Kenneth is the founder and managing partner of KRI Partners and the KRI group of companies. He has more than 24 years of significant real estate, banking, private equity transaction, and principal investing experience. Throughout his career, he has been involved in transactions valued at more than $2.0 billion, much of which has included the acquisition, management, and financing of various multi-family real estate projects.
Here’s some of the topics we covered:
- Adding Value To Your Community
- Important Details for Beginners
- Filling gaps
- Raising The NOI of a Property
- Identifying your strengths
- Raising Rents
- Nailing Down Property Numbers
- Finding Deals Under Market
- Adding value and being consistent
To find out more about partnering or investing in a multifamily deal: Text Partner to 72345 or email Partner@RodKhleif.com
Full Transcript Below
Intro
Hi. My name is Rod Khleif, and I’m the host of “The Lifetime Cash Flow Through Real Estate Investing” podcast. And every week I interview Multifamily Rock Stars and we talk about how they built incredible wealth for themselves and their families through multifamily properties. So hit the Like and Subscribe buttons to get notified every Monday when a new episode comes out, let’s get to it.
Rod
Welcome to another edition of “How to Build Lifetime Cash Flow Through Real Estate Investing”. I’m Rod Khleif, and I am thrilled you’re here. And I know you’re going to get tremendous value from the dynamic gentleman I’m interviewing today. His name is Kenneth Gee, and he’s a managing partner of KRI Partners. And just to give you an idea of his bandwidth and skill level throughout his career, he’s been involved in transactions of over $2 billion. Now, before he got started, he was a tax manager with Deloitte & Touche, and you know, I’m just not going to do his bio any justice. So I’m going to let him tell you who he is and where he’s from. Ken, welcome to the show, my friend.
Kenneth
Well, thank you so much for having me, Rod. I appreciate it.
Rod
Absolutely. So. Yeah. Tell us who you are, where you came from.
Kenneth
Yeah. It’s a crazy story. So I grew up in Toledo, Ohio, where I got my undergrad from the University of Toledo. Put myself through scrub driving Zamboni. If you know what that is, I’ve worked at an ice rink, managed an ice rink for many years, part of a big recreation complex. So anyway, I got to drive Zamboni. Not many people can say that. So fast forward, I got my undergrad in finance, moved to Cleveland, went to work for a local bank or as a commercial lender for about five years, pursued my master’s degree at night at Case Western Reserve. Decided, I don’t want to be a banker anymore. I wanted to be an accountant because all my bank customers said they couldn’t do anything until they talked to their accountant. And I thought, darn it, I want to be the guy they ask. So I went out, became an accountant, went to Deloitte, spent seven years there, had a really fun time there. I did a lot of M&A work. I did tax work. Anything to do with multi-jurisdictional tax planning is what they call it. So when you’re talking about state and local tax planning and M&A tax planning and national tax planning. A lot of fun. Worked really, really hard. On the side, near the downtown Cleveland area is a small airport called Berkeley Lakefront Airport. I decided it would be fun for a CPA to go take a lunch hour and go learn to fly on my lunch hour. So I did that. It was a lot of fun. Ended up leaving Deloitte, bought the company, bought the three assessment of pilot centers right before 911. So I got to learn how to run a decentralized business in a really tough situation. We grew it or sold it three years later, did really well. We replaced all the old airplanes with brand new airplanes. And it was really fun watching people go from literally zero time in an airplane to being a Delta pilot. It was really fun being part of that process. So all during this time back at Deloitte in ’97, when I bought my first property in a small area in Cleveland called Shaker Square. And I remember this deal so well because it was so stressful going through it. I spent about a year and a half before that trying to figure it out, trying to figure out how this business works, what I should do, what I shouldn’t do because I didn’t want to make mistakes. I’m a pretty conservative guy. So now, continue to fast forward I accumulated some assets about ten or 15 years ago I said, you know what, Cleveland is a really hard town to make money in because it’s all about buying it right. You have this very little gross. So you really got to buy right. If you don’t, you’re going to get killed. So I decided I’m going to go to a growth market. I’m going to go to Florida. So I got on a plane, went to Tampa, got off, and started the process of learning the markets, how to figure out how to be successful in Tampa, how to get the brokers to take you seriously. So I literally walked in there with nothing. And then now, you know, we take care of a couple of thousand units, have owned several hundred units in those markets. And you know, we’re on the ground and all the major markets in Tampa, north of probably Sarasota, where you are. So Tampa, Orlando, Jacksonville, Daytona, Tallahassee. And I’m sure I’ve missed a couple.
