449: Knowing Your Market Down to the Floor Boards

SHOW NOTES FOR EPISODE 449: KNOWING YOUR MARKET DOWN TO THE FLOORBOARDS

When a physical therapist decided to flip a few houses to pay off her student loans, she never dreamed this would happen!  In this podcast, you will learn how doctor of physical therapy, model, and real estate investor Kimberly Marie “accidentally” mastered real estate investing by leveraging her natural curiosity, along with her unique in-depth market research methodology, to reduce investment risk and build a foundation for long-term wealth generation.

What You Will Learn

• How to grow a real estate investing business while working full-time
• Identifying hot real estate investment markets
• What “Walking for Dollars” is and how it can help you master your market
• How to quickly educate yourself in real estate investing
• Techniques to dig deep into your neighborhood and local real estate market
• How to effectively screen contractors
• Why multifamily is better to finance, grow and manage
• What are 6 things you need to know to build a rental portfolio in 4 years
• Why in depth market knowledge reduces risk and generates success

About Out Guest

Kimberly Marie

Kimberly Marie is a Doctor of Physical Therapy, published model, and active real estate investor based in Indianapolis, IN.   She started her journey investing as a residential fix ‘n flip and buy ‘n hold investor in her surrounding neighborhood –all while practicing as a full-time physical therapist.  Kimberly has spent the last 5 years of her journey becoming an expert in Indianapolis real estate, the acquisition process, construction, and now buying and operating multifamily apartment buildings, which is her current primary real estate focus.   She leverages her decade of experience in the physical therapy world to foster strong relationships with both  her team and her investors to get deals done.  She is the final decision maker for all business operations including new acquisitions, dispositions, and investor relations.

More About Kimberly

• Kimberly grew up in the Chicago suburbs
• She moved to Indianapolis to go to the University of Indianapolis for a degree in Physical Therapy and to play D2 tennis, all 4 years, on scholarship
• She graduated from graduate school with her PT license
• Then, decided to get her Doctorate of Physical Therapy
• She had paid off her first student debt but was calculating how much she would have to pay off going to school for another 3 years to get her doctorate degree
• She got a job as a Physical Therapist in Indianapolis but knew she needed more funds to pay off her loans fast
• Knowing that she was staying for a while and, because she thought it was “the adult thing to do,” Kimberly decided to invest in the purchase of a home
• In 2015, she bought a home (the cheapest in the neighborhood) in a gentrifying area of Indianapolis called Fountain Square
• The home was “gut to the studs” renovated and she didn’t have to do much.  It was move-in ready to go
• Her realtor talked her into buying in Fountain Square because of all the development in the area and prices were going up
• Kimberly was a bit apprehensive, however, because she had always saw Fountain Square as “The Hood”
• But she did see a lot of development going on around her neighborhood so she thought, “Well, maybe I can flip a house here to help pay off my new student loans.”
• Later she focused more on buy and hold single family rental homes
• And now, her focus is mainly on multifamily commercial apartments, taking on more of passive role as opposed to flipping
• She always thought she would go back to Chicago but 12 years later, she’s still in Indy

Learning Real Estate

• Kimberly knew absolutely nothing about real estate so started reading a lot of books
• She read Rich Dad Poor Dad and many others
• In 2016, she started listening to real estate investing podcasts
• Her first podcast was the Old Dawg’s REI Network
• She would take the facts she learned along the way and apply it to what she was doing in real estate

Surveying the Neighborhood

• Once Kimberly bought her house, she started regularly walking around the neighborhood
• First, because she was curious who her neighbors were and, secondly, because she concerned with how safe the neighborhood was
• She was single, living by herself at the time
• Later, she got a roommate to generate income from her house
• Her roommate was also a small framed person and she was concerned the area might not be safe for two young girls
• Her regular walks around the neighborhood to assess the safety of the area turned into more of an exercise in studying the development and growth of the local real estate market
• Instead of “driving for dollars,” she saw it more as “walking for dollars” as she saw income opportunities in he own backyard
• She’d see a house down the road selling for $50,000, walk through in an Open House it and later find out someone bought it, flip it and, 4 months later, sell it for $250,000.
• Then, she would walk through it when it was now selling for $250,000 to see what the flippers did to the home to get such a great price for it
• She would continue to do this for other flipped houses in the area
• Over time, she understood what was going on:
  • What people are looking for
  • What they are doing to the houses to boost value
  • What the house looked like before and after it was flipped
• Kimberly learned about flipping just by being there, watching, having a relentless curiosity and pursuit to understand the details and dynamics of what was happening in her local real estate market
• She even kept spreadsheets and maps detailing the results of her regular surveys of the neighborhood
• She had no idea where the neighborhood was going but she could see big things happening fast

