In this episode I chat with Chris Winterhalter, who tells his fascinating story of how we went from wholesaling houses to his first apartment building deal, a 12-unit property, which was a nightmare (reminds me of my first deal!). As soon as he closed, half the tenants left and he discovered his gas bill was $3,000 per month and he quickly found himself in a negative cash flow situation.
He was able to overcome this and finally stabilize the property. He then bought up about a 100 units in total within a one mile radius of this building. And did I mention he did all this as an out-of-area investor? Chris talks about the importance of partnering with the right person (one not-so-good partnership vs. the one he has in now) plus raising money from others, which is allowing him to do more deals.
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How did you get started investing in real estate?
I’ve always thought I’d own my own business. After college I moved to San Diego to start a real estate business of some kind. I went to U of Cincinnati in Ohio. I fell in love with Latin America, and double majored in Spanish. I started to develop a plan to invest in real estate. This was beginning of 2008. I got a job as an inventory manager and bartending in the evening. I spent as much as I could learning about real estate. I networked, learned, and researched, and tried to save money. I initiatlly was going to invest in San Diego but changed my mind and decided to invest in the mid-west.
We’re now heading into the recession. I got promoted, but I decided to quit my job, and decided to be full time in real estate. I did a few wholesale deals. I thought I had mastered the skill, and decided to quit my job. I had 18 months living expenses saved, no debt, and was single. I borrowed a little money from my parents too. So I had like $45K, but I also needed to invest that in real estate.
I met someone who wanted to partner, but it didn’t go well. We did a few deals together, and one we owned a rental, but it didn’t go like we thought, and we had to part ways. I probably lost about $10K through the partnership and the friendship was over.
So I’m like on my 4th deal, living in CA but investing in St. Louis Missouri, I had some contacts there and thought it would be a decent market. I made offers on properties in San Diego but nothing was accepted. I was looking for income producing property, but it was nearly impossible to find there.
I quit my job and was doing only like 4 deals, these were wholesale deals. My goal was to use wholesaling to make some money and invest that into income properties. I did like 3-4 deals and thought “this was tough”, I wasn’t really making a lot of money and so much work to do.
On my birthday in 2009, I was supposed to go down to Guatamala to visit my girl friend, but instead she broke up with me. To cheer me up I went to a real estate investment conference in San Diego. There I met my current business partner.
He was and still is in the hotel construction business, and he wanted to get into multi-family properties. I proposed a partnership whereby we would flip houses and use that plus their capital to buy apartment buildings. So we started flipping houses. But neither of them lived in the midwest where we were going to flip houses. We ended up flipping like 20 houses over 2 years. We would do bigger rehabs, we did some historic rehabs, but they were all rehabbed to be flipped. Even in the recession, our houses sold fast and our quality was good. I was good at sourcing deals.
We had some capital but we were mostly using hard money. And we weren’t local. So we struggled with margins. If we had try to solve that we would have been able to do more.
In that year, we got into our first apartment, a 12-unit deal. My business partner’s hotel construction business was hit hard by the recession for some time, but then it took off again. So he focused on that, and I focused on the real estate business. He asked me to come on to help him in the hotel construction business, which I started to do in early 2010. That led into the last 4 years, I’ve been working together, and now we’re equal partners in the hotel construction business.
On the real estate side, I considered moving back to the midwest to focus on the real estate. I was working with someone who was doing a lot of short sales, and I was feeding him deals, and it worked out really well and was generating good revenue.
The last 3 flips were historic houses that we renovated, for which we won a housing reward. Then we said we wanted to focus on apartment buildings.
Tell me more about the first 12-unit.
It was a foreclosure deal owned by a local bank. I didn’t know what I didn’t know, which is the biggest problem with people just starting out. We underwrote the deal, and it needed a decent amount of rehab. There was no financial records or history, which made it hard to get bank financing. This was in 2009. Most banks would not do loans for new clients. I called every local in greater St. Louis. They told me if we could buy and stabilize it for 6 months, we’d do the deal.
We got a private lender, one we knew from our flips. My agent referred me to someone who was a mortgage lender, who was also interested in investing himself, and he loaned us $250,000, and we put in $50,000, and we had an 18 month note with them.
11 of the 12 units were occupied. When we walked the building it was 15F and snow was on the ground. Inside the units were boiling hot, there was no management. As part of our rehab, we were going to separately meter the building and install furnaces in each unit. We had to do some roof work, fire escape work and the HVAC.
After we close, within 30 days, we had like 6 tenants. One of our challenges was that we couldn’t swap that boiler fast enough. We had like a $3000 per month of gas bills because of that boiler, costs that I wasn’t forecasting. Then we had all of these vacant units, so we were funding to keep the building alive. I learned a lot about cash flow.
I was still partners with my hotel partner and his cousin, they put up the $50,000, I didn’t have any capital to invest. We didn’t go back to our debt investor for more capital, so we had to come up with more cash. We were drawing some from the flips.
Then what happened?
The person doing the HVAC started having personal issues and was behind schedule 45 days. We imposed the penalty on him, but this didn’t go over well. We resolved this, but it was painful, and we finally got it done. Within 6 months we were 90% occupied. We went back to the bank, but the banker there moved, the bank was acquired and were no longer doing real estate loans.
It took me 18 months from start to finish to get the property refinanced. I finally found a local credit union, it took a long time, but it got done.
We still own that building. We bought another 12 unit right next to it, it was totally vacant, but the area was really nice. But the building needed a ton of rehab. We ended up fully gutting it. We kept acquiring in that area. Within 1 mile radius we now have 110 units.
How were you finding deals back then? How about now?
We’re looking in St. Louis looking for deals.
Through the hotel construction business I learned a ton through commercial construction, the hotels we build are between 100 and 500 units all over the country. We re-focused the real estate business in light of this. We bought out that third partner and brought in a new partner, one of my closest friends.
We bought a 64-unit building in June. We’re looking at 50+ units. The new partner lives in Cincinannti, so we’re looking there. It’s important to be on the ground. We’ve made offers on a lot of deals. We’ve been networking with brokers to try to get deal flow. But you don’t really get credibility until you close a deal. The brokers know they know who the cash buyers are.
How were you funding your deals? How about now?
We own all of our portfolio. We have thought about going outside for funding, we thought about private debt financing that you can refinance. I’ve been close to doing a syndicated deal. We have a handful of investors, but we don’t have the deals. One of our investors we borrowed from over the years wants to do more deals with us.
What are you most excited about right now?
I’m excited about the future of the hotel construction business and the new apartment building deals in Cincinatti. I think we’ll have 500 units within the next 3 years. And I’d like to do that in a single market.
Talk about any kind of “aha” moment you had, and how that impacted your life?
Back when we were flipping houses, and we didn’t have that competitive advantage: we didn’t have the cash, we weren’t the contractor, and we weren’t the agent. Most people who are successful control one piece of the puzzle or they have a lot of capital. I knew I had to be on the ground to get real traction in one market. I’ve been networking with people in Cincinati, for example, one property manager who owns several thousand units, they have the advantage of the property management side. Then there are the brokers. Then there are the general contractors.
What do you think sets apart successful investors from those who fail or never get started?
Knowledge, drive, and consistency. Your network is very important. Not everyone should be a real estate investor. You need to be sharp, dedicated, knowledgeable, drive and you need to be consistent. If you’re not consistent, you’re never going to get there. Also networking, it’s so powerful. My goals are to join more groups, more meetups, meet more business owners, stay consistent with your friends.
How to find you?
On Bigger Pockets, Linked In, [email protected]
Parting piece of guidance?
You can accomplish your goals! But you need to be consistent.