Chad Carson never expected to pursue real estate investment full time. It just sort of happened.
“I thought it was a temporary thing to get into real estate when I first started, to be honest with you,” he said in an exclusive interview with Business Insider. “I was just kinda worn out from playing football and tired.
He added: “I made a run at the NFL, and that really didn’t work out. So I just thought I’d take a break and do something fun for a couple years.”
Before his venture into real estate, Carson was a captain of the football team at Clemson University for two years. He majored in biology.
With no prior experience in real estate, Carson figured he could add value for others by sniffing out deals.
“I didn’t have any money or know-how,” he said. “I would go talk to other realtors, knock on doors. I would send letters and notes out to people who might have a house for sale, and so I was just sort of a deal finder.”
He added: “It kinda caught fire and I just kept doing it after that.”
Carson retired at 36 and now lives off the passive income that’s generated from 110 units.
The first deal
Since Carson didn’t have a conventional job at the time, financing deals was tough. He couldn’t get a loan from a traditional lender because of his lack of income.
This initial speed bump sowed the seeds for his deals’ financing moving forward. He leveraged private lending and seller financing. Both methods freed Carson from the stringent terms of a traditional bank loan.
Almost all of Carson’s deals today are financed this way. He said that what started as a necessity grew into a preference.
“We actually got a private lender, essentially,” he said. “It was a professor of mine at Clemson.”
He added: “That was the very, very beginning. When I first got out of college, I had $1,000 and my car.”
After sourcing a deal for a flip, Carson and his business partner asked his professor for an initial investment.
They bought the house, fixed it up, and sold it for a $14,000 profit.
“That kinda got us off and running,” he said. “That was the first six months of our partnership.”
It’s important to note that Carson had a backup plan in case his entrepreneurial aspirations didn’t come to fruition. He said he had the benefit of no debt, a college scholarship, and a supportive family.
Deal criteria
“Eventually, we realized that at some point we’d have to start holding some properties if we ever want to build some wealth and have some regular income,” he said. “The flips were fun, but once you sold it, the money is in the bank and you’ve got to go and do it again.”
Nowadays, Carson occasionally flips a property, but multifamily rental units are his bread and butter.
As a rule of thumb, he tries to make $150 per door on a rental and shoots for a profit of 15 to 20% on a flip.
He looks at a deal through two lenses. One is focused on quantitative aspects (price, rents), while the other one is focused on qualitative metrics (quality of the property, neighborhood safety, prospective growth in the area).
He uses capitalization rates, the ratio of income to his total investment in the property, as a general gauge of attractiveness for a deal. Carson said a lower cap rate would be about 6%, while the higher end of the spectrum is about 10%.
As far as location is concerned, Carson ranks properties like a school teacher ranks grades. He said the “sweet spot” was around a B- to C+. These properties produce solid cash flow because they’re not too costly up front but still in a nice location. He said “A” properties could be difficult because of demand and “D” properties should generally be avoided.
“The purpose of doing that is just to remind yourself that you have to use different numbers and a different approach depending on how good the location is,” he said. “Real estate is about making money and building wealth, but it’s also about risk mitigation.”