Her First Flip

• Kimberly’s mother was very supportive of her interest in flipping a house
• Her mother would listen to Kimberly – What her vision and goals were
• She could see that Kimberly clearly knew what she wanted to do and was capable to flip a house
• Her first flip was a complete renovation – burned to the ground, a bunch of cats lived in it, barely a roof on it
• She bought her first flip for $30,000 or $35,000 (it had back taxes, too)
• She had never done anything like this before – a “sink or swim” situation
• On her walks through her neighborhood, she could also see who did the best work
• She’d meet the contractors she thought did the best work and and would ask them if they’d be interested in helping her with first flip
• She fortunately got a great contractor right off the bat – hit his timelines, did great work, he did exactly what she expected of him
• Being a physical therapist, she feels one of her best skills is being able to read people very well
• This skill helped her in finding good contractors.  Also, visiting job sites in the area, she could tell the contractors that were always working, doing quality work and who were the most professional
• She spent about $250,000 on renovations
• To fund the renovations, because her personal home skyrocketed in value, she was able to re-finance it 2-3 times in the first year to take a ton of equity out
• Her mom also became an investor and invested with Kimberly
• They also both liquidated stocks and mutual funds they held to buy real estate.  Her mom also took out a HELOC
• Kimberly ended up selling the house for $318,500
• She used part of her profit to pay off her student loan debt and the rest to buy other flips
• When other relatives saw her and her mom’s success, they wanted to invest as well
• She bought 8-9 houses on her street
• She wanted to flip all the houses but her goals changed to doing more buy ‘n hold rental properties
• She only flipped half of those houses

Knowing Your Market Equals Success

• She attributes 100% of her success to intimately knowing her neighborhood and market
• Kimberly says to:
  • Make sure you totally educate yourself on your market
  • Know your neighborhood and your zip code like the back of your hand
• In her neighborhood, Kimberly is completely confident and her investment decisions because she knew about every house, including:
  • Who bought what for how much
  • How long they’ve been living there
  • What finishes are in the new houses
  • Who’s flipping the old ones
• She said she was a “psycho” in each neighborhood
  • She would walk everywhere
  • She would walk on every job site
• Even now, during the pandemic, when she sees a good deal, because she knows her market so well, she eliminates much of the risk because of her intimate knowledge of the area
• Sometimes people buy, thinking they can make the deal work, losing site of there original vision and goals and that’s when they make mistakes
• Kimberly removes the emotions out of the deal and asks herself:
  • What is your overall strategy?
  • What is this house going to do for you?
  • What are the returns you are looking for?
  • What is exit strategy?

Shifting Strategies

• Sometimes she would find a house at such a good price that she would just resell it and use the profit to by a rental property
• She currently has one flip left to sell and after it’s sold, she will focus more on her rentals
• The flipping is just way too time intensive
• Also, there are still deals out there but they are harder to find
• Her whole real estate journey has been pretty fluid
• She is very goal oriented
• Here first goal was to pay off $100,000 in student debt
• Then her goal was to flip and she flipped many homes
• She later found that she was tired of babysitting contractors
• She also wanted more tax benefits
• This prompted her to buy her first rental property
• The more she acquired, the easier it got
• After you close on a rental and get a tenant, there is not much to do
• Whereas, with flipping, you work really, really hard to get to the closing table and then, start all over again.  It’s a lot of hard work constantly
• She saw the economies of scale as well
• She figured, if she could do this much to close on a duplex, why not do the same amount of work for an apartment building and get 10, 20 or 100 units – all at once!

Moving Into Multifamily

• After Kimberly started researching what was involved in buying an apartment, she saw the advantages.  She realized it’s easier…
  • To go bigger
  • To get financing
  • To make money
  • To manage
• Everything is easier except that you need a bigger down payment
• But if you can get the money, it’s easier
• Her biggest apartment is a C-class 23-unit in the Mapleton Fall Creek area on Indianapolis
  • The management company takes care of all the issues
  • She gets her money at the end of the month
  • She gets monthly reports
  • She never hears about the issues unless she wants to
  • If she has a question, she sets up a meeting with the property manager
  • It’s been the most hands-off easy investment she’s ever had
• With flipping, she was always having meetings, always had to be on sight and it was very labor intensive
• Even her single family rentals, because she self-manages, have her running around, going crazy when the tenants call about issues
• She is in the process of selling off her single family properties to buy more apartments
• She currently has 40 doors
• For her next multifamily purchase:
  • She wants to stay in the Indy metro area because she knows the market best
  • She’d like to get to 100 units
  • 60 to 70-unit would work well but she could go less (recently looked at a 28-unit)
  • She’s still learning so the more apartments she sees the more familiar she becomes with the asset class
    • She’s learning more about what sellers are wanting price wise
      • Price-per-unit
  • • • Cap Rates
      • Expenses
  • She just recently did a re-finance of her 28-unit and is selling off her single family rentals so she will have the cash fairly soon

