Ep #189 – Mark Kenney Has a Portfolio of 2,000+ Multifamily Units valued at $135 Million

Here’s Some Of What You Will Learn

  • Different options to get started in the business.
  • The benefits of purchasing larger units for bigger profits.
  • The importance of having enough cap-x money to improve the property and raise rents.
  • The difference between a Freddie mac loan versus a Fannie Mae loan.
  • The importance of building a team and who to have on your team.
  • The importance of having a good property management company.
  • The importance of having a mentor or sponsor to get started with someone experienced.
  • The benefits of having partners during deals to be able to take down larger deals.
  • The importance of being able to learn from mistakes.
  • The importance of having good communication with your team.
  • Tips for finding a good management company.
  • The importance of calculating all funds needed before buying a deal.
  • Tips on where to spend cap-x money to add value and increase rents.
  • The importance of due diligence and taking vacant units into account.
  • The importance of making sure the property has little to no violations with the city before purchase.
  • The importance of having a proper exit strategy and buy/sell agreement with partnerships.
  • The importance of making sure you get educated and purchase in the right area.
  • The benefits of having a good due diligence inspection report with estimates.
  • The benefits of focusing on cashflow instead of appreciation of property value.
  • The importance of having a motivator to get started.
  • The option of loan assumption to acquire a property.
  • The factors to look at when evaluating properties that may be a great deal.
  • The importance of being committed to success in the business.
  • The benefits of incorporating your spouse into the business.

Our Guest

You can learn more about Mark Kenney at:

http://thinkmultifamily.com/

Watch on YouTube!

Do you want to learn more about Multifamily Real Estate Investing? Work with Rod in the Lifetime CashFlow Academy's Multifamily Course & Coaching Program

Full Transcript Below:

Ep #189 – Mark Kenney Has a Portfolio of 2,000+ Multifamily Units valued at $135 Million

Rod Khleif: Welcome to another edition of How to Build Lifetime CashFlow Through Real Estate Investing. I’m Rod Khleif and I am thrilled you’re here. I know you’re gonna get a tremendous amount of value from the gentleman we’re interviewing today.

His name is Mark Kenney and he’s involved in over 2,000 units, over $135 million worth of properties, and we are gonna dig in to how he got there. Mark, thanks for being on the show, brother.

Mark Kenney: Thanks for having me Rod. I appreciate it.

Rod Khleif: Absolutely… Let’s expand on who you are. Maybe take us back to how you got started. You’ve written books. You’re an entrepreneur. You syndicate deals. Tell us about how you got started. If you went to single-family or if you did the normal thing, or went right into multi?

Mark Kenney: Yeah. Sure. I grew up in a pretty small town and we didn’t have a lot growing up. That was always a driver for me. I had a lot of embarrassing times in my childhood just not having things. People are a lot worse than I am, for sure, but I just had a lot of problems with growing up with not having things I thought I should have.

So I always had a good work ethic, from my parents. Worked my butt off, and thought that’s what you needed to do. I went to school, and… I’m one of seven kids, by the way so we had a pretty big family.

Rod Khleif: Wow.

Mark Kenney: Yeah. I’ve identical twin brothers as well, which is cool.

Rod Khleif: Oh, cool.

Mark Kenney: But I went to school, graduated in Accounting. Growing up, my entire life, I would always say, “Hey, I don’t want my kids to have to go through some of the financial struggles we went through.

Right out of college, I started buying smaller properties. I actually had my first accepted offer, when I was 21 years old, still in college. Just kinda a duplex, and lo and behold, my dad talked me out of it.

I remember exactly where I was sitting, I remember the time of day. I used to take him on property tours with us and every…  There was no property on the planet good enough, in his opinion, to buy. So I ended up not inviting him on the property tour. I made an offer on a deal, got it under contract and told my dad I bought it. [chuckles]

That’s how I got my first feel…

Rod Khleif: Was it fear? Or what was it that caused him to talk you out of it?

Mark Kenney: I think, you know, he’s 80 now. He just turned 80 this past March and he’s never bought anything of real estate himself other than his personal residence. I think he just thinks you can wait around until you get the 50% off type deal, which is pretty difficult to do and you’ll never do it.

Rod Khleif: Okay.

Mark Kenney: That’s kind of the way he was with everything, really. I mean, I love him to death but…

Rod Khleif: Of course.

Mark Kenney: It didn’t matter what it was… cars… houses, and so he talked me on that one. Then I did get the one…

Rod Khleif: And what was that? A plex as well?

Mark Kenney: It was you a duplex. Then we started buying some three or four units…

Rod Khleif: Good for you, you went into multi-family. When was… So this was when you were 21 still or 22 thereabout?

Mark Kenney: Right, 22, I guess so.

Rod Khleif: Okay.

Mark Kenney: 24 years ago, it happens fast.

Rod Khleif: Yeah.

Mark Kenney: Then I went corporate world. I started working as a CPA for a while and did IT consulting, but continued to buy properties. Smaller properties.