Rod
Those are all great markets. Those are all great markets. So you know, you have a fantastic framework for this business. Unusually fantastic in that. Not only are you analytical, you’re CPA, but you are in finance as well, you know, which is a big part of what we do. We raise capital. Can you speak to how that experience helps you become a multifamily operator? And can you speak to that a little bit?
Kenneth
Yeah. There are two things about being in the lending business. Part of my experience when I was at the bank was I got to spend time in workout lending. So there’s nothing better than having a bank’s mindset when they’re trying to work out of a deal. Why do they want to work out of it? What’s important in the workout situation? So what it really allowed me to do was to understand what that person sitting in the lender’s chair was thinking, why are they thinking, what risks are they trying to protect against? Because that’s really what it’s about. Now, it’s also really important because you’ve done deals. And I’m sure on every single one of the deals the lenders have driven you nuts. You don’t understand why they’re asking for these things. It’s just crazy. But me having sat in the lender’s chair, I understand why they’re asking. And it actually has helped us to make that relationship go much smoother and much easier to get the deals done. Because then I can also take what I know they’re doing and apply it to my underwriting. Right. I know how I would underwrite it, but I know what adjustments they’re going to make when they run it through their underwriting machine and figure out what my debt coverage ratio is. And so on and so forth.
Rod
Now, when you say workout, were you talking about loss mitigation?
Kenneth
Say again? Yeah.
Rod
So we’re talking about ’08, ’09, ’10, somewhere in there. Were you doing it then? During the crash?
Kenneth
Let’s see. When was I at the bank? I think I was at the bank from ’91 to ’95.
Rod
But of course, there were people that went belly up back then, too.
Kenneth
Yeah.
Rod
Okay. Got you.
Kenneth
But it included business credit, not just real estate. It included business credit. So you know, guys, business isn’t going so well. The key thing that the banks look for when they work out and I know you didn’t ask this, but they’re looking for a management team that they think can take this business through whatever difficult time it’s going through. The same thing applies in real estate, right. I talk a lot about this management team. You’ve got to have some experience because they have to figure out how to navigate these difficult waters. And the banks have to know that you can do that. If they do and you’re honest with them, they’ll let you work through it as best they can. That’s something that most people don’t really understand.
Rod
You know, you talked about your first deal in Shaker Square. You know, the first deal is always the hardest. Is the scariest. It takes the longest. It’s the most stressful. You know, was that a smaller asset, larger, what size it was?
Kenneth
It was. It was 28 units.
Rod
28 units. Okay.
Kenneth
28 units at the time. I know this deal well, I paid $575,000 for it.
Rod
That hurts so much.
Kenneth
I signed on a $460,000 mortgage that I personally guaranteed.
Rod
Which scared the bejesus out of you, I’m sure.
Kenneth
Yeah. Have you ever tried to swallow a golf ball? That’s what it felt like. As I was signing on this– what’s funny– it’s funny now that I look back on it, but I did a lot of homework. I felt like I did. I felt like I knew what I was doing. But it doesn’t change the fact that you signed on a piece of paper that literally can wipe you out if it doesn’t go well. And now, looking back, I still had no clue what I was doing. And I didn’t because I didn’t have somebody like you around to teach me what I should do, how I should do it. You know, I was trying to nitpick little pieces of information here and there. I’ll date myself, do you remember a guy named Carlton Sheets?
Rod
Oh Wow. Yeah. That’s what you learned? That was your first– wow.
Kenneth
That was the first little thing I bought, and I was embarrassed to admit that I had bought it, but I mean, there was a lot more information that I had to learn, but that just gives you an idea of that was the best resource available at the time. And that’s not saying much.
Rod
No, I remember it well. I mean, we’re about the same age because I remember that very, very well. So let me ask you this. You know, you’ve had a long, varied career touching on and being involved in real estate. Were there any like, aha moments or experiences realized, okay, I get it now. You know, I know I didn’t prepare you for this question, but does anything come to mind when I asked that?
Kenneth
Yeah, there’s actually been a lot.
Rod
Okay, let’s talk about some of them because they’re important.
