Real Estate Investment Advice – Ed Mathews of Clark St. Capital {VIDEO}

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This is another interview I did from the QuotersCast with Real Estate Investor Ed Mathews from Clark Street Capital.

Find Ed at https://clarkst.com

CLARK STREET CAPITAL

Today, my guest is Ed Matthews, who is the founder and CEO. of Clark Street Capital, which is a real estate investment club, and you can find them online at clarkst. com. Ed is a real estate investor himself, who is also a tech startup angel investor, and he also is the host of his own podcast called Real Estate Underground.

 

 

 

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TRANSCRIPT

Interview With Ed Mathews of Clark St. Capital

Real Estate Investment Advice

Think insurance is boring? Think again. Many experts say that insurance is the most powerful industry on the planet. So join us and discover why the Quoters cast is making insurance super cool.

Host of The QuotersCast: Today, my guest is Ed Matthews, who is the founder and CEO. of Clark Street Capital, which is a real estate investment club, and you can find them online at clarkst. com. Ed is a real estate investor himself, who is also a tech startup angel investor, and he also is the host of his own podcast called Real Estate Underground.

Host of The QuotersCast: I’m happy to welcome Ed Matthews to the Quarterscast. Thanks, Renee. Thanks, good to see you. Likewise. Let’s start. Yeah. Let’s start. First of all you have a real estate investment club, so maybe you can give us some background on how you’ve arrived at this point.  Just a little clarification.

Ed Mathews of Clark St. Cap: So, it’s a real estate investment company.

Host of The QuotersCast: Okay.

Ed Mathews of Clark St. Cap: And so we we buy, I did informally we buy a crappy apartment buildings from landlords who aren’t very good at their jobs. And then we make them those buildings clean and safe and upgrade them and make them where people are proud to live there.

Ed Mathews of Clark St. Cap: And hopefully they stay for a long time. And we get we get to build a a profitable business with each building we buy.

Host of The QuotersCast: Okay. Excellent. How long have you been doing that?

Ed Mathews of Clark St. Cap: Let’s see. So my first property we bought in 2000, February of 2011. Okay. So 12, almost 13 years. All right. Seems longer, but that’s about it.

Host of The QuotersCast: Yeah. With ups and downs, like it’s been over a decade or so. And where are you exactly?

Ed Mathews of Clark St. Cap: So we’re based in Connecticut.

Host of The QuotersCast: Okay. So how does someone go about signing up for your group? Because I’ve looked at these before and they’re, it’s a little tricky and I know there’s minimums and all that.

Host of The QuotersCast: If I landed on your site, how would how would I go about signing up for your club?

Ed Mathews of Clark St. Cap: So I dislike this answer, but it’s reality. And it, the answer is, it depends. So if they are an accredited investor and we have a project, they can invest in any project we have or a fund or anything like that.

Ed Mathews of Clark St. Cap: If they are not accredited, and I’ll define that in a moment if they’re not accredited then they can, they may be able to participate in some of our projects. So there are two types, primarily two types of.

Real estate syndication type projects that the SEC, the Securities Exchange Commission pays attention to.

Ed Mathews of Clark St. Cap: And the first is 506B reg and that allows accredited and what are called sophisticated investors. To invest and we can have up to, I believe it’s 34, no, actually 35 non-accredited, sophisticated [00:03:00] investors. So an accredited investor there’s a lot of criteria, but the primary ones are either an individual or a couple who has a million dollars in net worth.

Ed Mathews of Clark St. Cap: An individual who makes $200,000 a year for the previous. Two years and has the expectation. They’re going to make it again this year. And a couple whose combined income is 300, 000 again for the last 2 years or and also with the expectation that they’re going to do the same this year.

Ed Mathews of Clark St. Cap: And so the logic there is, just to break it down, the logic is there that the SEC is counting on the fact that if you make a lot of money, or you’re worth a lot of money. You have the level of sophistication to be able to and experience to be able to evaluate whether or not a real estate deal like the ones we work on is a good deal for you.

Host of The QuotersCast: Okay, I just want to jump in there because the qualifications seem to be about income. Yet I do know there’s a lot of people who make that who are not that sophisticated with financial products and real estate. You’re looking at them.

Host of The QuotersCast: So when somebody comes to you like that and they’re qualified to be accredited, yet you can tell they’re not necessarily sophisticated, how do you go about dealing with a client like that?  These are important distinctions because I think a lot of people, like I was not aware of that. And I know some people who invest in real estate and that’s not the nuance they get into.