Rod Khleif: You’re on Dallas. Right?

Mark Kenney: We’re in Dallas, yes.

Rod Khleif: Okay. Alright. You’ve been there the whole time? You didn’t like move there from somewhere else where you started?

Mark Kenney: I’m from Michigan.

Rod Khleif: Okay.

Mark Kenney: I grew up in Michigan.

Rod Khleif: So you bought the plexes in Michigan?

Mark Kenney: I did, yes.

Rod Khleif: Okay. Okay.

Mark Kenney: Then I came down to Dallas and said, “Well, let’s start buying a few properties here.”  Started my own IT company in 2008 which did really well. I had a lot of like Marathon Oil and T-Mobile, some big customers.

Rod Khleif: Nice.

Mark Kenney: But it has a big impact on my family, really. I was working… Sleeping about three hours a night, literally, people all over the world, working on projects. The business was good but family life was horrible. It caused a lot of problems.

Rod Khleif: Were you able to hold it together?

Mark Kenney: Barely. [chuckles] Truthfully, barely.

Rod Khleif: Yeah. I lost mine. It’s funny that you talk about that because that was painful for me because of the same thing. It was all, “Make money. Make money. Make money.”

Mark Kenney: Right.

Rod Khleif: And forget about what’s most important.

Mark Kenney: Yeah.

Rod Khleif: Well good, I’m glad to hear you were able to keep it together.

Mark Kenney: It was close. And then about four years ago, I decided to quit doing IT, almost completely. I don’t do anything with IT any more but… We built some apps but basically, I said, “ Okay, I’m gonna start buying larger properties.” That’s when we started buying larger properties.

Rod Khleif: Wow. That was in Dallas?

Mark Kenney: It was.

Rod Khleif: Tell us about your first larger deal. Let’s dig right into that one. How many units? Where you found it? When you bought it? What you paid? How you put it together? All of that.

Mark Kenney: Right. So large, it means relatively wasn’t really large. It was 64 units.

Rod Khleif: That’s pretty large.

Mark Kenney: Yeah. It’s two 32 units right next to each other in Mesquite, Texas. One of them was listed, it was the same seller; we talked about the one deal. He said, well he’d be maybe interested in selling the second one, which was a 32-unit right next door to each other.

Rod Khleif: Perfect.

Mark Kenney: So we said, “We’ll look at that one”, and we ended up getting in the contact pretty quickly. It wasn’t the one that was listed with the broker, locally here. And then we…

Rod Khleif: What year was this, if I may ask?

Mark Kenney: What was it?… Two and a half years ago, three years ago? I guess.

Rod Khleif: Not long ago at all.

Mark Kenney: Yeah.

Rod Khleif: Okay.

Mark Kenney: Yeah, we were buying some smaller ones before that too but in about two and half years, we’ve got them up 2,000 units. But that one, it was more a Class B maybe minus, mid 80s, built as condos, so they were kinda nicer property. Didn’t require a lot of work but looking back on it, I think we should have probably raised an extra…

We raised about a million dollars, to answer one question. $1 million was what it was bought at. A little… just shy of $4 million combined. We had Freddie Mac loan on it with some interest only.

Looking back on it, we probably should have raised about another 40, 50,000 just so we can now… We’re like at the point now they’re a couple of things we wanted to do and we don’t really have the capital to do it. The property is still nice overall but looking back, that was one lesson learned. We should have raised more than we did.

Rod Khleif: A little more money for capex, so you could make some improvements to get your rents up.

Mark Kenney: That’s right. We had some but not that…

Rod Khleif: And you got Freddie Mac… You went Freddie Mac instead of Fannie Mae. Why’d you go Freddie Mac on that first one?

Mark Kenney: I read them both. Just, we didn’t have as much rehab required. So Freddie typically doesn’t like giving the rehab and Fannie does. The terms were better.

Rod Khleif: Got it.

Mark Kenney: We have three years interest only on this as well.

Rod Khleif: That’s pretty hard to beat.

Mark Kenney: Right. In really, with the rehab being low, it was… Financially, it worked out better to do with Freddie.

Rod Khleif: Awesome. Awesome. So you raised a million bucks, you did syndication? That was your first syndication?

Mark Kenney: Yes.

Rod Khleif: Okay.

Mark Kenney: For that. We did smaller ones but that was more just family but as far as external people, that was the first syndication.

Rod Khleif: So tell me, I know that you’re a big believer in your team. Let’s tell your… My listeners are people that haven’t, maybe bought their first property, maybe done some plexes like how you started, wanna break into the larger deals, what advice would you give them relating to team?

Mark Kenney: One, I would say is start building your team immediately even if you don’t need them yet, or don’t think you need them.

Rod Khleif: And what are the components? What are the pieces?

Mark Kenney: Yeah, even brokers, selling brokers, for sure.

Rod Khleif: Of course.