Kenneth
They are. So I didn’t understand what value add was back in 1997. I thought I was going to buy this property. The attorney I hired to also kind of bless it for me. Paid him a $3,000. I told you, I remember every detail in this deal. He said, yes, you’re going to do well in three years, you’re going to make 100 grand. I said, Holy Jesus, are you kidding me? Okay, well, I started to run this property. We were advertising a vacant and all the apps were bad. All the credit reports were horrible. I thought, oh-oh. We were getting $415 a month in rent. I said, man, what am I going to do? What am I going to do? When I met this lady named Karen, she was from the Shaker Heights Pro Integrated Housing Service. She says, Ken, let me show you what to do. I said, okay, I’m going to show you– spend five grand in this unit, make it nice. And I’m telling you, they will come. You’ll be able to ask for more rent and the better people will come. I said, Karen, I just spent everything I got just to buy this place. And you want me to go spend five grand? That was monumental.
Rod
Right.
Kenneth
So I sucked it up and I said, all right, I’m going to do this. I’m going to trust you. She said, can you build it they will come? I build it. We raise our rents to 599. 1st app came through. It was awesome. And that’s how I really got to understand the value added concept. Because again, back in 1997, there was no one really there to teach you what that really meant. I owe a lot of my life to Karen.
Rod
Right. No. Sorry to interrupt. Forgive me. Was that $5,000 per door?
Kenneth
Yes.
Rod
Oh, it’s per door. Okay.
Kenneth
Yeah. I was like, Jesus, are you kidding? Well, I don’t remember exactly what I spent on the subsequent ones, but we renovated about half of the property. Sounds familiar. Leave some for the next day. And we ended up selling it three years later. And let’s say we put in 70. I put in 35 I got back 135.
Rod
Nice. So you made 100 grand.
Kenneth
Yup. And my in-laws did the same.
Rod
Very nice. By the way, something he just said, guys, I don’t know that’s come up much on the show. You know, in the value add, frame of things, which is what we do. You know, we do anything we can to raise the NOI, Net Operating Income. When you’re about to sell a property, you want to make sure there’s meat on the bone for the next person. And so, like he just described, he only fixed up half the unit so that the next person had some meat on the bone they could fix up and they could justify coming in and doing another value-added. And of course, that happens almost on every year or two basis in some of the markets in this country, like Dallas and you know, even Florida, you know, where a property will turn multiple times. You know, I’ll tell you a funny story. Tampa and you’re in the fan– obviously, you know this, probably the best market in the country right now for rent increases last year. And I have a friend of my wife that lives here in Sarasota, and they just sold her apartment complex, and they raised her rent $1,300 for a two-two. She went from $1800 to $3,000. You know, that’s what’s happening as these things turn over. And I thought that was a little extreme. But anyway, I digress. So let me ask you this. Did you have any mentors along the way? Did you have any you know, because he talked about Carlton Sheets? Did you do any events or anything like that? I remember you know, named blast from the past, Ron LeGrand, but he was more in the single-family space. Were there any mentors in the multifamily space back then? Because I don’t remember any. I’m just curious.
Kenneth
Yeah, there weren’t. That was my struggle. That’s what I told you. There was no Rod Khleif around to show me how to do this. And you know, the people that are starting in this business today, they have you and guys like you really help them. I don’t know if they appreciate how important that is. I got a lot of what I got from going to the apartment associations, rental owners courses, and things like that. And I would stick around after the presentation they would have local people present, and then they would talk. I would get to know them. Hey, tell me about evictions. And hey, tell me about property management. And you know, I would learn as much as I could. But no, I’m trying to think if there was a super guru in the business then.
Rod
There really wasn’t. Yeah. At least I didn’t know anybody. I didn’t know anybody back then either. So tell me– you know, your current role as the CEO of KRI, you know, what’s the most challenging part of what you’re doing right now, and then what do you enjoy the most? Do you have a team and you focus on your strengths? You know, can you speak to that a little bit? The team, strengths, things like that.
Kenneth
Yeah. So we do have a team of course. We probably have 45, 50 people on the ground doing various roles at our properties. The biggest challenge probably is two things. If I look at the management side of our business, remember, we’re vertically integrated. On the management side, it’s people. It’s just finding people. And I know everybody’s telling you that it’s true. I mean, it really is true.
Rod
Sure.
Kenneth
So we’re doing just really unique things to try to make sure people feel good about being part of KRI. And this is a real honest career path that has the real honest ability for you to make a lot of money. That’s the disconnect that people have in this business. The real estate people haven’t figured out what the private equity people have figured out. And that is when you buy these deals and you turn them and you make a lot of money, you need to share the wealth with the people that helped you do it. And most people in our business don’t do that. You know, that is something that we are now moving towards in a bigger way, which if you think about it, I mean, that’s why people work. They want to have a good life.
