No capital? Start small and build your way to massive success. Sam Wilson’s guest in this episode is Nico Salgado, the podcast host of Small Axe Communities. Nico shares with Sam how he’s passionate about encouraging his listeners that you don’t have to be rich to start. He had zero money when he began his journey in real estate. Join in the conversation as Nico shares valuable tips on how you can raise capital. Establishing solid relationships with investors and brokers is a must. And just because lenders wrote agreements on paper doesn’t mean it’s set in stone. If you want firsthand advice on starting small in real estate, this episode’s for you.

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No Capital? Start Small And Build Your Way To Success With Nico Salgado

Nico holds a Master’s degree in Spanish Language Education and spent the last years as a Spanish teacher. Apart from teaching and investing in real estate, he is an avid surfer, woodworker traveler and extremely proud father. Nico began investing in real estate in 2012 with a single-family development project and has since scaled to owning 194 units as a general partner. He hosts a monthly meetup group titled the Multifamily Investors Network New York and hosts the Small Axe Podcast. Nico, welcome to the show.

Sam, thank you so much for having me.

The pleasure’s all mine. It’s loads of fun. I’m reading through your bio and I’m like, “A Spanish teacher and also a real estate investor.” Walk us through that process. I ask the same three questions to everybody who comes on. Can you quickly tell us where did you start, where are you now and how did you get there?

 

Let’s go back to college. I started with a degree in Business Marketing Management with a minor in Economics. After college, I didn’t like what I was doing. I was going door to door selling frozen meat. If I were selling a refrigerator a day, that would be the highlight of my month. It wasn’t intriguing. I didn’t enjoy the whole process. I didn’t like selling. I ended up traveling the world. I went to Hawaii for a few months with a friend of mine and I ended up going to Spain for a few months to visit my family.

While I was in Spain, I said, “What am I doing? I love the Spanish culture. My family is from here. I grew up spending summers in Spain. This is what I should be teaching the world.” I went right back to school for teaching a year after graduating college and that’s it. I jumped into teaching right away. I did a teacher fellowship program.

From then on, I was off to the races doing my Master’s at night and they paid for my Master’s. In 2009, I got burnt out. I was teaching for five years at this point and said, “I’m out of here. I’m going to resign from the New York City school system. I’m going to submit a letter of resignation. I will go to the Canary Islands, which is off the coast of Morocco owned by Spain. I’m going to be a business owner.”

This is what I told myself and I got there. I lacked all the tools, skills and connections necessary to be a business owner. I had no clarity either. I just said I wanted to be a business owner. There was nothing specific that I had written down. I got there and I ended up teaching again. I was teaching English in a school over there and surfing all the time. I taught English for a year. I came back and got a new job teaching in a different school and still traveling.

While I was traveling, I landed in a beautiful place on a coast in Nicaragua. I said, “I love this place. I’m going to buy a piece of land here.” This was in 2012. I’m going to put a little house on it and use it as a vacation home. This was my idea. I did it. I bought a piece of land and built a house on it. Finally, a few years later, I rented it out for the first time. That’s basically my introduction to real estate. It was a small development project in 2012 that got me started.

I love the follow your dreams courage. I don’t pretend to have it. I always want to make a plan and try to do a sure thing. Good for you for going for it. You started out in doing that project. You got that done. You’re now renting it out. You used it for a vacation home for 8 or 9 years. Is that right?

No. The bureaucracy down there is crazy. It ended up taking a few years to get the title cleared before I could even build anything. We started building in 2015-ish, but I also had to rebuild my home here in New York because, after Hurricane Sandy, it got demolished. We had to build a brand-new home. We had a lawsuit. It ended up taking a long time for a variety of reasons, but we finally finished it.

I’m you’ve learned some things through that process that have applied to the things that you own now. What’s it been like moving into different asset classes and scaling up?

I joined the Jake & Gino community, which a lot of people are familiar with back in November of 2019. I began looking at larger multifamily properties right away. My coaches in that community were so supportive and helpful. They helped me analyze things and look at things in a different way from a business perspective. I had ties to this one little property and it emotionally dragged me around on a rollercoaster.

When you look at things from a business perspective and learn to make business decisions, the game changes.

When you look at something from a business perspective and you learn how to make business decisions on things, it can change the game. I was learning that it might not be much more work to go after a bigger property than it would be a smaller property. Once you have all the systems and everything in place and once you understand how the business itself works, it’s basically a number of doors that you’re adding on aside from the fact that obviously, you need to do a capital raising. You need to have certain KPs and things like that in place. The idea of an 8 unit or an 80 unit is somewhat similar, obviously with some nuances here and there.