Mark Kenney: Insurance CPAs, cost segregation, SEC attorney, a regular attorney for operating agreements, things like that. Property management…

Rod Khleif: Do you self manage or do you use third-party managers?

Mark Kenney: No. We use third-party management. I really have zero desire to self-manage.

Rod Khleif: Right. No, I get it. I get it.

Mark Kenney: But I would say, in general, with the team, I don’t wanna say one person’s more important than the other but let’s be real about it. Some are easier to replace than others.

I’m a CPA, I have a background in the CPA but I would say a CPA’s probably easier to replace then let’s say, a broker. Right? You end up taking off a broker whatever happens. You wanna build your team and then also leverage other people’s experiences. If you come in brand new, and when you call a broker and say, “Hey, I’m brand new to multi-family.”

Rod Khleif: [chuckles]

Mark Kenney: That’s one conversation to say, “Hey, I’m brand new to multi-family, and I’m working with Rod Khleif.” That’s a different discussion.

Rod Khleif: Right.

Mark Kenney: People are gonna get the attention from the brokers if you can associate yourself with somebody else doing that.

Rod Khleif: Did you bring a sponsor in on your first deal? Or did you take it down on your own?

Mark Kenney: We did. We had one other sponsor on the deal.

Rod Khleif: You had a sponsor. Okay.

Mark Kenney: We did. Yes.

Rod Khleif: Alright… And that’s the way most people get started. They have to get started that way. You need the experience…

Mark Kenney: Right.

Rod Khleif: A lot of times, you’ll need the net worth or the income as well.

Mark Kenney: Right.

Rod Khleif: Okay.

Mark Kenney: We still use a partner, typically, in all our deals. Not because we have to, just because it seemed like it works out better that way for us.

Rod Khleif: Okay. You bring in another KP and somebody that’s got… Do you use it for net worth? Or what’s your rationale?

Mark Kenney: More for responsibilities.

Rod Khleif: Okay.

Mark Kenney: We think we can go faster that way and I wont say, that’s one thing I tell people first getting started is, number one question you need to ask yourself is, are you willing to partner with somebody?

If the answer is no, it’s pretty simple. You’re limited to your own net worth and liquidity. If the answer is yes, it’s endless. But with that and make sure you’ve been through it before, probably unfortunately, like we have. Things happen in partnerships.

Rod Khleif: Sure. It’s like a marriage. It’s like a marriage. You better date a little first. [chuckles]

Mark Kenney: I think a marriage is… [chuckles]

Rod Khleif: Maybe a kiss a couple of times. [chuckles]

Mark Kenney: Marriage is even easier in my mind because you can get out of a marriage easier than you can in some partnerships.

Rod Khleif: Right.

Mark Kenney: Not that you wanna do that. But I think getting everything down on paper, don’t assume everything is gonna go hunky dory, and assume everything that can go wrong will go wrong. And put it on paper and hopefully it doesn’t go wrong.

Rod Khleif: So have you had any seminars in this partnership arena?

Mark Kenney: Unfortunately, we have had some lessons learned.

Rod Khleif: Okay.

Mark Kenney: I’m actually in the middle of one right now.

Rod Khleif: Oh. You are. Wow.

Mark Kenney: Yes. Fortunately, we’ve structured that deal with a board…

[00:10:00]

Mark Kenney: There’s five board members on that structure over the deal.

Rod Khleif: Okay.

Mark Kenney: SEC attorney from Harvard, and a Marcus & Millichap guy, and a CFO from a publicly traded company, so we had that in place to be able to make a change in partnership. We got it done but I can tell you, a lot of stress. You also become friends…

Rod Khleif: It hijacks your brain when that happens. It really does.

Mark Kenney: It does. Yes.

Rod Khleif: And it’s just no fun. Was there… I’ve had them happen myself, very frequently, it’s from a lack of communication, either initially or ongoing. Is that the case with yours?

Mark Kenney: 100%

Rod Khleif: Yeah.

Mark Kenney: Communication one, but also producing things that we asked for. Like, “Hey, where are we on certain things?” He was a property management company as well, made it tougher but communication’s number one. No question about it. Unfortunately.

Rod Khleif: Guys, those of you who are listening, even if you don’t want to have the conversation, have it anyway.

Mark Kenney: Definitely.

Rod Khleif: Have all the hard conversations upfront, and then if something pops up, do not kinda hope it’ll resolve itself. Hit it full on. But, yeah, every time I’ve had litigation, and upsets, and angst with partners, it’s always been because communication is broken down, or it wasn’t firmly delineated initially. Okay.

Mark Kenney: Exactly right.

Rod Khleif: Okay. Back to property management just for a minute because everybody that listens to my podcast knows I’m big in self-management. But I wanna clear something up because I take these coaching calls from students. And they’re all like, “Well I know you want me to self-manage.”

Let me be really, really clear guys, do not self-manage when you’re in acquisition mode. When you’re out there looking for properties, do not deal with toilets.

