517: Purchasing an Apartment Building as Your First Real Estate Investment

SHOW NOTES FOR EPISODE 517: PURCHASING AN APARTMENT BUILDING AS YOUR FIRST REAL ESTATE INVESTMENT

Why do people think you have to start small and work your way up to bigger investment properties?  In today’s episode, Mark Kenney shares how first time investors are starting their real estate investment journey with 100-unit plus apartments as their first investment property!

What You Will Learn

• Why you don’t have to start investing with small properties
• How you can build a multi-million dollar real estate portfolio while working a demanding full-time job
• Why working together in a “family culture” can actually speed up your first property acquisition
• How your first property can be a 100-unit apartment building
• How you can syndicate an apartment building even if you have no money of your own
• A due diligence trick that can help you expose hundreds of thousands of dollars of bad debt from a T-12 that looks fine
• Key tips for how investors can prepare for the coming recession

About Our Guest

Mark Kenney

Was on 175: Starting Big With Multifamily  January 29, 2018

Mark is a seasoned real estate investor, coach, two-time best-selling author and founder of Think Multifamily. Mark started his Apartment Investing career over 20 years ago as a side hustle, while working 80+ hour work weeks in the corporate world. He has since purchased over 8,000 units in just the past few years in 9 different states.

Mark has a passion to help others achieve success quickly in multifamily investing. He specializes in educating others how to go BIG, fast through syndication! In his first year of coaching, he helped others acquire 6,000+ apartment units worth over $380M. The smallest deal any of his students purchased is 90 units…so, it is possible to go BIG, fast even if you don’t have any experience! His coaching style is “no fluff” and he is passionate about results and providing unmatched service!

Mark is a graduate at Michigan State University in Accounting and is a CPA. He has also provided IT consulting for 20 years and is leveraging his vast IT experience to bring new creative technologies that will help others in the multifamily space. He has worked for organizations such as KPMG Consulting, EDS, SAP, HP, and founded Simplifying-IT which provides IT services to fortune 500 companies.

More About Mark

• Started buying small multifamily apartments as a senior in college (over 25 years ago)
• Continued to buy other small properties
• He’d save up money for 2-3 years and buy another property
• He felt like it would take a 100 years to get to be financially free
• He was a CPA and an IT consultant
• His IT consulting was doing very well
• However, he was working 90+ hours a week
• It was causing problems with his family because he just wasn’t available
• In 2013, his wife said that it was just not working well because he was never there for his family
• So, he sought to accelerate the acquisition process to larger multifamily properties in the hope of reaching financial independence quicker
• They both loved real estate investing and sought to do this together
• They did their first syndication in 2013
• They began to raise funds from investors to buy large properties
• They started investing in Dallas area
• Then purchased in Atlanta area (Mark has a twin brother there)
• As prices got too high in a market, they would seek other markets
• They would leverage their relationships with brokers to get into other markets
• Today, they have 8,000 units in 9 states

