Creating Wealth Through Single Family And Multi Family Rental Properties With Sterling Chapman

May 3, 2023




CWS 246 | Rental Properties   It is possible to build a substantial portfolio of rental properties while keeping your W-2 job. But that doesn’t mean everything is easy, especially if you’re going through the syndication route. To keep your investors interested, you have to have a solid grasp on your market and numbers. That is essentially what Sterling Chapman has been through in his real estate journey. In the space of five years, he went from zero to having a portfolio of about 50 single family rental properties and tens of duplexes and fourplexes. It’s hard to believe that he started in his backyard market with one to four units, and in a market like South Louisiana. Tune in to this conversation and learn how Sterling was able to build his impressive portfolio and the lessons he has learned over the years.

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Creating Wealth Through Single Family And Multi Family Rental Properties With Sterling Chapman

In this episode, we have a special guest. We have Sterling Chapman from Crestworth Capital. Sterling, how are you? I’m doing good, Chris. Thank you so much for having me. No problem. Sterling has been in real estate for a couple of years, went to LSU, got a Bachelor’s in Finance and MBA and worked a W-2 job, which he’s still working on but has been able to build a very impressive real estate portfolio. We’re going to talk about him building that portfolio, how he’s built it, how he’s raised money because that’s something people are always interested in and go through some of the lessons learned over the last couple of years. Sterling, thanks for having us. Do you mind sharing with us what your portfolio looks like? If we did a snapshot of what it looks like because it’s always changing, I have around 80 rental properties. I have about 50 single-family rental properties and then the rest of those 80 are duplexes and fourplexes. 1 to 4 units in my local backyard market are 80 rental properties. We’re in the process of ten different houses that we’re flipping. We have 3 under contract to sell, 3 under contract to buy and in the renovation process. We have 5 apartment syndications that we’re general partners on and 3 of them are smaller projects. One is $54,000, $45,000 and $70,000. I’m very actively involved in all of the management and decisions on those projects. I’ve worked with a little bit looser affiliation and on some much larger projects with some much bigger groups where I’ve focused a lot on capital raising, marketing and stuff like that. We’re also in the process of taking a property management company and taking on other people’s properties to manage. That’s a big focus of our office. You started in 2018, is that correct? Yes. It’s funny because you asked the story backwards. I’ve told the story on 100 shows and I always do it in chronological order. You messed me up. You’re like, “Where are you now?” I like to start with where you’re at and then dive into what you’ve built in a couple of years for this portfolio. I’m intrigued and people are intrigued like, “How did you do all of this in a couple of years?” You’re flipping, starting a management company and managing assets. How did you do it? What’s your team look like? Let’s pull back. How did you start? I’m moving up fast in this telecom company. My whole goal in life was to be a big corporate guy or a CFO. As a kid, my dad was a vice president at some big company. He wore suits to work every day and traveled. That’s what I visualized success to look like and romanticized the life I wanted. I was moving up fast and that was the life I had. A few different things happened around the end of 2017 and the beginning of 2018 that changed my trajectory. I’d gotten promoted. I was making over six figures for the first time in my life and I went to my dad all excited, “I’m making over six figures.” He was like, “Great. You need to go read some personal finance books. A lot of people have made a lot of money and ended up broke. They looked dumber than the guys that never made me money.” I started with Dave Ramsey. I told my girlfriend at the time, now my wife, “We’re never going to have any debt or credit cards.” She’s like, “Okay, whatever.” The next week I read Rich Dad Poor Dad. I was like, “Scratch that. We’re going to get as much debt as we can.” She’s like, “Okay, whatever. Leave me alone.” I ended up reading a bunch of Rich Dad Poor Dad advisor books, Tom Wheelwright’s tax book, Garrett Sutton’s law book and all that stuff. I