Now, I will say this. I’ve interviewed people on this show that have tens of thousands of units, and or thousands eclipsing your incredible portfolio here, Mark, and many of them self-manage. But my caveat is, get to a place where you have enough of an infrastructure where you could bring somebody in-house to do what you’re paying the managers to do, which is manage your managers.

Mark Kenney: Right.

Rod Khleif: If, that’s where you wanna go. Now, I like control. I’m a bit of a control freak but definitely not when you’re in acquisition mode, guys. That’s my position. I don’t know if you’re gonna always use third-party, I don’t know what your thoughts there are.

Have you brought in managers as partners? Is that… you were kinda saying you just did…

Mark Kenney: We did.

Rod Khleif: Right. So we’re kinda lock there.

Mark Kenney: Yeah. Well that’s the one. Fortunately, through our board, we were able to remove.

Rod Khleif: Okay.

Mark Kenney: Remove him. But we used other third-party here, more in Dallas for our properties and it worked out really well. We had one before that didn’t work out very well. We got rid of them.

I think the key is, unfortunately, don’t give them as much, I guess, room to prove themselves as you might think that they’d try to convince you to. There’s a finite period of time that you give enough chances, and it’s like you pulled the trigger and say, “I need to replace you because…” Make sure you have someone to replace them with first.

Rod Khleif: Right. Right. Right.

Mark Kenney: They’ll talk a game and they’ll say, “Oh, we’re gonna improve and here’s all these things”, but at the end of the day, it’s a business and you have investor’s money involved. You need to make actions.

Rod Khleif: Oh, absolutely. No, you gotta be on it.

Mark Kenney: That’s right.

Rod Khleif: So any tips for finding a good management company?

Mark Kenney: I think for finding one, in particular, if you’re not familiar with the area, one is talk to bankers, lenders.

Rod Khleif: Hmm… Good. Good one.

Mark Kenney: I think lenders. They have more at stake than anyone else in the deal.

Rod Khleif: I would have said brokers, and you said lenders. That’s even better. Guys, definitely lenders, that’s a great tip. Great tip, lenders.

Mark Kenney: And brokers as well.

Rod Khleif: Yeah, sure.

Mark Kenney: Brokers aren’t as well… They’re not actually in the deal but lender to me is the best place to start.

Rod Khleif: Yeah. No, that makes sense. They’re gonna know who they’re comfortable with. That’s a great tip… Tell us about your largest deal. What was your biggest deal?

Mark Kenney: A 454-unit deal.

Rod Khleif: Wow.

Mark Kenney: In Atlanta. Two portfolios, a 346 and a 108.

Rod Khleif: And you like Atlanta? A lot of people are real hot on Atlanta right now.

Mark Kenney: I do. Atlanta, you know Dallas is getting very, very tight, in my opinion.

Rod Khleif: Right.

Mark Kenney: Too tight. We haven’t bought anything here for 13 months, but I’d like Atlanta, it was… I guess it was in January we closed on it, and a good deal. Occupancy is pretty good on there already. That’s a pretty big rehab budget we’re putting into it. A lot of it is…

Rod Khleif: So this is a combination of the two deals or was it one of the two? Are they combined?

Mark Kenney: They’re separate but the same seller.

Rod Khleif: Okay.

Mark Kenney: We closed at the same time.

Rod Khleif: Oh, you did.

Mark Kenney: One loan. Yeah, one loan form as well.

Rod Khleif: So tells about the, what was the overall price between the two of them?

Mark Kenney: 17.8… so 30 a door…

Rod Khleif: Okay. So you had to raise about… How much did you raise?

Mark Kenney: 6.2

Rod Khleif: Wow. So a lot of capex there, okay.

Mark Kenney: Yeah, and we had to do it… We sent the PPM out the Monday, after Thanksgiving.

Rod Khleif: Wow.

Mark Kenney: So not a great time. We didn’t close… [chuckles]

Rod Khleif: No. No, people aren’t thinking money then.

Mark Kenney: Don’t do that, guys. But that was our doing. That was really the attorney and there’s some other things that held things up for about three weeks. So the Monday after Thanksgiving, and we had it closed in January. I was in a cruise mid December, which was not a vacation. I was raising money, so…

Rod Khleif: Wow. Okay. So 6.2, how much per door are you calculating for rehab there?

Mark Kenney: Would be, I think maybe about $3 million worth of rehab.

Rod Khleif: Wow.

Mark Kenney: So it’s… That’s the thing too, when you think of rehab… some of the things we put in rehab we’re not gonna get anymore rent for. That’s why I tell people, ”Be careful where you’re spending your money.” Some are required, but we have to replace like $400,000 of plumbing.

Well tenants typically are gonna pay more for that… Unless it’s leaking all over.

Rod Khleif: Yeah.

Mark Kenney: When people start saying I’m gonna jack rents up, you’re not gonna get more rent for new plumbing typically or maybe need a new roof but it’s things that people see.

Rod Khleif: Tell us what happened when the plumbing there. Was it water or drain line? I mean sewer lines.