Ed Mathews of Clark St. Cap: No, I appreciate you, you doing that. So I asked you No problem. Yeah, I’m a little geeky when it comes to this stuff, so that’s good.

Host of The QuotersCast: I like that. And, but I am disappointed because I was gonna ask you about your projects. You mentioned you had several of them and I wanted you to de describe them. So now you can’t, ’cause you can’t talk about past projects.

 

Ed Mathews of Clark St. Cap: No, that’s fine. So typically what we work on is is a term called value added.

Ed Mathews of Clark St. Cap: And it, it’s basically, I’m buying buildings that have not been managed well either financially or physically, and the owner has decided to sell for whatever reason, right? And manage or deferred management or, problematic management can be anything from not having enough reserves in the in the building, cash reserves to manage when stuff happens.

Ed Mathews of Clark St. Cap: They haven’t done a good job of raising rents along with the market. And then physical issues can be things like. Lack of maintenance, right? Things that are broken that have been left broken for a lot of time, run down common areas, run down exteriors, run down apartment units and mechanicals like the HVAC systems, the heating and cooling plumbing, electrical, and so what we do is we we’ll acquire a property at a pretty good discount to the market.

Ed Mathews of Clark St. Cap: We will then put in, our construction crews will then go in and, first pass is clean and safe. So that means we fix all the electrical, all of the heating and cooling problems, all of the plumbing problems, things where if they really went bad, somebody could get hurt, right?

Ed Mathews of Clark St. Cap: So we fix all that stuff immediately. And then we upgrade the common areas, the hallways and stairs and exterior, where everybody enjoys it. So that the residents see that there’s a new sheriff in town and that we’re actually going to take good care of this building. And then with regard to the units, part of our clean and safe pass Is we’re fixing everything in each of the apartment units so that if you have a faucet, if a resident has a faucet that’s been not working well for a long time we’ll give him a brand new faucet, and if there’s damage in the apartment, we’ll fix it.

Ed Mathews of Clark St. Cap: And then as units come open, as people move. Which, happens then we’ll go in and rehab the unit where we will do, brand new kitchens, brand new bathrooms, brand new flooring, paint, everything new lighting fixtures, basically new everything. And we do that for two reasons.

Ed Mathews of Clark St. Cap: One is three, really one, I like sleeping well at night and knowing that I’m doing it by the residents that live in our buildings is one of the ways that I actually do close my eyes with a clear conscience to, it is the opportunity for people to, for us to raise the rent a little bit and make the building a little more profitable.

Ed Mathews of Clark St. Cap: And there people tend to stay. In a well appointed, kept, well managed building for a really long time, and that also makes our buildings more profitable because then I don’t have to pay a realtor, for instance, to lease out a new unit because somebody’s already living there. So I, instead of having to do that once or twice, or once every year or two our residents tend to stay for just about, just short of four years.

Ed Mathews of Clark St. Cap: So that’s good. So it makes us our buildings a lot more profitable.

Host of The QuotersCast: Yes. And so what is the annual return of somebody signed up today? What’s an average?

 

Ed Mathews of Clark St. Cap: So the it depends on the building. Because the, basically, you’re making your profits. When you buy and what I mean by that is if we buy a building for a really fair price then that gives us a lot of opportunity to upgrade the building both physically as well as financially and then, over time.

Ed Mathews of Clark St. Cap: Increase in expenses, hopefully drop the, the building becomes a lot more valuable. You look at like you look at the stock market over the last 50 years versus the, a multifamily real estate, right? In particular. Depending on the source, but generally, the stock market for the last 50 years has returned.

Ed Mathews of Clark St. Cap: Somewhere in the ballpark of seven and a half percent year over year. Some are up, some are down, but on average, about seven and a half percent multifamily as an asset class has delivered just over nine and a half percent, it’s like 9. 6. It’s a little bit better in terms of predictable returns.

Ed Mathews of Clark St. Cap: I would submit that the, the other part of it the reason that I. I’m so focused on real estate is that there’s no, I’ve, I’m off the stock market rollercoaster, right? I don’t care if the [00:09:00] Dow Jones went up or down today. What I care about is that the buildings are being run well and our residents are doing well and that they’re paying their bills on time.

 

Host of the QuotersCast: I know with some of the people that I know who invest in real estate. It seems to be critical that you try and catch a property that needs fixing up before it hits the MLS. So do you have a whole system or software that or maybe bird dogs, I think they call them to, to those properties to you.