Rod
Sure.
Kenneth
The other challenge is on the investment side, it’s just finding the deals.
Rod
Sure.
Kenneth
It makes sense. We’ve had to really learn a new way of underwriting to make a lot of the stuff make sense. And it’s all about– you almost have to reverse engineer how you’re going to buy this property. You know where you can take it. And unfortunately, if you were going to buy anything right now, you’re going to pay the seller for some of the value that you’re going to add. Well, in the old world, right, the old Cleveland world you never did that. You were getting destroyed. But in growth markets, you can get away with doing that. Sellers know they’re going to do it to you, but you still do it because there’s enough upside. You just have to make sure you do your homework and really nail that upside and know what it is with certainty so that you don’t make a mistake. So deals and people, those are the two hardest things.
Rod
No question. No, I completely agree. I love the fact that you share the wealth. I do that as well. And you know, I absolutely believe in it. And I mean, it’s a very competitive employer market right now. I just saw sign at Walmart, they’re paying $15 an hour. I just heard from my partner Hobby Lobby is paying $18 an hour. We’re talking about a retailer. You know, it’s very, very difficult to compete. I’ve had to you know, bump some of my staff up recently, and you know, of course, inflation. I told you about my friend’s rent going up $1,300. Good Lord.
Kenneth
That’s so crazy. Yeah. So we find that happening a lot. Operators in this, they’re having trouble keeping up with the market. And it’s so easy to find a deal under market, because it’s really hard to keep up with the market.
Rod
Right. Right. Now, what size asset do you– what’s your investment criteria? Why don’t you define– you know, when you’re speaking to a broker– actually, before you give me that, you said that–could you elaborate a little bit more on your underwriting in that– I don’t want to assume anything. So you talk about reverse engineering without going to you know, your CPA, so you could probably cross our eyes. But let’s not do that.
Kenneth
No. No.
Rod
Layman’s terms. Give a little more detail on what you were talking about.
Kenneth
Yeah. So my process kind of goes like this. I start with probably very similar to what you teach. Start with the market, go all the way down to the sub-market to the neighborhood. Once you get past that, then you got to take the seller’s numbers and you’ve got to understand what you have now. And I like people to use a standard income statement format so that every time they spread numbers doesn’t matter what they come in looking like. When you’re analyzing them, they look the same on every deal that allows you to get more–
Rod
Let me stop you there for one second. Forgive me. We’re hiring a VA right now to do that very piece of it. To take a broker’s OM put it onto our spreadsheet so that we can analyze. So it’s same-same. We’re talking about the same thing. All right.
Kenneth
Yeah. I take it a step further, and I actually get the sellers raw data, raw numbers and spread those. So you got to understand what you have right now. And most likely it’s not going to make sense.
Rod
Oh, no. Okay. I’m sorry. I meant the same thing. Okay. I don’t mean the brokers pro forma. I’m talking about historical trailing 12 numbers from the seller. I’m sorry. Yeah. You typically get those through the broker. So just to be clear. Now, we want to do actuals. Okay.
Kenneth
Perfect.
Rod
All right.
Kenneth
So that’s the seller’s prior-year T12. Then I try to look at year zero. So I’m going to apply some assumptions to all the expenses, some expenses I’ll carry over, some of them I know are ridiculous because we’re vertically integrated. We know what it should cost. The only number that’s hard for us and anybody really is the miniature repair, unit turn costs, and capital reserves. I like to add those three numbers together because the accountants can play with those numbers to make them look however you want. I add them together and start with 750, 800 a door up to 1000, depending on the condition of the property. But all the other numbers you can really nail down. And I can spend time with somebody teaching them how. I’m sure you do that. Now, the income side, so now I stop on the income side and I say, all right, let’s go do our rent survey. So what I do is I take the seller’s rent roll, and analyze it, and I break the seller’s rent roll into three buckets. I want to understand where it is now. I want to understand what the real seller’s loss to lease is that’s in place because I consider that to be the low-risk upside. The seller’s really proven it. It’s not just one time.
Rod
Just to be clear on what he’s talking about guys. Lost the lease would be what could he be renting for right now without any additional work or anything like that. How below market is he. Okay. Please continue.