Mark Kenney: No, it’s under. It’s actually not drain lines… They’re he polyurethane type plumbing, needs to be replaced, just ‘cause the lender wants them replaced.

Rod Khleif: Really.

Mark Kenney: They’re pretty common in the south, and they think it cracks more..

Rod Khleif: Okay.

Mark Kenney: More prone for leaks.

Rod Khleif: So they literally made you tear off floors to put new lines in.

Mark Kenney: It has crawl space.

Rod Khleif: Oh, okay.  Good.

Mark Kenney: It’s pretty good.

Rod Khleif: Okay. Good.

Mark Kenney: Yeah.

Rod Khleif: Okay, good. Wow. That’s a major deal, and the lender required it. That’s interesting.

Mark Kenney: They do.

Rod Khleif: Okay. Alright.

Mark Kenney: I’m not the one…

Rod Khleif: And what other repairs? Are they exterior or all over?

Mark Kenney: New roofs.

Rod Khleif: New roofs.

Mark Kenney: New roofs are 500 or so. So you’re talking about there, almost a million, we’re out the bat without getting any improvement. We knew that.

And then the interiors, here is a 1989 construction, both buildings. We’re gonna redo the interiors. We’re gonna start doing that and bump the rents because of that.

Rod Khleif: Okay. Okay. Nice… Well so, many people that listen think that this is all easy, and success comes easy and, there’s no issues. We’ve already talked about a couple of seminars but are there any other dark times in your journey that you’d be willing to share with my listeners, any other seminars, or learning experiences that might help my listeners?

Mark Kenney: The one I’m going through right now, probably is the toughest. Truthfully.

Rod Khleif: Yeah. The team thing, okay.

Mark Kenney: The team thing. But we’ve had some other kind of softer type things. Not quite as bad, like walking units. We didn’t walk the vacant units before we closed our first property. There were five vacancies when there were only… four additional vacancies essentially.

So now, our contract has stipulations in there, we ask a $1500 for every vacant unit that’s not made ready. We usually get about a thousand for it because we kinda haggle back and forth. One of out last deals in Dallas, we got $18,000 back for that, so good for that.

Rod Khleif: Oh, that’s a great clause to have. That paid off. Wow. Awesome.

Mark Kenney: Yeah, that clauses around the city inspection which saved us, literally, $200,000 in a deal.

Rod Khleif: Could you please elaborate?

Mark Kenney: More… Basically, that all city inspections have to be repaired by the current seller, and we go and get the inspection report and things like that.

There were over 700 city violations on a 255-unit .

Rod Khleif: Holy cow! So the tenant knew the drill. “We’ll call the city and use them as leverage to not pay rent, and eviction court or something.”

Mark Kenney: Yeah. [chuckles]

Rod Khleif: By the way, this is not uncommon, guys.

Mark Kenney: Yeah.

Rod Khleif: The tenants will call the city in hopes that they can utilize that to milk the eviction process.

Mark Kenney: Right.

Rod Khleif: Is that a C class property then?

Mark Kenney: It is.

Rod Khleif: Yeah.

Mark Kenney: And it’s by far our best deal.

Rod Okay.

Mark Kenney: We closed down on it at 13 months ago. Paid 15.44 and it’s worth about 23 million right now.

Rod Khleif: No kidding. Fantastic.

Mark Kenney: In 13 months.

Rod Khleif: No kidding. Well that… the level of building inspection complaints led me to believe that it’s probably a C property.

Mark Kenney: Yes.

Rod Khleif: ‘Cause that’s what you get, that kind of stuff.

Mark Kenney: For sure.

Rod Khleif: Okay, but that was smart. You required the seller to correct them. Guys, any time you buy a property, you always check with the building department or whatever legislative office handles inspections and complaints of that nature. Look for recurring issues.

Mark Kenney: Right.

Rod Khleif: Maybe you’ll discover something.  Something onerous like recurring sewer line issues, or things that may not be evident by your inspections, so you absolutely wanna make sure you do that. But I love the fact that you threw that back on the seller. That’s awesome.

Mark Kenney: Oh, yeah. We have several things embedded to our contracts that helped us. Then on the partnership side, I would say, I mentioned previously, about having things in writing. I had a deal with a guy, just a small deal. Eight-unit we had together.

He really doesn’t… didn’t really wanna sell, but in our partnership agreement, didn’t have anything around tag along clauses, and…

[00:20:00]

Mark Kenney: Forced sale, and things like that. So I would say, we’ve learned a lot of lessons around how to get out of deals.

Rod Khleif: Have your exit strategies. Have your exit strategies very clearly outlined.

Mark Kenney: Yes.

Rod Khleif: A buy-sell agreement for example, where somebody wants to sell, there’s a framework for you to dissolve.

Mark Kenney: That’s right.