 

Ed Mathews of Clark St. Cap: So yes, to all of those. So I, I come from the school of really good deals are found and created. Not, found in terms of off market, not found on the MLS, right? You can find deals on the MLS or, the commercial equivalents of that, but but it’s a lot harder. And so we have people ask me what business am I in, right?

Ed Mathews of Clark St. Cap: And, most people will say of course you’re in the real estate business. Absolutely. Absolutely. Yeah, that’s true. But I’m really in the marketing business, right? And so we are marketing to a handful of constituencies every day, seven days a week, 365 days a year. And those are wholesalers.

Ed Mathews of Clark St. Cap: So those are the bird dogs you were talking about, right? They will find a project that meets our criteria, right? I give them a, What’s called a, in my world, a buy box, which is, anything that fits in this box will buy anything outside of the box we won’t buy. And it’s things like number of units location potential for returns.

Ed Mathews of Clark St. Cap: It’s, there’s about 13 different criteria we measure, but, and I won’t, I don’t have to go into those, but, basically we sift those through and make sure they fit.

So there’s wholesalers. That we market to and, what we’re doing with them is we’re marketing digitally.

So that’s text messages, emails mostly and social media where we’re talking about best practices and what it’s like to work with us and cast projects that we’ve done that have worked out really well for the wholesalers.

 

Ed Mathews of Clark St. Cap: And, cause they make their money on the transaction as well. And we want that, right? Because if they make money and we make money, then they’ll bring us more deals, right? That’s the whole idea. And so we work with wholesalers. We work with brokers and agents real estate agents.

 

Ed Mathews of Clark St. Cap: And the idea there is the the pocket listings. So there are, usually there are, if you’re a realtor Renee you have clients who want to sell.

Some of those clients don’t want to put the property on the market publicly because they don’t want their tenants to, their residents to, get upset or concerned that, some other person’s going to come in and make their life not as good as it is right now.

Ed Mathews of Clark St. Cap: And a lot of property owners we’ll hand a realtor or broker a what’s called a pocket listing, which is basically you get to, you can keep it in your back pocket. Everybody, don’t broadcast it to the world. But if you have, a dozen or two dozen investors, people like me who are serious about buying properties that look like mine you can show it to them and hopefully one of them will buy it.

Ed Mathews of Clark St. Cap: And so that’s a pocket listing. So we market to our brokers in terms of. Just making sure they’re aware that we’re out here and we love to pay commissions. And that, we can close very quickly. We’re well capitalized and, here are all the projects where brokers have done very well working with us.

Ed Mathews of Clark St. Cap: And then the last one, so we actually, let me, before I go there, so brokers and agents, that’s also digital marketing, right? So that’s text messages. And I buy a whole bunch of lunches and coffee. Is for folks that are willing to give me a half an hour to an hour of their time to talk about the business, right?

Ed Mathews of Clark St. Cap: And then building owners is mostly direct mail. We will do letters, postcards basically saying, Hey, save the commission. We’ll buy direct from you and here, generally the terms that we operate under. And if that’s interesting to you, then let’s have a conversation and see if there’s a good fit.

Ed Mathews of Clark St. Cap: And so sometimes there is, and sometimes there isn’t. So we’re constantly marketing to those folks. The way that we do that is I work with, we’ve built a team here of really amazing virtual assistants. And so we use technology, which I can talk about in a minute. As well as our process and procedures and the folks that live in the Philippines who do all of our social media and web and direct digital marketing and direct mail and cold calling and all that other stuff.

 

Host of The QuotersCast: Wow.

 

Ed Mathews of Clark St. Cap: It’s amazing. Yeah they’re awesome. And I I’m a huge fan of virtual consultant, virtual assistants, especially the folks that we work with in the Philippines.

Host of The QuotersCast: All right. I want to get to that because I think that might actually help a lot of insurance agents as well, but I want to ask you a couple of questions. Do you work with mortgage originators and CPAs?

Ed Mathews of Clark St. Cap: Yes. In terms of acquisitions are in terms of running the business?

Host of The QuotersCast: Sure, both. Yeah.

Ed Mathews of Clark St. Cap: Okay. With accountants, lawyers, and mortgage brokers, originators whatever label you want to put on them occasionally they get deals, right? Because they have a client who either can’t finance something and decides to sell, or wants to take advantage of a tax opportunity and decides to sell a property, or they’re in trouble, right? They’re, they’re teetering on the edge of some sort of level of bankruptcy or insolvency and they need to sell.