What was the first deal that you got across the finish line as a general partner?

It was a 0 to 194-unit property in Columbus, Ohio. It was a portfolio of two properties and I closed with a group of friends of mine in the Jake & Gino community in November of 2020. This was a year after jumping into that community and jumping to the education and being coached, mentored and looking at 100-plus deals. We got one in Columbus and this was not my target market. I was not even considering investing there, but the deal was a great deal. I ended up jumping in as a co-sponsor with this team that I met through the Jake & Gino community.

You’re doing the things that make deals like that possible. You’re networking with people who are looking for co-sponsors. You’re getting your reps in. This came from a direction. If you weren’t getting your reps in, you’d never get this deal across the finish line. That’s kudos to you for getting that project done. What are some things that you have learned post-closing of that? Moving forward, what have been some things you’ve learned since then in your real estate business?

There is so much. It’s like a kid in a candy store in the beginning. You’re like, “I want to buy all this multifamily.” You’re so excited. You don’t necessarily know everything that is going to happen in the future. You never do with anything. You don’t know the punches you’re going to take and you’re going to take punches along the way. Prior to getting into these 194 units, I was looking at a lot of properties down in the Tampa market. That was my specific target market. Even though I don’t live there, I would travel there. I said, “I’m not going to stop focusing on this market until I nail something.” I made some great broker and property manager relations. I had local bank relations.

I thought I had everything and I couldn’t make sense of the deals down there. I had been working on a marketing machine for the prior year, pushing out content monthly about and highlighting Tampa and blasting it out to my investor database of Tampa being the spot to invest in and all of a sudden, I’m investing in Columbus. Come time to ask people to invest with me in Columbus, it was a little challenging. They were confused and rightfully so. “Why are you now investing in Columbus? I thought you were talking about Tampa.” It was a tough conversation to have. I can understand any market, but now I had to sell it to people as opposed to attracting them into a deal that I’ve been working on for so long.

“Tampa is the best. Tampa has these X, Y and Z metrics. I looked at this deal and I didn’t like it for this reason or I like this. I lost out on this deal because of X, Y and Z.” All of a sudden, I have no experience in a new market and I’m asking my investors to come invest with me. It was challenging to bring investors onto that. I can tell you that I came up with $250,000 to come in and I thought that was terrible. I beat myself up over it. Now that I’m thinking about it, it was pretty good for my first raise ever. Never having any GP experience, never having anything else under my belt, it was my first deal.

It wasn’t even in my “target market.” I learned a lot about how I should be talking to my investors, how I need to be educating them that I can find deals. I understand how to analyze markets. I understand how to analyze deals as a whole, not necessarily just in Tampa. I found that problem with what I was doing. Upon closing in November of 2020, this heavy lift. It was 194 units. There were eight of us as the general partnership team and none of us have ever syndicated a deal before, but the other guys had a lot of experience in multifamily in general, with JVs or doing a lot of even bigger projects, but never syndicated to deal.

Two of the guys, Rene and Abiel down from Florida. They had a construction team and they do this type of heavy lifting all the time with C class properties where they’ll bring in their own construction team. They will spend a few months at a location and renovate it. That’s what they did. In my mind, I was like, “This is going to be awesome. These guys are going to go in and kick butt.” They did.

They had their team drive from Florida all the way up to Columbus and they spent the subsequent 4 or 5 months there renovating about 70 units. In my mind, in theory, you’re like, “Okay.” I’m a very visual person and I can see 70 units being done and go, go, go. The reality is there’s a lot more that goes on with renovating 70 units and then getting people out of them getting people back into them.

We had serious supply chain issues. It was a global thing. Our business plan was solid and would have been very solid had this been normal circumstances but it was November. It’s the election of 2020 and the year of COVID. There were a lot of things going on that caused us to not necessarily stay strictly with the business plan. It was eye-opening for me.

 

You can call these guys professionals and they’re killing it. It was terrifying for me because I have investors invested in this. We dropped down to about 60%, 61% occupancy throughout this process. I’m shaking telling my investors that it’s going to be okay and this is all part of the process, but how do I know that? Did I go through this before? No.

We have weekly calls with our property management team. I’m on every call and focused. It stressed me out more than it would have if it was just me who invested in it, but it was my beloved investors and me. I put a lot of stress and thought into this. We said that we were going to refinance the property because we had a private loan. We ended up closing for cash in two weeks. That’s why we got such a great deal on this. We bought it for half price essentially, but there were a lot of different names. We ended up saying we were going to refinance six months after closing and we weren’t able to at that time.