Rod Khleif: And I will tell you guys those of you listening, those are the tough conversations to have upfront. But a really good contracts attorney will walk you through a menu of all the questions that need to be asked and answered, to make sure that you don’t have these marital issues. [chuckles]

Mark Kenney: That’s right. That’s exactly right. If you do this business long enough, you’re gonna run across it. It’s inevitable.

Rod Khleif: Every time. It’s not a matter of if, it’s just a matter of when because we’re human beings. One person can say one thing and another person can hear something completely different or sometimes they’re nefarious. You run into somebody that’s nefarious that you didn’t really pick up on.

Another thing guys always trust your intuition. Always trust your gut. If your got says it doesn’t feel right, you trust it, because it’s [overlap talk]

Mark Kenney: That’s right.

Rod Khleif: Would you agree with that?

Mark Kenney: Absolutely.

Rod Khleif: Yeah.

Mark Kenney: Without a doubt. Yeah.

Rod Khleif: Did you have any early failures that contributed to your present-day success?

Mark Kenney: The property we bought in Michigan. We bought in our hometown. It was small, and they weren’t really failures. We probably broke even. I mean, all those deals where we should have made money but it was really a couple of reasons.

One, location, it’s just a small town, which is not the right place to be buying in Michigan. And then we really weren’t as educated then. We learned a lot through that process. We self-managed those even though they were small. But I think, getting the experience from somebody else that’s been there, and done that, is invaluable.

Rod Khleif: Sure.

Mark Kenney: People think that, “Oh well, you know…” They’re smart and they have money. That doesn’t work. There’s way more too it than being smart and having money. You need to have the experience, how you go through it. We’ve had a lot of issues come up about lessons learned that I don’t want other people would have to go through. They’re tough lessons.

Rod Khleif: Yeah. Right. Right. Right. Right. So what are the… You mentioned clauses in your agreement. Anything else popped to mind? ‘Cause you really added a ton of value with that one about… Well both with the city thing and with vacant units that aren’t made ready at closing. Any other any other clauses that you’d throw in there?

Mark Kenney: Yeah, a couple of other ones. I think one would be like around the due diligence period not starting, until we have all the materials from the…

Rod Khleif: Until you have all the docs, yeah guys, due diligence should never start until you got everything from the seller.

Mark Kenney: Right.

Rod Khleif: Yeah. That’s a good one.

Mark Kenney: And then, not so much in contract, but due diligence itself, physical due diligence. I see a lot of people that will… They either try to do it themselves or they hire somebody. I tell everyone, “If you’re gonna have physical due diligence done, get a sample report from the company doing it and it has to have estimates on there. A 700 paged report is useless, I mean, unless you can estimate everything yourself. So make sure.

Rod Khleif: Right.

Mark Kenney: I see that all time. People send a report and there’s no estimate whatsoever to fix anything in.

Rod Khleif: That’s a great tip. That’s a great tip. Yeah, so the building inspector that you use, make sure that they tell you what it’s gonna cost or at least give you their opinion of what it’s gonna cost.

Mark Kenney: And get a sample report from them. A lot of them will say, “Well, hey, I’ll only do it if it’s above $2,000”. But you still would want them to rate. If you’re gonna walk 200 units, whatever it might be, you can’t walk them all by yourself.  You’re not going to, you’re gonna have somebody else. You go through a quarter of them.

Rod Khleif: Right.

Mark Kenney: So you want them to rank each unit, like A, B, C, as far as how much, minor rehab, middle rehab, major rehab, and classified. You know, whatever, a thousand, 3,000, 5,000… Whatever it might be. Some might be even more if they’re down to studs. We spent 20 plus thousand on some properties. But you need that, because if you’re not an expert in estimating, it’s not… You don’t know what you’re getting into and [overlap talk].

Rod Khleif: Right… Or it’s gonna completely delay anything you’re doing if you need to get contractors in there. Obviously, you’re gonna get contractors in there anyway, but my point is to give you estimates. It’s gonna be very difficult to do that after you’ve initially walked them and asking the seller to do it again to get your stuff together.

Mark Kenney: That’s right.

Rod Khleif: That’s very difficult to do, if not, impossible.

Mark Kenney: Right.

Rod Khleif: So let me ask you this, what’s the best piece of advice you’ve gotten, associated with this business?

Mark Kenney: Get somebody, who has done it before, to help you.

Rod Khleif: Yeah.

Mark Kenney: If I would have done that earlier, it would have saved me a lot of headaches.

Rod Khleif: Yeah. What markets are you focused on right now? Bet still Atlanta?

Mark Kenney: Atlanta. Dallas, we’re not looking too much anymore, although I love Dallas. It’s just too expensive. Boston and Memphis, [overlap talk]

Rod Khleif: Memphis?

Mark Kenney: Yeah. More cash flow, for the cash flow.

Rod Khleif: Right.

Mark Kenney: A lot of good cash flow. But in general, the Southeast US is where we’re looking at mostly, right now. I’m focusing personally, right or wrong, less on the appreciation. Because I think that’s a misnomer.

Rod Khleif: I couldn’t agree more.