Expanding into Coaching and Education

• If you would have asked Mark 5 or 6 years ago if he would do an education program, he would have said “No”
• He saw, however, that much of the coaching and training programs out there were not providing enough information or one-on-one coaching that is needed
• He saw  a number of things that were lacking in coaching programs he experienced first-hand:
  • The Culture
    • His wife felt that there was a key aspect that needed to be built up for a multifamily education program to be effective
    • His wife saw a program where students and instructors were going on vacations together
      • Mark is a CPA and an IT guy – a “transaction guy” – not a real social animal!
      • He didn’t know if he would be all that comfortable with that kind of comradery
    • But he saw, in other programs, it was more of a competitive culture – where students were not working together but competing
      • They didn’t share information and work cooperatively together
  • Technical Aspects
    • When he was coached, he saw that a lot of key technical things were also not being taught to him that should have been
  • Transparency
    • Other programs also didn’t share the horror stories, the real-life challenges – only the good stuff
  • Responsiveness
    • Other programs did not have access to the founder of the program
    • Mark wanted his program to be one where he personally, would quickly gets back to people who ask him questions or are in need of assistance
    • True One-on-One contact with the key leader
  • Silly Rules
    • Other programs have rules that are just self-serving
    • Rules like:
      • You can’t partner with people outside the group
      • Charging extra fees to close a deal
• Mark and his wife started doing webinars and then bigger scale events
• By then, they had done over 60 actual multifamily transactions
• They shared everything in their training – good and bad
• Mark and his wife fell in love with the educational aspect
• They officially formed a training organization called “Think Multifamily”
• They wanted to help people to attain financial independence
• They also formed a group called “The Family Syndication Group” that is structured around a family culture
  • People helping each other
  • You don’t have to start with small properties
  • You can start with 100 plus units
  • One of his student’s first deal was a $25 million deal
• Their “Family” Approach
  • He saw working together, sharing information and being transparent helped students reach their goals faster
  • You probably have a skill you can develop
  • But the idea is to work together with others like a family
  • Don’t worry if you don’t know every aspect of multifamily and syndication
    • The idea is to join with others who can fill your gaps
    • Just team up with other people who are stronger in the areas where you are not
    • Hopefully, you can work only in those areas that you like to do
  • If you can put deals together as a family, you can put deals together faster, easier, larger deals and a lot less painful
  • It’s critical in multifamily to have strong key relationships
  • People in the group have each other for dinner, even have vacations together
• He has many success stories from regular people
  • Many people start out knowing nothing
  • They put their work in but are also building relationships
  • They look at where they can add value to someone else
  • The idea is that you don’t have to do it all on your own
  • Their team closed 7 deals the first quarter of 2021
  • You need to jump in and start learning with hands-on experience
  • You’ll learn much faster that way
• He tries to make it easier for his students
  • They can find deals from Mark’s brokers and don’t have to establish new relationships
  • You can analyze his or other people’s deals
  • You can learn about due diligence on real deals, eve if it isn’t your own deal
  • There is nothing he won’t share with his students
  • He helps people to put together their teams
    • Broker contacts – most brokers won’t look at you twice if you’ve never closed a large deal before.  That’s not the case with Mark’s brokers
    • Attorneys
    • CPAs
    • Mortgage brokers
    • Insurance brokers
    • This can normally take years to develop

Why Some Students Succeed More Quickly Than Others

• Sometimes it’s just luck – they get in at just the right time
• A person who gets their first deal in the first month is rare but it can happen
• More likely that it could take 6 months to get to a GP (general partner) type role
• His Students
  • Get educated
  • Get involved in a deal that’s active (will help with due diligence or whatever else they need)
  • All have access to Mark, the team and everyone in their group – they have all the phone numbers they need
    • Some people reach out to 20 people in a week (which is alot)
    • Others may rarely reach out to other people
• People who succeed
  • They do just more
  • They are more consistent and persistent and, as a result, get better results
  • They’ll contact and network with more people
  • They make temporary sacrifices in their personal life to get to their goal
  • They connect with other people in the industry
  • They go to events
  • They have an action plan
  • They are willing to explore different markets
  • They know how to “Pivot Grit”
    • You’re going to get knocked down
    • You’re going to get discouraged
    • But being persistent is what will get you to where you want to be
• People who take longer
  • Aren’t realistic with their goals (i.e.  5,000 units their first year)
  • Get discouraged earlier
  • May zero in on only one market where may have limited opportunities

If You Want to Get Started But Don’t Have the Funds

• If you don’t have money, you can still be part of a syndication team buy offering skills that don’t require money
  • Try to find deals
  • Underwrite deals
  • Asset manage
• If you have money, you can
  • Put earnest money down on a deal for someone that doesn’t have the money in exchange for a GP position
• If you don’t have a very good balance sheet or liquidity
  • Someone else in the group can sign for the loan
• If you have money, it is easier to get into a General Partnership but it’s not required
• But, if you don’t have money, half of the GP jobs in a syndication don’t require funds, just talent
• Teaming up those with the talent with the folks who have the net worth is key
• Leveraging the talent and experience of someone else can be very effective
• They have a list of the people in the program with their contact info and what they can bring to the deal (i.e. due diligence, net worth, etc.)
• You can also invest as an LP and at least be able to leverage the fact that you’re a partner on X number of doors
• There are also a lot of opportunities to network with others in the program, as well as Mark and his team
• If you find a good deal, they have never been unable to find funding for those in the program