Kenneth
That’s exactly right. So if I just turn that unit, made it nice, didn’t do any upgrades, what is it worth? That’s the difference. So then I’ll take a look at the market and say, okay, the seller thinks that he’s proven this lost the lease. He’s proven this is what rent should be. I still think he’s low. Maybe, maybe not. I assess that as medium risk in terms of the upside. Then I go and figure out, okay, let’s now put the market, the rent survey into three tiers, lower tier, middle tier, upper tier. Where is my property? Where is it today? And where do I want to take it? So I try to figure out, where is it at in the competitive stack now and where do I want to take it? And I’m going to figure out, I’m going to use that. And I actually put it in a spreadsheet that stacks it up. Very similar to the way like Co-Star does.
Rod
By the way, guys, what he’s doing is he’s identifying all the direct competitors, other assets that are competing with this property and you spread them. That’s what we’re talking about here. Correct?
Kenneth
That’s exactly right. So I’ll look at the rents, rent per square foot.
Rod
Size, amenities.
Kenneth
Just in from the property, and I care about a couple of things. Washer, dryers, and units. It matters a lot. And I care about the amenities of the property because that kind of defines what kind of property it is. And I care about how much the passer of the utilities are. So I’ll do all of this work. But here’s what’s important about this is when I’m done, I get a feel for a conservative projection where I think I can take rents, and I then use that number as my upside. So I have a low risk in terms of upside because the seller’s already proven it. I get medium risk because I think the seller might be a little light. Maybe not. Maybe that number is zero. But then I get a real upside for my capital improvements and the reason I break those out, because what if you did your analysis and you determined based on your picture of the market, what it’s going to look like when you’re done. That your capital improvements really only added just a little bit of value. You got to spend a lot of money to get it. You’re going to say, wait a minute, that doesn’t make sense. I don’t have to spend the money to get the upside. And I can tell you almost every single deal that we do, brokers will tell you to do just about everything in the units and everything at the property that they can possibly think of. We do less than half of that and get to the same place almost every single time. And so I try to do that because you got to use your investor’s capital wisely. You don’t want to go in with a plan to spend ten grand a unit, and you could have done the same with five. Right? That’s kind of the analysis we go through. So now that we know where our rents can go, now, we bring the income side into our projection and we figure out we take that out five years. So I’m going to assume that we’re going to turn the units over two to three years, depending on how aggressive we’re going to be. So I’m going to move those to market rents over that period of time. And then as they move, then I’m going to move them by inflation, maybe 2% a year after that. So I’m not being aggressive. So I’m the value add on top of a little bit of inflation. And then when the numbers shake out, they shake out. They are what they are. And that will give you an idea as to how much money you make. So what will end up happening, then, is you’ll drop in the seller’s price. Excuse me. You’ll probably be stressed about what you’re buying it at, but you have to consider that price based on what you’re going to be able to sell it for.
Rod
Yeah. Now let me ask you that question. Let me ask you that question. So talk about how you adjust your exit cap. What sort of a barometer do you use for? Because, guys, you’ve got a going-in cap rate, but you know, it’s pretty likely that the cap rates will expand here. Of course, maybe not this year. But who knows? I’ve actually done a panel tonight with a couple of big hitters talking about this very topic. So we’re going to discuss it. But you know, what do you do as far as your exit cap rate projections? Guys, we do this typically, on a five-year window. But what do you do there?
Kenneth
Yeah, that’s exactly what I do. So we go off five years. I think beyond that, you really are kind of guessing. You’re probably almost guessing at five. But in terms of the exit cap rate, I mean, you can’t buy it a four and sell it a four. You might. But you can’t plan for that. You got to put to a five or to a six or to whatever and figure out what’s that. What’s important is that you– see, one of the reasons I like real estate, I know you didn’t ask for this, but I like real estate because you can lose money. But you’re talking about a basic need that the world can’t figure out how to get rid of. So it’s going to exist in some way, shape, or form. And as long as you don’t buy in a horrible neighborhood, it’s going to be hard for those rents to really plummet, right? Unless you’ve done something stupid, like bought next to a single source revenue employer and they go out of business, I mean, you know, a lot of really bad things have to happen for you to lose money here. So I just want to know how badly does that cap rate has to move against me before I really start to get frustrated that I’m not making the money that I should. Here’s what’s interesting, though, you only realize that cap rate problem if you sell a refinance.
Rod
That’s right.