These are all news that I have to express to the investors. In my head, I know that once all is said and done, based on the activity that we’re getting, we were getting interest in the property from other potential buyers at this point in the springtime. People were amazed that we got it for so cheap. People were looking at this property for so long, but we had a solid negotiating team that went in two weeks and closed this. Six months later, we weren’t able to accomplish a business plan of refinancing. It turned out that it’s okay, but it freaked me out as you can imagine expressing this to my investors and saying, “When are we going to refinance? We were at that point at 75% occupancy.”

We were going up. We were moving the needle up, but it wasn’t anywhere near where we needed to be. We’re about 90% occupied, which is phenomenal, but it takes that long. It’s almost a year to get back up to 90% occupancy. We’re beating rent projections, which is excellent but we haven’t been able to make distributions. We don’t see any money from it either.

It’s not we’re collecting money and not paying our investors. None of us have seen money. We were approached this by some serious buyers and we said, “We got it this far. We are now looking at a refi. We’re at 90%. Why don’t we, based on the offer price that we got, can basically get a 1.9% equity multiple with about a year in this thing. We surpassed the year mark to avoid the short-term capital gains for investors and get out of it.”

That’s the route we’re going to be doing. We ended up taking this thing to market. We finished a marketing package and got a couple of solid offers. I’m very happy with the way things have gone. Although, as I said before, we weren’t able to make distributions and it’s been a rollercoaster of terror and fear for me. We did project only 2% for returns on year one cash on cash. It’s not that we’re far off that and we’re going to hit the similar return equity multiple within one year. The IRR is going to be high instead of the five-year hold that we have planned.

In the end, you’re going to do right by your investors. It’s going to play out differently than you had hoped and that’s tough, on the first deal, the first time you bring money. Not that you ever get numb to it because you never want to lose a dollar. That’s Warren Buffett’s rule number one is to never lose money. At the same time, the first one is always the most tenuous, white knuckle like, “This has got to go really right.” Otherwise, I got egg on my face or so it seems. There was a couple of thoughts I had when you shared that story.

There are three things you can deal with. They’re a part of a deal, it’s the team, it’s the market and it’s the deal itself. Once you’ve closed the team and the market can’t be changed, but the deal can. That’s what you guys have done well is you’ve changed the deal. Maybe it didn’t work out as you had planned. Maybe you guys took longer to do rehab. Clearly, it didn’t hit the projections you wanted it to out of the gate, but you were able to effectively manipulate the deal to still make it a healthy profit center by the time you get it sold. Good job getting that done. That’s fantastic. Are you still hunting in Tampa?

The more specific you can get on the market, the more powerful you can be.

Yes. I changed my approach. I realized the fault that I had and my main fault was that I was not there. There were no boots on the ground. For the past few years, I’ve been focusing on everything and then I tried to get very specific on a market within the first year thinking that the more specific I can get on the market, the more powerful I can be. The more laser-focused I am, the better I can find. I knew every single deal that was going on down in Tampa, but there were certain listings that I wasn’t seeing. I got some pocket listings but there were certain things that even prior to pocket listings. Somebody didn’t want to go through the marketing material and they say, “I know this person could close on something like this.”

It would be a friend of mine and they would close. I would see friends of mine getting these deals in Tampa. I said, “I don’t have solid boots on the ground partner.” I found one, I ended up landing a deal in Tampa in the spring of 2021. I found it myself. I had my boots on the ground partner go check it out. I did everything right. In my mind now with this new team, with a solid boots on the ground partner, everything was going great. Sam, I’m going to tell you, I got kicked in the face again. Here we go. This was a wholesale deal. It was a twenty-unit deal in Tampa. The price was excellent.

Now, it was $112,000 a door when I negotiated it down, so I thought I did a great job and I did a great job. If you think $112,000 a door is a lot, it wasn’t in this area. It’s a solid B area in Tampa and now things are trading for a minimum of $130,000 or 1$50,000 even. We got it under contract. Since it was a wholesale deal, they wanted a three-week close. We got on the phone with a few lenders and we got stuck with this one lender who said that they could make this happen. That was where I went wrong because I didn’t have the experience of knowing that sometimes lenders may blow some smoke up your booty and I didn’t realize that.