Market Changes Since Covid-19

• Since the pandemic, Kimberly has realized it’s harder to find deals
• Not a lot of people are selling right now because of market uncertainties
• And those who are selling right now, are selling at a very high price

Plans for the Future

• Kimberly loves physical therapy and wants to continue in the field
• She’s currently seeing clients 3 times a week
• She also has health insurance and benefits from her PT job
• Because of Covid, she was furloughed for 3 months so she used that time to do real estate
• It gave her a chance to see what it would be like to do real estate full time (she had 3 flips going on at the same time)
• She wants to see what real estate is like with 100-units to see if she would like to do it full-time
• There are certain things she likes to do more in her real estate business.  She likes:
  • Operations
  • Finding Deals
• What she doesn’t like is:
  • Cold calling owners
  • Underwriting the deal
  • Working the numbers
• She would rather delegate the things she doesn’t like to do

Biggest Mistake

• Trying to make something fit a mold of what it to be
• She made the same mistake twice
  • She hired contractors that did the exact same thing to her that got her in two different lawsuits
  • She hired a contractor that she thought would give her the world and they would do tons of flips and they bit off more than they could chew
  • Some of the houses she would literally
    • Taking houses “down to the studs”
    • Replacing foundations
    • Moving walls
    • It was a lot of work!
    • Not any contractor could take these things on
  • She wasn’t screening her contractors properly
  • For her current contractor who is doing great work
    • They are just more professional
    • He could see how they organize their work and workloads
    • They are very organized and have solid systems
    • She walked by their projects, spoken to their crews
    • She also asked the contractor company what their goals are
      • She found out that they wanted to eventually build ground-up multifamily
      • 2 years later, after working successfully with them on single family flips, they are now building a 10-unit, which aligns with her goals
      • The two companies are growing together and they mutually benefit each other

Biggest Success

• The purchase of her 23-unit apartment building
• Pretty well-maintained before
• Had to upgrade tenants and rents
• In terms of amount time it requires, returns, etc., it’s the easiest building she has
• Low-maintenance for her to handle

Advice for Old Dawgs Looking at Real Estate Investing to Help Them in Their Retirement Years

• Her dad is 65 years old and her mom is 67 years old – right in the “Old Dawg” demographic
• They are very happy but very different
• Kimberly and her mom both read Robert Kiyosaki’s Rich Dad Poor Dad  and both came to the conclusion that Kimberly’s dad met the “Poor Dad” profile who promotes the idea of go to school, get a degree, get a job and retire from that job.  He doesn’t understand the wealth building aspect of real estate investing
• Kimberly’s advice:
  • Educate yourself – read books, listen to podcasts
  • Determine what strategy appeals to you to accomplish your goals – flipping, buy rentals, buy apartments, syndicate
  • Look at your time frame.  Kimberly grew to 40 units in only 4 years
  • Keep your mind open
  • Get a growth focused mindset
  • Always be ready to learn
  • Always keep your goal in mind

Future of Her Business

• She has always been more focused on the short term goals
• She would like to have 500 units before she moves from Indianapolis (the only reason she wants to move is because she hates the cold winters)
• In 10 years, she would like to educate other people and share what she has learned and how she did it
  • She did not come from money
  • She was not from a privileged family
  • She just had drive and a vision of what she wanted and a supportive network around her
  • Anyone can do it!

Financing

• Kimberly has found that multifamily properties are easier to finance than a single family mortgage
• Banks look at NOI, gross income, cap rate and how the business is performing as a business
• Single family looks at comps that you can’t control
• It helped that her mom would co-sign for her
• She uses local banks (she’s really relationship driven)
• She re-financed her 23-unit at 3.5%

Rap-It-Up

• Favorite real estate book: Skip the Flip by Hayden Crabtree
• Favorite business book: Build an Empire by Elena Cardone
• Most valuable web site for success (other than your own): CoStar
• Favorite app: CoStar
• Favorite quote: “If you do not have a seat at the table, make one.”
• If you lost everything – all your assets – and had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business? Take the $1,000 and attend a multifamily real estate conference and network the whole room and learn how to syndicate.

How to Reach Kimberly

• Email: kim@reddoorrenovation.com
• Instagram: kimberlymarie920

DISCLAIMER:  Many of the above strategies take knowledge and have a higher degree of risk.  You need to do your research and/or work with someone who is experienced to reduce your risk.

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