Kenneth
Because your basis didn’t change in the asset, you’re still throwing off cash. So what’s the worst that happens to you? All right, so you get stuck in the deal longer than you wanted, which is important because you want your investors to line up with the understanding that you have. And there’s nothing wrong with having a cash-flowing asset?
Rod
Right. The only caveat I’ll throw in there is if you’ve got a shorter term. You know, the definition of a bad day is to have a cash-flowing asset and the cap rates have swung in the wrong direction and you can’t get the value you need to refinance.
Kenneth
That’s true.
Rod
Then that’s the definition of a bad day.
Kenneth
It is. But let me say what I have found over time, and you probably have found the same. If cap rates are moving up, that probably means interest rates are moving up. Now, this is probably part of your panel discussion, but think about what’s going to happen to the world if our rates move up to 200 basis points. The federal government is going to have a very difficult time making those payments. It’s going to be extraordinarily difficult to buy homes. So because of the mortgage rates going higher, it’s going to drive more and more people into renting, which, if you’re in a growth market, remember the demand-supply thing. We didn’t talk about it, but all you’ve done is increase the demand side of the equation. We do B/C class assets. They’re not building those. So you should get somewhat of a rent increase offset against the higher cap rate. That’s a really hard thing to quantify, but I’ve just seen that happen over time. That generally is what happens.
Rod
What do you do? Ten basis points a year or 20 or 25. What do you do for your exit cap?
Kenneth
How much do I move it? I’ll move it to 100 basis points, then 200 basis points over the five years. Just because I want to see what’s going to happen.
Rod
Okay. Yeah. How else do you stress test a deal? If I may ask, you know, do you look at your break-even? What else do you do to stress test a deal, Ken?
Kenneth
Yeah. So when we manage properties, the number one thing that we stress in our company is occupancy. So that means if you even have to drop rent a little bit, occupancy is where it matters, because then everything else, you’re a lot stronger. So we don’t have to stress test the income side too much. Because again, if I’m in Cleveland, I do. I do. Because when things go south in Cleveland, it hurts a lot more than if– I can’t figure out how to destroy the demand in Florida right now. I just can’t figure it out.
Rod
I don’t think you can for a lot of reasons. Political, climate, you know, you name it.
Kenneth
Right. I don’t mess with income too much. What I try to do is make sure I understand how my expenses. And right now I’m watching– and in Florida, we watch labor and we watch insurance.
Rod
Insurance. Yeah.
Kenneth
But just a few years ago, I could budget 350 a door for insurance, not 650 a door. That’s a big change. So I spend a lot of time making sure I understand those because you have to. But again, I can’t figure out a way to get people to sour on this business when we’re in a growth market like Florida.
Rod
Even an inflationary market, right. Even an inflationary market. I mean, what else can you buy that moves with inflation like our asset class. And frankly, specifically the multifamily asset class as well. Because you know, even with this Covid blip. You know, I thought that was going to be the catalyst for another contraction. I thought we’re going to see ’08, ’09 again when Covid hit. And it was a blip. But then I will tell you, the government didn’t really, a little bit, but not really help the other asset classes. You know, self-storage, retail, office. No, they didn’t get much, nope, residential. They all got, you know, rent assistance to help pay landlords. And so, you know, that’s why we love this business. Right?
Kenneth
Well, you know, as I thought about this, maybe last week. My background allows me to be a CPA. A lender. I could go do a lot of different things, but I’m here. I’m doing real estate. There’s a reason for that, right? I can’t find a better way to make a good living. I just can’t. I can’t figure out how to make it. So nobody needs a place to live. If that happens, we have bigger problems because I’m not really going to be around. So I can’t destroy the demand. It’s a basic need. Everybody needs it. And you can get with these value add deals. Crazy returns, just ridiculous returns. So how do you turn your back on that? I don’t know.
Rod
You can’t. So let me ask you this, Ken, what words of wisdom would you share with someone that is thinking about getting into this business? Hasn’t pulled the trigger yet. Maybe caught on analysis by paralysis or paralysis analysis, whatever, you know. And hasn’t taken the jump yet. What would you say to them?
Kenneth
They need to find a mentor.
Rod
Yeah.