We interviewed a few. He was like, “We’ll get you to close.” We even talked to the CEO of this company and they were saying, “We’ll get you to close.” I’m not going to mention any names or anything. There were issues with getting appraisals and obviously, a three-week close was very quick. We ended up getting the appraisal done and we had to do it as a residential appraisal as opposed to a commercial appraisal because we were limited on time. We had the option because there were five quadplexes and we could have also done a commercial appraisal as well but we chose the quicker route, which we were told was residential. The night prior to closing, the appraisal comes in and it was off.

The as-is value was perfect. The ARV was way off and they were not going to give us our construction loan. We went that day within 24 hours from underwriting with an 87% LTV and 100% construction loan down to a 70% LTV with no construction loan. We had all the money in the bank. We had everything ready to go. We had to come up with more money, about $250,000 more and then we would have been walking into a bridge loan with no construction loan. We were looking at another $250,000 after that just looking to get in and try to refinance that. It was a terrible situation. We ended up walking from that deal eating our $50,000 deposit plus legal fees, inspection fees and stuff like that. It was a kick in my butt.

What were some things you could have done differently to have vetted that lender?

First of all, I thought that what they say and put on paper was set in stone. I did not know that it could change. One of my partners hinted towards, he said, “I’m not sure if I trust this lender.” That’s when we started calling other lenders and this one guy said, “We can get you to close no matter what.” I knew this other guy but for some reason, we stuck with this one lender. What could I have done differently? I could have, number one, realized had that information and bet that lenders aren’t always necessarily going to deliver the day of and that those numbers can change. Had I realized that perhaps I would have underwritten for that.

Halfway through this process, it was two weeks in, I knew that there was the possibility. One of my partners said that there was a possibility of these numbers changing. What we then looked at was underwriting for a traditional conventional loan. This thing was 90% occupied. We could have gone conventional or even LTC with a community bank, but we would have needed an extension to do that. We reached out to the seller personally. We reached out to our wholesaler, who was communicating with the seller with us. They both said, “No way. We’re not doing the extension.”

It was almost they wanted us to lose that $50,000. They ended up selling it. I bitterly looked up who bought it and it was three guys that bought it. What could I have done differently is know that this is something that happens in the industry and then underwrite it differently, not put down the $50,000 hard. Understand that maybe we needed an extension or maybe negotiate an extension with that contract prior.

Just to recap on this. You guys didn’t have any extension clauses in the contract. That would have bought you the time to go out and find an alternate lender or at least give you a chance to make it all work out. Those are hard knocks early on. I listened to podcasts and you hear people come on, “We started off with 10,000 units, now we own 100 billion units. We grew pretty quickly. It was all systematic and off we went to the races.”

You’re like, “You’re missing a lot of things.” Maybe you’re just getting your hard knocks out of the way early. Again, to reiterate, you’re not getting any hard knocks early on your first deal. You’re 1.9X and you multiply your equity and 12 to 18 months. Those are a lot of hard lessons. How do you keep having the courage to keep pressing on?

 

It was a month of my time when I didn’t look at any real estate. I was turned off from real estate, in general. One of my coaches and friend Hadar, we had a talk, and he was like, “Nico, you don’t look the same.” I told him everything that happened. He’s like, “This happens to everybody. Wake up. You got to get going.” That’s all I needed. The next day, I was motivated to rock and roll again. If you’re going to swing with the big boys, swing for the fences and you want to play hardball, this might happen.

In retrospect, this is maybe something that people can take into consideration. Don’t hesitate to go for a 5, 6, 7, 8 unit. I’m going to take a step back and go for that. Get some traction in the market so people can see what I’m doing. I can have proof of concept. The brokers can see, “This guy’s closing.” Who cares if it’s an eight-unit deal? “Yes, that’s still awesome.”

The returns can be as good or better and you can have more equity in a deal. Different game with different sizes and different types of properties but don’t think people out there, readers, that just because you’re going for a 300-unit deal, that you’re suddenly going to be financially free, rich and it’s going to be easy. There are different ways of doing things. It’s not necessarily good or bad but it’s different.

All of us, at some point, have faced that pivot point where you go, “What am I doing? Maybe I need to rethink this.” It’s great to have friends around who will help talk you out of those places. Talk to me a little bit about your Small Axe Podcast. What’s that about?

I started a Small Axe Podcast with the thought process of letting people know that you only need a small axe to build an empire. I’m trying to be that. I’m trying to be the proof of concept. I start with no money. I don’t have any money. I’m a schoolteacher. My income is basically nothing. After all, bills are paid, I have no money left over. Sometimes I can’t even eat. I’m trying to show what’s possible with the tools that we have. We can sharpen our tools. We can get better at things. We can learn. We can utilize and leverage our network and people around us and our education to become bigger and better things in life and our mindset.