Mark Kenney: And start looking more at the cash flow.

Rod Khleif: Yeah. If any of you listening, are interested in the southeast, I’ve got my live event coming in Tampa, January 19th, 20th. and 21st. I’d love to see you there. In fact, it’s 2/3 sold out already so…

Mark Kenney: Really. It’s a three-day event, right?

Rod Khleif: Three-day event.

Mark Kenney: Perfect.

Rod Khleif: Yeah. It’s gonna be a lot of fun. I’m really excited about it. Let me ask you this, a lot of the people that listen, guys and gals both, that listen to this show haven’t taken action yet, what would your advice be to them? The people that haven’t done this yet.

Mark Kenney: I think you need to have a reason that’s big enough to do it. If you don’t have a reason big enough to do it, you’re not gonna do it.

For me, I had a reason. It was costing my family. So I had a choice, I could continue doing, and probably lose my marriage or make it take action. But if you just think it’s a good idea to get involved in it, I would say, “That’s great.” But you need… It’s tough business. It’s not as easy. It’s great, I love it, I wouldn’t do anything else, but I don’t just think you’re in a [overlap talk]

Rod Khleif: Don’t dabble.

Mark Kenney: Don’t dabble.

Rod Khleif: Don’t dabble.

Mark Kenney: Don’t dabble.

Rod Khleif: No. If you… Listen, there’s two things you gotta know, what it is you want, and more importantly, why you want it. That’s number one, like you just said. I’m just paraphrasing what you just said. And I completely agree. You have to have strong enough wise.

Frankly, if you don’t enjoy it you need to learn to love it. Okay.

Mark Kenney: Right. [chuckles]

Rod Khleif: Because if you don’t love it, don’t do it, for god sakes. Go do an internet business, or do something else.

Mark Kenney: Right.

Rod Khleif: Don’t do multi-family because if you don’t love it, life’s too short not to love what you’re doing. And the people that are successful are the ones that are passionate about it. The only way to be passionate about it is to be inspired by it, and the only way to be inspired about it is to enjoy it. Make sure that you associate pleasure with it as you get started. Even the stuff you don’t necessarily like.

If you’re the analytical guy, you’re gonna have the time with the relationships. If you’re the outgoing person, you’re gonna have a tough time with the analysis and the evaluations. But whatever it is, get uncomfortable, and associate pleasure with it, because your magnificent life is on the other side of comfort.

Mark Kenney: That’s right. Exactly right, couldn’t agree more.

Rod Khleif: You’ve told us your war stories, and you just told us an incredible upside on that property. What were those numbers again? From…?

Mark Kenney: It’s 255-unit deal. We paid 15.44 for it and it’s worth about 23 million, after 13 months.

Rod Khleif: That’s beautiful.

Mark Kenney: It had every… so we’d look at it… I mean, look at a deal so people say, “What do you like?” “Well I like more than one angle to it.” If all I can do is raise rents I don’t like that as much.

Rod Khleif: Right.

Mark Kenney: It’s weird.

Rod Khleif: Tell us what you mean.

Mark Kenney: Yeah. This one had low rents, from where it should be. It was completely mismanaged. It was about 24% economic vacancy when the submarket’s 10.

Rod Khleif: Wow.

Mark Kenney: It’s on a road that has probably 200,000 cars a day that go by, around the corner so there’s no excuse for that. And then, just the exit strategy from a financing perspective too, this one actually happens to be a… It was a loan assumption. I don’t like as much.

Rod Khleif: Oh, wow. I was just gonna ask you that. How did you take it down, ‘cause that’s absolutely not stabilized? You’re not gonna be able to do typical agency debt. So you assumed it.

Mark Kenney: Yes.

Rod Khleif: How much to equity did you have to raise to do that?

Mark Kenney: 4.8

Rod Khleif: Oh, that’s not bad.

Mark Kenney: Yeah. Not bad at all.

Rod Khleif: No. Okay.

Mark Kenney: It was 4.8 in standing, along with eight years left on it. But I think when you look at it, people will say… They get… Like you mentioned about analyzing deals. If you don’t know how to analyze deals you need to at least understand how a deal is analyzed. You don’t have to be the expert in numbers but you need to understand the numbers.

Rod Khleif: Sure.

Mark Kenney: And I think with this one, looking at things like what’s the break-even occupancy that could still make it work. What’s the break-even rent amount if I rented it at certain amount? Looking at those factors, and this one had a lot of things going for it. With the rent and the mismanagement, and the rehab that we’re gonna do. We bumped rents, four times already.

Rod Khleif: Wow.

Mark Kenney: Just now, literally, [overlap talk]

Rod Khleif: In 13 months?

Mark Kenney: Yeah. They’re not so… They’ve been brought up about 65, 70 bucks, so they’re not a lot so they’ll ease in…

Rod Khleif: Still. Wow.

Mark Kenney: But actually now, we just rehabbed six units for the first… six units were rehabbed because we’re doing some exterior and now we’re bumping rent $150 additional, on those.

