set up a 30 minute call with me if you just go to schedulecharles.com and set up a 30 minute call that fits on your schedule, and I look forward to speaking to anybody that’s interested in investing in US real estate!
Lauren Cohen 23:58
So I just want to ask one last question. I don’t know if we clarified this, how many cities are you currently invested in?
Charles Carillo 24:06
We’re currently in four different markets. So we’re in Phoenix, we’re in Central Connecticut, and we’re in two markets in Florida. So we really focus when we’re looking for markets, that we have partners that are on the ground there. And we’re looking for landlord friendly states. So all in the southeast we don’t want. I’ve done my time in the northeast of investing, and that’s very tenant friendly. So it’s something when you’re looking for a place to invest, make sure that you know that market, and it’s got the right population growth, and job growth, and all those different factors.
Lauren Cohen 24:39
Absolutely. Well, I thank you for joining us today. It’s really been a pleasure. I’m excited, I’m going to be on your podcast soon. That will be fun. And perhaps we’ll have an opportunity to work with some clients together. I do often have clients that are looking for a turnkey investment opportunity. And it sounds like you definitely know what you’re doing and you’ve been successful at it. So thank you again and I will look forward to speaking with you again in a couple of weeks.
Charles Carillo 25:06
Thanks Lauren, talk to you soon.
Lauren Cohen 25:07
Thank you. Bye Bye.
Thanks for listening to Investing Across Borders with Lauren Cohen. Make sure to check the show notes for any links in for guests contact information. If you have questions for Lauren. please reach out to her at Founder at IE counsel global.com. If you enjoyed today’s episode, please subscribe rate review and share the podcast with a friend