Ed Mathews of Clark St. Cap: And we’ve cultivated relationships. In all candor, I don’t do it as much as we used to do it. But I, and I probably should. So thank you for asking that question. I’m going to talk to my team about that. But typically what we want to do is be a problem solver for those people for those professionals, right?

Ed Mathews of Clark St. Cap: And so if you have a client that’s stuck there’s a pretty good chance that we can figure out some way sometimes creatively, but some way to relieve the person who has that problem, the property owner has a problem. We can come up with a way so that they win and we win.

Yeah, I take referrals all the time.

Host of The QuotersCast: Excellent. Okay. All of that sounds very familiar with insurance agents, managers and carriers all tell their insurance agents to do this kind of marketing. On average, how many a day or a week do you get coming to you from all these efforts?

Ed Mathews of Clark St. Cap: From leads?

Host of The QuotersCast: Yes, leads, yes.

Ed Mathews of Clark St. Cap: So we send, in the state of Connecticut, there are 1, 208 properties that we want to buy someday. Okay. So we are marketing to each and every one of those once a month. So they get a letter from us and then they get a follow on phone call from us, either cold call or voicemail drop.

Ed Mathews of Clark St. Cap: So we’re touching them at least twice a month, at least on the broker and and wholesaling side we’re touching them Gosh, we probably touch them twice a month. And the folks that we really work with a lot, we touch them once a week. And in most cases, it’s me calling them just to check in and see how they’re doing or to update them on a project that we’re working on together or something.

Ed Mathews of Clark St. Cap: From a deal perspective it’s slowed up quite a bit in terms of the wholesalers and brokers, not a lot of people are selling right now. I think they’re waiting for they get a really good rate. Back in 2019, 2021, somewhere in there and they’re enjoying a three to 4 percent rate and they don’t want to give that up.

Ed Mathews of Clark St. Cap: Which I understand.

And so because, if they sell them, they’re gonna have to go buy something else most likely. And that will be at a. 678 percent rate and that’s not as good. So right. So more in that case is not as good. And so they want to hold onto the property.

Ed Mathews of Clark St. Cap: So we see a lot of that. The ones that I’m starting to see more and more of are the folks that have a what’s called an adjustable rate mortgage. In other words, it reprices every periodically over the course of the loan. 10 years. And if they’re coming up for that reprice and their original rate was, 4%, and now they’re being quoted 7% some of those buildings won’t financially be able to operate, right?

Ed Mathews of Clark St. Cap: They’ll run in a deficit and that’s, Not what we’re doing here. So then, it comes down to, in those cases, that’s where the direct mail comes in. And, we get phone calls from or emails or text messages from building owners who are staring down the barrel of that gun and have decided that they need to cut bait and sell the property.

Ed Mathews of Clark St. Cap: So I’d say we probably see from the wholesalers two, maybe three deals a week from brokers. We see three to five a week in the markets that we’re active in not all of them pencil out and then as far as building owners. I would say we probably see three or four, maybe five a month on a good month. So it’s not a ton and that’s just Connecticut.

We’re now expanding our business into the Carolinas and Kentucky. And we’re just cranking that up now. So I don’t have those numbers yet.

 

Host of The QuotersCast: Okay. I find this very interesting because clearly you have a very clear vision of what your brand is and what you do.

Host of The QuotersCast: And I, I can see the correlation between an individual insurance agent and what you do. And, cause I’m I’m in that space right now, I’m new to insurance, but I’m, it’s, the whole industry captured my imagination. I can see a long future for me. And with all your efforts, how does, it come together? If you were sitting down and we were talking about marketing, what would be some of the things that you would say, like step by step that you would want to see me work on to get to the point where you are?

Ed Mathews of Clark St. Cap: I think a very well defined market and customer are really important for marketing.

Ed Mathews of Clark St. Cap: People talk about avatars. And so you want to know, who your customer is as best as possibly can, as you can, right? You want to know where they live, where they hang out, what their net worth is, what kind of cars they drive. how they spend their downtime, what they tend to do for a living all of that.

Ed Mathews of Clark St. Cap: You want to know as much about them demographically as humanly possible, because the better you understand your customer, the easier it is to market to them. And then what, so I’ve always been taught way back when I was taught by this gentleman, Gabe Denunzio about concentric circle marketing.

Ed Mathews of Clark St. Cap: And so the concept is start very small, concentrate your resources. And in a well defined market targeting a well defined customer. And so that way, the reason I know there’s 1, 208 buildings in the state of Connecticut is because we’ve researched the thousands of buildings that are out there and we know exactly what we’re looking for.