stumbled on the BiggerPockets. I was training for a triathlon so I was always on the road biking or running. I listened to every BiggerPockets episode and audiobook. I read Rich Dad Poor Dad in February of 2018. By the summer, I’d started buying a couple of rental properties. At that same time, my boss had gotten a surplus around the end of 2017. He had been with the company for fifteen years winning award trips and going on accolades. They had a down quarter and were like, “You don’t have a job anymore.” I also was doing my MBA and taking entrepreneurship classes. I’d love to be in charge and do something on my own. All of that was going on at the same time and that was when I decided I needed some secondary income to save me. I had this terrible vision of being in my 40s with 3 kids in private school. In South Louisiana, you had to send your kids to private school because it’s too dangerous in public school. Also, car notes and home mortgage. I’d given 80 hours of my week every week for all these years and they surplus me. That’s the stuff they make movies about. I didn’t want to give that much control to anybody else. I was like, “I need backup income.” I spent every penny I had saving up down payments for those first two rental properties in the summer of 2018. I was out of money and was like, “It’s going to take me another 2 years to save up for another 2 rental properties.” I then discovered more creative strategies. We started doing seller-finance deals. We started doing BRRRR houses. I borrow money, buy a distressed house, fix it up, do a cash-out refinance with the bank and put a tenant in it. That was how I built up that single-family portfolio. I was recycling the same cash over and over again. That was what 2018, 2019 and 2020 looked like. We bought our first apartment syndication in February 2021 and another one in February 2022. We did another three throughout 2022. Also, at the beginning of 2022, I realized I had all these construction workers who had been doing nothing but my project. They had worked purely for me for years. We had started my podcast years before we had started and met up. Everybody in town knows that I do these deals. I’m very public on social media with it. I was getting the deal flow and I had people doing construction work. I was like, “Why don’t I start flipping too?” I was building out this infrastructure and investing in people, marketing, systems and processes. The extra cash from the flips helped build out that infrastructure because the payouts from the apartment complexes are half a decade removed a lot of times. What we look like is we have about 23 field guys that do all of our construction work in our 10 flips. In the office, I have a property manager, project manager and marketing director. We’re in the process of hiring an office manager/assistant property manager. We’re supposed to have one start on Monday but she no-showed. Now, we’re back to the interview process. You mentioned the seller finance route because capital is always sometimes challenging. Many people aren’t outgoing and usually, a lot of people who are number crunchers and so forth aren’t the best at presentation skills. I’m an engineer so we joke with my partner, Lauren. “I crunch your numbers. Let me hang out in my basement and you do your thing.” She’s great at sales and investor relations. On that seller financing front, were these deals on MLS or are these off-market deals? How did you approach and find these seller-financing deals? I’ve got a lot of seller financing deals from the same individuals. He had a duplex or fourplex listed on MLS so I reached out to him. He had a little comment in the listing, “We’ll consider seller finance.” I called him and was like, “Let’s go to lunch and talk.” I went to lunch and said, “I don’t want that building because it’s in a terrible area. Do you have other ones?” It turned out he had 30 or 40 other ones in areas I did want and he didn’t want the cash for it. He was 75 years old and had been doing 1030-ing these properties for 40 years. He deferred all these capital gains and all these taxes for 40 years. If I had turned around and paid him outright cash like a normal transaction, he would have a huge tax liability. What we did was worked out this model. It was a small down payment and all he wanted was income for his retirement. For the first couple of deals, we did 10% down. He did seller finance the rest. In the next few deals, he did a few at 5% down and a few at 0%. It was good for me at the time for the way I was trying to build my business because I had a bigger vision about going