Kenneth
Look, you didn’t invite me on the show to promote you, but people that are listening to this podcast, I already know who you are. You need a mentor. When I first started in this business, it was scary as hell. I’m not going to lie to you. A golf ball in my throat is what it really felt like. And having someone standing next to you who legitimately cares that you’re successful, not just someone who’s giving you lip service. Don’t let those people guide you because they don’t have your best interest. But you need that mentor that you’re paying for, you know, whether you do a deal or not, that person is going to get paid, or that person is still going to be your friend who understands the business. And I paid a guy $3,000 back in 1997 to be my guardian Angel. I don’t know what else you want to call him, my mentor. I don’t think he really did much, but he had two 3000 units at the time, and I knew that if he said no, you’re going to be okay. That gave me that extra bit of confidence. The other thing I want people to do is– I have this little saying it’s called “knowledge builds confidence”, right? And it’s true. They try to attack this business and don’t want to dive into the details. And you know, I haven’t gone through your courses and stuff, but you know, I believe it’s about the details. When people come to us as third-party managers you know, who are new to the business, they want us to do their underwriting for them. I mean, I can, but I can’t do everything underwriting. I don’t have the time, right? They really need to dive into those details, because what’s going to happen is as they start to understand the P&L and all this stuff. You’re not worried anymore because you know. You know what pest control–
Rod
The numbers don’t lie.
Kenneth
You know what’s going to happen to taxes, right? There’s no, oh, Joe said that this looked okay. So I’ll take his word for it. The bank said it’s okay. So it must be okay. No. The only way you can get through this process confidently is to figure out what’s going on, rolling up your sleeves, do your homework, and it becomes a lot easier. And second and third time you do a deal. So if you can do that and your mentor, a guy like you is going to probably make them do their homework because you know, you teach that man to fish. He’s going to be good for the rest of his life. So that’s the number one thing I want to see people do.
Rod
I appreciate you saying that. Not in a self-serving way, because it’s absolutely the truth. I was telling you before we started recording. My warriors now are at 50,000 or more that I know of, doors owned. They’re averaging, I think now about somewhere between 1000 and 2000 doors a month that they’re closing on. And it’s just astounding to me. And you know, I just interviewed somebody that was a warrior that got over 500 doors this first year in a general partnership capacity. So it’s just a wonderful thing to see. You know you said something else that I see all the time. You said knowledge builds confidence. The way I describe it is your competence equates to your confidence. And then that confidence equates the same thing. Just different words. But then that confidence equates to your ability to influence. And because this business is a team sport, you have to be able to influence people. You know, bestsellers, brokers, investors, so on and so forth. Love it. Love it. So are there any books that you gift more than another two people interested in this business or any books just in general that you really enjoy gifting?
Kenneth
Yeah. As you probably have figured out, I’m a big self-development kind of guy. So, you know, I was the guy that drove around with the cassette tapes in my car, and that’s what I did on all my commutes. I mean, there are so many. Probably, I’ll list off a few that have been important to me. ” The 7 Habits of Highly Effective People”.
Rod
Oh, yeah.
Kenneth
That’s not a new one to anybody. Michael, ” The E Myth Revisited”.
Rod
Michael Gerber. Yeah.
Kenneth
Gerber. Gerber. Sorry. Yeah. I’ve read that book repeatedly.
Rod
By the way, that book is about systemizing your business. And basically, he equates it to, turning it into a McDonald’s. Whatever business you’re in, if somebody leaves, someone else can step in because you’re so well systemized. That’s a great book. Michael Gerber.
Kenneth
Yeah. No, it is. It’s really important. And that’s a battle we have fought for 23 years. It’s part of the reason that we are vertically integrated because we have built the systems in place to get through this, to make this, to do this right because half of it is getting the deal and understanding what’s going on. The other half is execution.
Rod
Oh, sure.
Kenneth
And when I’ve been doing it for 23 years, I get really weird about that. So that’s important. I’ve read a number of Cardone stuff just because–
Rod
He’s awesome. He’s been on the show a couple of times,
Kenneth
Oh, has he?
Rod
Yeah.
Kenneth
No, you can’t go wrong with Grant. What I love about him is his grit. No, if you need to kill that ant, you don’t use a feather, you use a sledgehammer. All right. And if you approach everything that way, you’re going to be successful. You know, I’m sure there are others I can’t–
Rod
Oh, no. That’s fantastic. No, that’s great. And really glad you went there with this because 80% to 90% of this business is mindset. If you’re not working on that, you’re just not going to do it. You’ll never take action. You have all the technical knowledge in the world, but you’ll never take action. So let me ask you, did you have any early failures that you know, if anybody knows my story knows I’ve had some big ones. I call them seminars. But do you have any that you can look back to that even contributed to your existing success?