Ed Mathews of Clark St. Cap: And there are 1, 208 of them that meet our criteria.

And I’m not interested in anything else. we market, it started off as we would market in Middlesex County, which is the county I live in. And then we had expanded adjacent counties. Then eventually we got to the point where we were marketing to the entire state of targeting those 1, 208 properties.

Ed Mathews of Clark St. Cap: What concentric circle marketing allows you to do is focus your resources, which are typically finite, right? You only have so many marketing, dollars to spend. So it’s better and more effective to spend them in a small, well defined market and generate deals within that small market for those customers you’ve identified. Then using the revenue from that to grow and, reach out to a larger, a little bit larger geography or demographic, or however you’re segmenting your customers.

Ed Mathews of Clark St. Cap: And as you get more deals, grow your book a little more, right? And market a little bit bigger, right? Because, the human attention span used to be back in the 50s was about 20 minutes.

With the advent of the internet and iPhones and and other similar devices it’s about 7 seconds.

Ed Mathews of Clark St. Cap: So what you have to do in order to get someone’s attention as a marketer, whether you’re an insurance professional or a real estate professional or someone else you need to touch them a minimum of seven times. And so what that means when I talk about touching, I’m talking about phone calls, I’m talking about direct mail, I’m talking about emails.

Ed Mathews of Clark St. Cap: Text messages speaking engagements where you’re speaking in front of a, a local organization, the lions or rotary club or whatever. I’m doing online webinars being out and available on social media, right? If my customers, if I know my customers potentially are on Facebook and not LinkedIn, I’m ignoring LinkedIn and I’m going all in on Facebook and then I’m figuring out which groups they, they tend to be active in right on Facebook.

Ed Mathews of Clark St. Cap: And then I become active in those and I add value and build up a reputation and make friends.

And then those friends eventually, some of them will become customers, right? And the more you can concentrate your marketing resources, the more effective you will be. I’m trying to remember the gentleman’s name… Charlie Munger used to talk about his dream 100, right?

Ed Mathews of Clark St. Cap: And so what he would talk about is he was in the advertising business long long time ago. And what he would do is he didn’t call all of the magazines that were out there that could potentially advertise all the customers that could potentially advertise in his magazine.

Ed Mathews of Clark St. Cap: He only called the top 100 customers and he touched them and touched them and added value and created awareness. And then he eventually became friends with some of them. Then he built a level of trust with those friends. And eventually here in the right to do business with those friends, insurance works the same way. So does real estate. So do a lot of, different industries you’ve got. It’s a basic four step process.

You got to make sure people know you exist. That’s awareness, right? You’ve got to serve them and become friends. Actual friends, and, build relationships because people like to do business with people they like, right?

Ed Mathews of Clark St. Cap: And then over the course of time, and that time can be days, weeks, months, years you build a relationship and a level of trust so that if Renee, my friend, my new friend Renee tells me, hey, I’d like to take a look at your policies, I think you may be overpaying or you may not be managing your risk appropriately.

Ed Mathews of Clark St. Cap: If I trust Renee, I’ll say yes. If I don’t trust Renee, I’ll say not yet.

And that all that means is that I, Renee hasn’t earned the right to, to, to my business yet, but someday she probably will, cause we’re friends. Or I’m very happy with the, the person that I’m already working with. And then eventually, that trust builds to the point where we do the, we earn the right to do business with each other.

Host of The QuotersCast: Excellent. I love that. That’s great information. And we’re running out of time here. So just one more question. What is your favorite part of this business? What’s the favorite part? Your most favorite part of what you do?

Ed Mathews of Clark St. Cap: Wow, that’s a great question, because I like a lot of it. I like the look on a resident’s face when we’ve turned a building and it’s gone from not so nice to really nice. And they can still afford to live there and we treat them fairly and with respect and they I rarely hear thank you, but you can tell that, these folks appreciate the fact that, we’re doing the we’re doing right by him. And that really, is a big part of it. Gets me excited.

Host of The QuotersCast: Oh, that’s excellent. I love that. Ed. Good for you. Great job. So thank you very much. I’ve enjoyed speaking with you.

Ed Mathews of Clark St. Cap: Likewise.

Host of The QuotersCast: Terrific. I wish you continued success and I will let you know when this is out and I’m happy to promote it everywhere I can.

Ed Mathews of Clark St. Cap: Okay. Thank you. I appreciate that.

Host of The QuotersCast: All right, Ed.

Ed Mathews of Clark St. Cap: Thanks.

Host of The QuotersCast: Take care. You too. Bye.

End of The Interview

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