into multifamily, raising capital and such. Early on, for me it was almost like a marketing game where I wanted to ramp up the number of doors I had, my credibility and that stuff so I bought all this stuff. As it turns out financially, it wasn’t a great decision if you look at it in that backend. If somebody’s willing to seller finance it, typically what I’ve found or my experience is they want more if it’s a normal outright sale. You’re paying a premium for the seller financing. With most of these properties, they were in bad shape and I’ve spent hundreds of thousands of dollars fixing them up over the last couple of years. It worked out for me in that they did their job early on and gave me enough credibility to build off of but financially, if you look at those actual assets and how it showed how much money I poured into versus how much money I got out, it wasn’t that great of an investment. You’ve got the deal flow. Are you primarily staying in one market in your area with most of your properties or have you broadened your portfolio? We approach markets more intentionally than we approach individual properties I feel sometimes. I don’t buy large multifamily properties where I live in South Louisiana for a number of reasons. If you’ve studied any type of market research data, Louisiana and Mississippi are the worst places on earth. When you’re buying multimillion-dollar assets, especially with other people’s money, you want to be very intentional about setting yourself up for success and putting yourself in the line of growth. You look for markets where you’ve got job growth and population growth like people are moving and creating jobs there. Also, there’s job diversity. When you're buying multimillion-dollar assets, especially with other people's money, you want to be very intentional about setting yourself up for success and putting yourself in the line of growth. Click To Tweet You don’t want to be in Michigan before the auto industry goes overseas. You don’t want to be in Lafayette, Louisiana when oil goes bust. You don’t want these markets that are overly dependent on 1 industry or 1 company because that could devastate the local economy and cause your vacancy to skyrocket overnight.  We look at crime, poverty and supply and demand. If you go down the gauntlet of all the things you want to look for in a decent market, we don’t check any of those boxes. I won’t buy an apartment complex in Baton Rouge. With that being said, I’ve got $8 million worth of single-family houses, duplexes and fourplexes because, A) It’s all my money and, B) It’s my backyard so I know it well. People can make money in any market. You’re going to pay a premium for a highly-demanded market versus a lower market. This is a lower market where I can manage flipping houses and making money in this market because it’s a short time window. I can manage rentals in this market because I analyze the numbers. I got to buy low in fixed straight debt but a five-year business plan on a $10 million asset, give me Atlanta, Georgia, Houston, Texas or Charlotte, North Carolina. To answer your original question, that’s where our multifamily assets are. We’ve got a 54-unit in Newnan, Georgia, which is Atlanta. It’s 28 minutes from the Atlanta Airport. We’ve got a 70-unit in Rock Hill, South Carolina, which is essentially, Charlotte. It’s 33 minutes from Charlotte Airport. We’ve got a 45-unit in Hampton, Virginia where there are a lot of government infrastructures. That economy’s not going anywhere anytime soon. We’ve got two deals in Houston. Houston is diverse, big and all those things. Also, Atlanta. Your local area is where you have some the single-families. Also, diversity in numbers, it’s not 1 building with 50 units that everything has relied on that 1 building and that 1 market in that 1 area that could have new development or something happened in that area. If you’re spread throughout an area, everybody wants to diversify that portfolio so that’s always a benefit. Your multifamily properties are in Georgia, South Carolina, North Carolina and Texas. You’ve done your research because if you look at any map, where are people moving to? People are moving from the upper corners of the United States and making that V either coming down the East Coast or over to Texas. You’re seeing a lot of people move. Those areas are diverse and have that population growth. You see that on BiggerPockets a lot. “Where should I invest?” You can invest anywhere but you want to invest in an area where there’s population and job growth. You’re not all in one market.
CWS 246 | Rental Properties