My idea was to interview people who have shown that it only takes a small axe to build an empire. That was the original premise. I’ve been flowing and floating with it because I’ve had so many guests reach out to me that want it to be on it that I’m taking them in and enjoying those conversations too. Not necessarily everybody on the podcast begins with nothing, but the stories are great and the conversations that I had are great, nonetheless.

Unfortunate events happen to everybody. Just wake up and get going.

Kudos to you again, as well for getting that done. It’s no small feat. Nico, the final four questions are this. If you have $20,000 to invest in real estate and with no previous real estate investing experience, what would you do with it and why?

What I would do is put $10,000 towards the RaiseMasters to learn how to raise capital better with Hunter Thompson. The other $10,000, I would invest in a deal. I’m going to go into a deal as a JV. I want to use that $10,000. I’m not going in empty-handed. I’m coming with $10,000 of my hard-earned money for a deal that I found. I’m going to find the deal. I’m going to lock it up, get on the contract, put $10,000 in and bring in some other investors.

It’s very clear and actionable. If you could help our listeners avoid one mistake in real estate, what would it be and how would you avoid it?

One mistake in real estate would be not taking action. Where I hesitated at the beginning of thinking I needed to go bigger stopped me from taking action. Had I taken an action and jumped into a deal with somebody, whether that be putting in a few thousand dollars as a small JV, just to get some traction going. That’s so important to get some traction on a small deal. It doesn’t have to be a big deal, just get moving. That’s what I would have done differently. I would have jumped into a smaller deal sooner.

It’s amazing how success, no matter how small, begets more success. It gives you that confidence to keep moving forward. Question number three is this. When it comes to investing in the world, what’s one thing you’re doing to make the world a better place?

I give back. I created a program here at the school where I work. It’s a morning program. The thought came about when I realized that there were so many gun shootings and things that were troublesome in the world. I know that I have an influence on kids who are very influential, who are malleable. I said, “Why don’t I reach out to these kids to try to make them understand the world better?” I thought a lot about this. I said, “What these kids are lacking is an expressive outlet.” They don’t know the terminology. They’re not socially and emotionally aware of themselves enough to express how they’re feeling. They’re bottling up their feelings and then they explode.

I created a morning program where kids can come in and get some exercise. I had an exercise program and a meditation program in a middle school in the morning, aside from coaching and other things. Can you imagine getting kids to sit down? I had a meditation teacher come in and do this whole thing. We learned meditation and we did it for two years. That’s one thing that I do.

Also, during the summers, I worked as a surf instructor. Years ago, I decided to take the surf instruction to a special needs camp. I now work and we created this program for special needs campers, anywhere from 4 to 70 plus years old, with all different types of special needs. I take and teach them surfing. I’ve been doing it for years now. We’ve created a great program that’s working wonderfully in the biggest special needs camp in Long Island.

It’s good for you to teach surfing. I have no idea how you got a group of middle schoolers to take a meditation class. You must have a special gift. I enjoyed that. Nico, last question. If our listeners want to get in touch with you, what is the best way to do that?

Shoot over to my website, www.SmallAxeCommunities.com.

Nico, thank you so much for your time and for sharing your stories here. I certainly appreciate that.

Thank you, Sam. I appreciate you too.

 

Important Links:

• Small Axe Podcast
• Jake & Gino
• RaiseMasters
• www.SmallAxeCommunities.com
• https://www.LinkedIn.com/in/nicosalgado456/

 

About Nico Salgado

With a diverse, cultural background and life experience, Nico became a Spanish Teacher in NYC in 2004 to help inner-city youths develop the skills necessary to find success in today’s competitive market. From coaching, mentoring, tutoring, and creating meditation programs for his beloved students; Nico brings passion and the desire to improve the lives of others in anything he does.

One problem that he has seen in our educational system is the lack of preparation for life after school, which includes a lack of financial literacy. Not everyone fits the same mold of a 9-5 and Nico feels passionate about helping others find their own path.

Because of this desire, Nico founded his real estate investing company “Small Axe Communities”, with the premise of creating a more financially literate society. The goal is to teach people how to accumulate assets that produce income, rather than working for an income.
Coming from a challenging background, Nico has found success by sharpening the “small axe” he was given to accomplish his biggest goals. Nico is proof that it only takes a “small axe” to build a lasting empire.