Covid’s Impact on His Business

• Didn’t affect the educational program that much
• People were a little slowed down finding deals for a short while
• Looking at his entire portfolio, the buildings that had the hardest time (regarding bad debt) were those in maybe higher crime areas
• Some properties he owns that were in “landlord friendly” states weren’t necessarily in in “landlord friendly” county
  • He has a property in Savannah, GA
  • It’s tenant friendly and the tenants knew they were OK not paying
  • He said he’ll never buy in Savannah again
• He has some properties where judges were still evicting people all during Covid
• He pivoted a little bit to adjust
• Despite Covid, he’s still seeing prices going up and CAP rates compressing like he’s never seen it before
• Prices are higher but people are getting better debt, using bridge loans
• There are more debt options than just Fannie and Freddie
• Fannie and Freddie were requiring that they hold 12 months of reserves as part of the loan package

Value-Add Hold

• He currently gets deals with a 5 or 6 year hold
• It could be less or it could be longer depending on what the market it doing
• He thinks he will sell 4 or more deals this year
• If it’s getting to the 5 or 6 year mark,  and you’ve told your investors that would be the hold time, he feels you owe it to your investors to re-finance or sell
• He has some properties he will hold onto for quite a while
  • He was one property he bought at a low occupancy, 568 doors and they have $21K per door rehab budget
  • He has another at $14K per door
  • All new stuff
  • You can do refinancing and get all of your investor money back to them, that’s pretty good

A Coming Recession

• No one really knows what is going to happen
• No one could have known that Covid was coming
• You need to have cash set aside for your properties
• When he first started, they didn’t set enough cash aside – they ever missed a bill but they know know they need more
• They didn’t do forbearance during Covid
• Having cash set aside in a operational account or to (replacement reserves, capital reserves, working capital reserves) is a good thing
• Having reserves held by the lender is also a good thing
• Having all these reserves can provide a couple of years of payments if a economic crisis hits
• When he raises funds for a new deal, he is also raising reserve funds, should it be necessary

Hot Markets

• Early on, he bought a lot in Georgia/Atlanta area
• It’s had to buy there now – they are selling
• The Southeast as a whole is a good market
  • He likes Florida a lot
  • He did 3 deals in Northwest Arkansas last year – he really likes that market
  • He also owns properties in Kansas and is looking for more there
• You need to know the difference between Cash Accounting and Accrual Accounting in markets
  • Some of the markets he is in now are pretty hot right now and properties are selling for a lot of money but the bad debt is pretty high
  • If you’re going to be buying in some of these markets, you need to know what those apartments are taking in on a CASH BASIS, not accrual, because there are just too many unemployed, in eviction moratoriums, etc. still
  • A lot of that bad debt will not be written off until they evict the tenants
  • Some properties may have several hundreds of thousands of dollars of bad debt but, when you look at their Trailing 12 profit & loss financials and you wouldn’t catch it
    • When shopping properties, you should ask for TWO T-12s, one on a cash basis and one on an accrual basis
    • You’ll also want to track in, from the rent roll, to the general ledger, to the bank statements
      • Some sellers don’t want to share bank statements, but there are definitely ways around that to prove out what you need to
• You’re buying a business so you need to be able to verify the numbers and that deposits are making it into the bank account

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

• Get educated, whether passive or active investors
• Anything deal can look good on paper
• Don’t just go with a deal that has a higher return
• Understand what you’re looking for
  • Cash flow?
  • Preservation?
• Don’t do just one type of deal (value-add, cash preservation).  Mix it up based on what your goals are financially
  • Try to split it up between different types of deals
  • If you only have $500,000, don’t put it in just one type of deal – spread it out of different types of deals, syndicators, asset types
• Mark invests in other asset classes passively
  • Mobile home parks
  • Self-storage
• But Actively, Mark only invests in multifamily

How to Reach Mark

• Website: ThinkMultifamily.com
• Email: Mark@ThinkMultifamily.com

IF YOU LIKED THIS PODCAST, we would love if you would go to iTunes, Stitcher, GooglePlay, iHeartRADIO and Spotify and Subscribe, Rate & Review our podcast.  This will greatly help in sharing this podcast with others seeking to learn real estate investing as a means to achieve a successful retirement.

Check out our other podcasts at olddawgsreinetwork.com.

Get a FREE copy of our 3-Minute Rental Property Analyzer at olddawgsreinetwork.com.

Additional Episode Sponsor: Meno Studio – menostudio777@gmail.com