Rental Properties: You want to invest in an area where there’s population growth and job growth.

  I don’t want to get into a political conversation but on top of all of those things I listed, the most important one that I didn’t list is the local politics. You can’t do it in New York City or San Francisco because they have rent control. They have insane permitting and restrictions. Money goes where it’s treated best. That’s why people are flooding to Florida, Georgia and Texas because of the tax situation. When you go to markets like in San Francisco and New York, it’s going to take you nine months to evict somebody. It is hard to run a successful rental business when people can live on your property for a year for free. You have insane taxes on the money you do make and then you have rent control. It breaks the entire business model when you go to those markets. I’ve been on a planning board before in a small town. I work for commercial developers and commercial contractors in the past. I don’t think people understand the behind-the-scenes and simple things like in certain jurisdictions getting a permit. If they don’t know who you are, it is going to take a lot longer to get that permit than if you were a developer in that area that has done ten deals or you know somebody locally. That’s one thing for anybody on the development side that’s like, “I want to go develop a property in this area.” I always tell people, “Team up with somebody in the area and make sure you’ve got an architect engineer and staff that is golf buddies with people who are in the department so they already know what to look for.” Why I moved a little bit is because you’ve been able to grow that portfolio, have done the seller financing and have been able to successfully raise capital, correct? We’ve raised a little over $4 million in the last few years. Has that been friends and family? You do a 506(b) so you got to be careful. You can’t advertise things like that because of working with non-credit investors and so forth. I’m guessing they’re mostly people that are in your circle or people you’ve known for a while. Yes. It starts close and then it creeps out quickly. I’ve done 3 506(b)s and 2 506(c)s. I like the Bs better. I wanted to try the C because I’m like, “If I can advertise, I can reach all these people,” but it doesn’t matter how much you advertise. Nobody’s going to invest with you unless they have some type of trust connection. That has been my experience. We talked about Annie’s program with Goodegg and all of their marketing content and systems, which has been great but almost all of my investors are a friend of a friend. I bought all of those systems and processes and implement them. We do the drip campaigns, the lead magnets and all of this stuff but I don’t know that we’ve ever had a cold conversion. When my brother’s friend’s cousin’s neighbor is referred to me, they go check out my website, download my eBook, get the drip campaign and see that I have a podcast. They probably don’t listen to it but they see I’ve interviewed 170 investors. They’re like, “This guy seems pretty legit. He’s got sharp-looking marketing and interviewed all these investors.” I assume other people have been fruitful in pumping cold investors through the machine. I haven’t been but the machine has been very helpful to warm up the referral business I get because that’s what it boils down to. I don’t even know how many steps are needed like the Six Degrees of Kevin Bacon. I don’t even know how many degrees of separation I’m at yet but I counted to nine. My cousin referred me to his friend, he referred me to her friend, who referred me to his friend, who referred me to their father-in-law, who referred me to some friends of his father-in-law so that’s six degrees from my last investor. We started the show in 2018 and that probably had the highest ROI out of any marketing effort that we had. With podcasting, I’m sure you’re very similar, you share people like an eBook and tell them what you do. I would never say to people, “Come invest with me,” or this and that. We’d have people who are interested and give and show them deals to get them to invest but by showing you’re an expert in something or talking about it and sharing your stories, people are intrigued, especially real estate because everybody loves real estate. It’s something that people are interested in. You’ve got The Rent Roll Radio Show and stuff. As you mentioned podcast, even if people listen to 1 or 2 episodes, it’s one of those things where it adds credibility for the good and the bad because there are also people out there who have podcasts and have great marking campaigns but you also got to sometimes peel back the onion on some people because there have been some bad actors, unfortunately. I’ve always said about the podcast, “I don’t care if anybody listens to it.” That’s not true. I check to see how many listens we get. We get a lot but in reality, I shouldn’t care if anybody listens because the true value to me is being established as a thought leader in the industry. Whether people listen to my show or not, they still know I do it and consider me a thought leader. You do not learn something by spending 170 hours interviewing 170 multimillionaire real estate investors. The true value of having a podcast is getting established as a thought leader in your industry. Click To Tweet There’s forced education and networking. The relationships I’ve built with the guests on my show and the things I’ve learned from them consistently force me to do the right behaviors. I can get bogged down in work and writing website copy or doing this or that and not be intentional about networking or learning something new. I could look up and months have gone by but the podcast forces me to do it every week. I’m meeting somebody new and spending an hour with them but I’m learning something new. It drives me nuts sometimes because I’ve got two kids. One is a freshman in college and the other one is in middle school and stuff. They’re on YouTube and Mr. Beast and all this stuff. They’re watching some of these things. These certain videos for entertainment purposes are getting one million views right off the bat. In your podcast and my show, we’re giving people blueprints on how to go make money whether passively or actively. They don’t want it. Nobody wants to learn anything. You get to 45 years old and be like, “How am I going to retire?” You then go back and might start getting in real estate and then you look back and be like, “I wish I got invested in this when I was 25 years old.” We have a woman in our investor relations department who graduated college in 2022 and another intern who’s graduating in 2023. They’re digesting a lot of this information. It’s mind-blowing for them. Her name is Toni. When she started with us, she had a 401(k) so should she go Roth or regular. We’re explaining a lot of the ins and outs of that. She’s like, “Listen to podcasts because nobody teaches you this.” There are no college courses for this. Maybe there is some finance and so forth but I didn’t realize until I was in my mid-30s or 40s and switching companies that I could move it to a self-directed IRA. My Fidelity was saying, “You can move it to your new company or keep it here.” Nobody tells you, “You can do this as well.” It’s very interesting with the show. You do it and if people listen, then great. There’s so much valuable content but meeting so many people on the podcast and hearing what other people do gives you ideas out there for people to find their niche in what they want to do. I view your growth to be substantial growth over the last couple of years from 0 to 60. Proverbially, it has gone well for you. What are some of the things that you’ve seen have been instrumental that you’ve learned? Also, maybe share something that you wish you may have done a little bit differently. What I’ve found the most instrumental part of this business is the networking and the people. There’s a ton of content that you can consume at home like your podcast, my podcast, books and YouTube. You can learn it all but you’re not going to get anywhere until you meet people. You need sellers, buyers, construction workers, employees, investors and all those different pieces.
CWS 246 | Rental Properties