Rod Khleif: Holy Toledo.

Mark Kenney: So $5,000 rehab, then bump the rents for another $150 a month.

Rod Khleif: This is the Atlanta deal.

Mark Kenney: No. It’s North Dallas.

Rod Khleif: North Dallas. Wow.

Mark Kenney: Yeah.

Rod Khleif: Wow. That’s a sweetheart deal right there. Okay. So what books do you gift the most to people, aspiring investors?

Mark Kenney: I think Rich Dad, Poor Dad.

Rod Khleif: Of course.

Mark Kenney: For me, that’s really… And I’m more of a researcher and less of … So I’ll like do piecemeal, a bunch of different books…

[00:30:02]

Mark Kenney: And piecemeal internet stuff, and piecemeal podcasts. It’s just… I don’t know why, it’s kinda the way I am.

Rod Khleif: Okay.

Mark Kenney: But I think… I never thought it was a big of a deal before ‘cause I thought I could just do things. But your whole mindset shift, has to be there. If you don’t shift your mind first, you’re never gonna make it work.

Rod Khleif: That’s why I spend… I do one session a week on mindset. I literally. I do these little driving force tips about mindset, because is 80 to 90% of your success in anything.

Mark Kenney: Yeah.

Rod Khleif: If you’re not gonna take action… You can have all the technical knowledge you want, but you’ve got to take that first step, number one, and then you got to get back up when you get your butt kicked ‘cause you’re inevitably gonna get your butt kicked.

Mark Kenney: You will.

Rod Khleif: So even if you don’t know what it is you want, and why you want it, forget it. If you’re just dabbling, or you’re just “interested”, forget it.

Mark Kenney: Right.

Rod Khleif: You have to be committed.

Mark Kenney: That’s right.

Rod I don’t take clients. That’s one of the questions we ask. If you’re just interested versus committed, because if you’re just interested, you’re really not gonna do it. I’m not gonna work with anybody that doesn’t do it.

Mark Kenney: Right.

Rod Khleif: Yeah.

Mark Kenney: That’s right.

Rod Khleif: Yeah. Tell us about your core nucleus team. Is it just you and a couple of people, or do you have partners like at your level or… Like in your office…

Mark Kenney: Deals. Yeah.

Rod Khleif: I’m not talking about the outside people like the brokers, and the lenders and the insurance people. I’m talking, in your core nucleus.

Mark Kenney: To my wife Tammy or Tamille, her official name’s Tamille, that was the other thing that was… We were able to work together full-time, 100% where…

Rod Khleif: Oh, cool.

Mark Kenney: I did IT. We have a lot more problems when I was doing IT. Now, we work together everyday.

Rod Khleif: That’s cool.

Mark Kenney: Then we have a couple of marketing guys, little web guy, and that’s about it. We have… mostly part-time.

Rod Khleif: Okay. Okay.

Mark Kenney: We have three part-time people helping us, doing different things, and then my wife Tammy, myself and then we have the web guy, so we’re small.

Rod Khleif: That’s amazing that you can work with your wife. My wife would take me out if we worked together. But that’s awesome that you can.

Mark Kenney: Yeah, strange enough, we get along better doing this. It has helped my wife become a lot more secure about her self. She’s done an amazing job. She understands the business inside out. She’s doing a lot of branding and marketing and all the things like that.

Rod Khleif: How very cool.

Mark Kenney: It’s really helped her become who she is today because of that.

Rod Khleif: People need validation, and if you’re a housewife at home, you need a source of power.

Mark Kenney: That’s right.

Rod Khleif: Guys, those of you that are listening, if you can incorporate your spouse in some fashion, maybe not to the level that you’ve done full-time but just to add value they need to contribute.

Everybody in the relationship needs to feel like they’re contributing. They need to be validated. That’s fantastic that it has worked for you.

Mark Kenney: That’s right.

Rod Khleif: Yeah. Well, people can get a hold of you through thinkmultifamily.com. Correct?

Mark Kenney: They can. Yes.

Rod Khleif: Alright. Awesome. Listen, you’ve added a ton of value today, Mark, I really appreciate you being on the show, buddy. Is there a question I didn’t ask you that you wish I had?

Mark Kenney: I don’t think so. I think you covered everything, Rod.

Rod Khleif: Okay… Well you did a great job and I really appreciate all the value you added and I’m excited to stay in touch with you, brother.

Mark Kenney: Thank you, Rod.

Rod Khleif: Alright, thanks, bud.

Mark Kenney: Take care.

Rod Khleif: You too.

Mark Kenney: We’ll see you. Bye.

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Thank you for listening to the Lifetime Cash Flow Through Real Estate Investing Podcast. If you’ve enjoyed the show, please subscribe, and then take a moment to visit iTunes and leave a five star rating and review. For more resources to connect with us further, please visit our website at lifetimecashflowpodcast.com. Tune in next week for our next show.

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