Kenneth
Well, you know, I would say there are probably been a number of small failures. The biggest one early on was that story I told you about Karen and what she taught me because that deal was going to go south quick, had she not convinced me what to do. Other big failures, probably, and you know, we’ve never really lost a lot of money on a deal. But what I have done, though, is not done as well as I could early on in my career. I didn’t understand that for every asset, every deal you do, you have to have a business plan for that particular asset. It’s got to make sense. And you’ve got to know how you’re going to make money. Now, I know that sounds like really, Ken, you couldn’t figure that out? Somebody had to tell you that? But it’s really important. How many times do you hear people say, oh, I bought this one because I had another one in the neighborhood. That’s their business plan. I get worried about that because I’ve done that. I’ve done that. And that’s not a good reason to buy a property, right?
Rod
It can be as long as you’ve done the homework. It can be. I’m sorry to interrupt, but you know, every property is a business. And if you’re in your head you’re dead number one. So you’ve got to write down that business plan. It’s got to be written. No, I completely agree. But that’s great advice. And multifamily assets just like any other business. And you know, you’ve got to look at every aspect, like a business plan you’d get online would talk about marketing, talk about competition, talk about you know, all these things that you’ve got to think about as it relates to your apartment complex as well. Well, listen, last question. If you were to tell your 18-year-old self something about this multifamily game that we all love, is there anything that you might do differently than you’ve done to this point? What advice might you give your 18-year-old self?
Kenneth
Yeah, well, we’d have to go back to mid-20s.
Rod
Okay.
Kenneth
I get your point. Probably the biggest thing that I would tell myself is to work on your mindset earlier, develop a plan that you know will work. The problem is back then, it wasn’t such a– nothing is a sure thing. But it wasn’t as well developed as it is now. And so there were many times during my lifetime where I got distracted, kind of didn’t stay focused. If I would do now or do then what I do now, we are focused. We know exactly what we’re going to do. We just raised a $13 million fund. Our next fund will be $50 million. I know that. And I know exactly how I’m going to do it. And I know exactly what we’re going to buy and so on and so forth. I didn’t have that structure. I didn’t have that mindset back then. I was still trying to figure it out. When I grew up, I was told to go to college, get a corporate job. You’ll be set for life, right? And that’s not my parent’s fault. That’s just the way it was.
Rod
That’s what they were trained. Yes, that’s what they were taught.
Kenneth
The world doesn’t like that anymore. And so making that jump for me, think about you’re a tax manager at Deloitte. You’re very successful. You’re headed– it’s going well.
Rod
Sure.
Kenneth
And you stop– so get out of that mindset that that’s going to be the rest of your life. And to a mindset where when I wake up every day, there’s only one person that decides what I do, and it’s me. I don’t have to rely on anything else. So I’m going to be a beneficiary of my wins, and I’m going to suffer my losses. And making that switch from being a W-2 employee was really hard at first because think about structure, banker, CPA. Think about the structure that I have built into my life and making that jump. Now that I’ve made that jump, I just wish I would have done it sooner. And I wish I would have restructured my life sooner because you know, I’d have 50,000 units.
Rod
Great advice. Great advice. Great advice. Listen, it’s very much a pleasure to meet you, buddy. Next time you’re in Tampa, please let’s connect and get together.
Kenneth
I will.
Rod
I would really have a breaking bread with you. I appreciate you coming on and sharing your wisdom. And I’m sure we’ll talk soon, my friend.
Kenneth
Yes, sir. Thanks, Rod.
Rod
Thanks. Take care.
Outro
Rod, I know a lot of our listeners are wanting to take their multifamily investing business to the next level. Now, I know you’ve been hard at work helping our warrior students do just that using our “ACT” methodology, which is Awareness, Close, and Transform. Can you explain to the listeners how they can get our help?
Rod
You bet. Guys, we’ve been going non-stop for three years, building an amazing community of like-minded people, and our coaching students, which we call our warriors, have had extraordinary results. They’ve purchased thousands and thousands of units, and last year, we did over 1000 units with our students, and we’re looking to grow this group and take it to the next level. We’re looking for people who want to follow a proven framework that’s really step by step and then leverage our systems and network to raise equity to find and close deals and to build partnerships nationwide. Now, our warrior community is finding success in any market cycle. So if you’re interested in finding out more about how you can become more of our incredible network and take advantage of the incredible opportunities that are coming very soon, apply to work with us at MentorWithRod.com