Rental Properties: The most instrumental part of the real estate business is the networking and the people.

  People ask me all the time, “Where do you get your deals?” I’m like, “They fill up in my inbox. People send them to me.” “How do you get people to send them to you?” I’ve been fanatically networking for a couple of years, telling everybody I meet what I want and intentionally going to look for the people that are finding what I’m looking for. That’s what’s been instrumental with it. To add to that, similar to us, we do note investing, which is very niche. There are not a lot of people out there but we’re constantly going to conferences and meeting people. There was a larger player where we’ve had some growth and we reach out to them. We meet their investment capital requirements where we previously couldn’t. All of a sudden, this 1 client increased our deal flow by 10% or 20% because we’ve hit some of that threshold. That’s all due because of the marketing and the relationships we’ve been building over the last several years. If you went back, would there be anything that you would change that you’ve done? I’ve certainly made a lot of mistakes and had a lot of headaches along the way. It’s hard to say, “Would you turn back time and change it if you learned something from it?” Whenever I ask that question, the feedback from everybody goes like, “I would’ve grown bigger sooner.” I don’t know that that’s necessarily the answer for me. I like my dual and single-family and multifamily approach. A lot of other people look down on it but it worked well for us. I don’t know what we would’ve done differently. Probably, I would’ve bought more when interest rates were low. Everybody wishes they did that. With the company and its growth, if you were to paint a picture of where is it in three years, do you see yourself in new markets or growing? You’ve got the management side of things that you’re actively growing as well. Do you have some future vision or that one thing like, “In three years, I want to be doing a new development deal,” or anything along those lines? We’re very intentional about goal setting and stuff around here. Our ten-year big hairy audacious goal is we want to own and manage $1 billion in real estate 3 years from 2023. Our big 3 for 3 years from 2023 are going to be managing 5,000 units across 4 markets, having $200 million in assets under management and the amount of equity we’ll have in the company. We’ve been on track with Gino Wickman’s Entrepreneurial Operating System for a while. I went to the Best Ever Conference, which I go to every year. I met Don Wenner with DLP Capital and that’s how I got his book, Building An Elite Organization at the reference of my friend, Whitney whom I’ve got a tremendous amount of respect for and who advised me to do that. After reading, Building an Elite Organization three times, we’re tweaking some of the things we do with traction. That’s all he did, tweaking the EOS model and incorporating a lot of Jim Collins stuff and Elite Execution stuff. I like that more robust approach. EOS is white-labeled. It’s for a digital company, haircutting company or real estate company. Whereas Don’s process is tailored towards a vertically integrated real estate investment firm that has property management, construction and assets under management to raise capital. It feels like it fits more like a glove for where we’re at and where we’re going The book, Building an Elite Organization, seems like it’s something you would recommend for somebody.
CWS 246 | Rental Properties

Best Ever Apartment Syndication Book

Yes, it is at this point in my journey but for somebody who’s maybe newer to a lot of it, one of the most transformational books for me was Joe Fairless’s Best Ever Apartment Syndication Book. There are a few complete paradigm shift books. When I read Rich Dad Poor Dad, I was like, “I don’t need to work for people,” and then when I read Brandon Turner’s The Book on Rental Property Investing, I was like, “I need to own a bunch of rental properties.” When I read Joe Fairless’s book, it was a third big paradigm ship and I was like, “I need to go buy apartment complexes.” I liked that. When you started the conversation by saying you listened to Dave Ramsey, I was thinking, “Where is this one going to be going?” It’s because this is the opposite of that. A lot of real estate investors have their opinions on Dave. TikTok came up of him interviewing a woman and husband who had $1 million of debt and it was $300,000 in student loans, $250,000 in mortgage, $50,000 in car loans and then $400,000 in credit cards and unsecured debt. For the people who knock him a little bit about debt, he’s catered to or focused on people who don’t know how to manage money. Real estate investors typically are good at managing money. He’s got his spot. He’s got this one quote that I love, “Don’t spend money you don’t have to buy things you don’t need to impress people you don’t like.” That’s gold. I love that but I know who he is catering to. Some people need his help. Some people truly need to be told not to go to Disney 3 times in 1 year if they can’t make their car payment. It’s not us but there are those people that need that. Don't spend money you don't have to buy things you don't need to impress people you don't like. Click To Tweet Thanks for coming on this episode. If people want to reach out and learn more, what’s the best way for them to reach out to you? My email is Sterling@CrestworthCapital.com. I’m on Facebook, Instagram, TikTokYouTube and all of that stuff. You can go to our website CressWorthCapital.com, download our eBook and message me on Facebook or Instagram. We’re easy to find. Also, you can listen to Sterling’s podcast. He’s a host of The Rent Roll Radio Show. Thank you, everyone, for reading. Thank you, Sterling, for coming on. If you have not already, please like and subscribe to our show. Thank you all. Thanks for having me, Chris.  

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About Sterling Chapman

CWS 246 | Rental PropertiesSterling is a proud family man with a bachelor’s degree in Finance and an MBA from Louisiana State University. He spent his early career in the financial services industry focusing on retirement and insurance planning before eventually transitioning to the Telcom industry. Through his successful corporate career in Telcom, Sterling has mastered the art and science of sales, funnel management, marketing, account management, strategic business planning and financial forecasting. He began his real estate investing journey in early 2018 purchasing single-family houses and quickly moved up to duplexes and fourplexes, flipping houses and eventually large multifamily. Sterling has over $26.5M in Assets under management and his portfolio now consists of 82 single family or small multifamily rental units, a 53 unit apartment complex in Newnan, GA and a 70 unit complex in Rock Hill, SC. Self-managing and overseeing the renovations personally for the first few years has taught Sterling a ton about the industry. In addition to founding Crestworth Capital, he is also the Host of The Rent Roll Radio Show, Co-host of the Red Stick REIA and has been featured as an industry expert on dozens of other real estate podcasts.

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