Dec 17, 2019
James:
Hi, audience and listeners, this is James Kandasamy from Achieve
Wealth, True Value at Real Estate Investing podcast. Today I have
KK Singh, KK Singh is a big figure in our social media circles,
especially in the multifamily and multi-families syndication. KK
used to be a Microsoft Certified System Engineer. I like to call it
MCSE because it's a pretty well known designation for system
engineers and the Microsoft world; and KK also owns multiple
businesses including gas station convenience stores, a Laundromat,
and also he started a real estate with a 40 single family
residential in Indiana. And currently he's an investor in almost
3000 units as a LP, and in some of it is a GP across all States in
the US. And he also has done agriculture, commercial and
residential property in India. And also, business experience,
almost 10 to 19 years in the US, and is also looking for expansion
opportunity. Hey KK, welcome to the show.
KK:
Hello. Thank you very much James for having me on your show.
James:
Sure, absolutely. Absolutely. So, KK let's get started with our
show. I mean I got to know you like almost two years now. So you
have been doing very well in terms of multifamily investing and
especially you started as a passive and now you're going more into
the GPU, but I want to go before that. So you are on a later part
of your cycle and you did a lot of different businesses, Laundromat
and gas station convenience stores. And so I want to go into that
business before we go into multifamily. And then after that I want
to compare that business to multifamily. And why did you, at this
stage of your life, why did you want to do multifamily? Because
there's a lot of people who want to really learn these different
businesses.
Like I always wonder how gas stations work. I always wonder how convenience stores work. How does a Laundromat work? And do they really make more money than what I'm doing right now in multifamily? So you are the best person to really tell us and our audience what are the different aspects of this business. So let's start with, I mean, you own gas station convenience store and Laundromat. So tell us about these three businesses. I mean, how does the business work? How much do people make? Even in that business, what are the values that you always see that it's very awful?
KK:
Well, I came to United States, as you said, Microsoft Certified System Engineer and I lost my job after 9/11. And it was just about six months before I came. So I had a job for about six months and I lost my job and my friends were in the gas station business in Indianapolis and they offered me a partnership in the business and they asked me to come and join their business. And so I decided, since I had no options, I decided to join their business as a partner. It was a gas station in Indianapolis. So I started managing that, I automated there, put it up because everything they were doing on papers with pen and paper. So I was a computer professional, so I did everything into computers. And soon we lost the lease because the owner did not renew the lease on that property. So I had learned the business because I had it for about a year. So I bought a gas station here in Fort Wayne after about a year and a half since I came to United States.
James:
So, before we go to the other business, how does a gas station make money?
KK:
Well, the gas station owners make money mostly on the inside sales.
They don't make money on the gas.
James:
Oh, you don't make money on the gas?
KK:
But you don't make money on the gas. And most of the money is made
on the convenience store side. So, first I bought one gas station
and soon I had other people join me buying gas stations. Here I
was, the first Punjabi to buy a gas station here in Fort Wayne. And
soon I brought some of my friends, my relatives to buy gas stations
here. So we formed a group and we started buying in bulk. And that
way we made more money, we got more rebates; we got more kickbacks
since we were buying in bulk.
James:
So the rebate and discounts that you get that's on the fuel
price?
KK:
No, on the inside sales, mostly on the...
James:
On the inside sale?
KK:
Yeah.
James:
So, why does every gas station have different pricing in terms of fuel?
KK:
Because you have the right to price your own gas, whatever you want
to. Some people like to make 5 cents; some people like to make 3
cents. Some people like to lose money on gas.
James:
So, I mean we are always wondering, I mean I'm sure I thought every
gas station owner was trying to make some profit because every gas
station has different pricing. So do they try to take it back on
making more money by increasing the gas price slightly? I'm sure
there's elasticity in terms of customer demand versus the gas
price.
KK:
Well the street price is who rules the gas prices, the street
pricing. So some people like to bring the customers in by losing
money on the gas.
James:
Oh.
KK:
Or making less profit on the gas and they want to bring the customers to their lot and then bring them inside to the convenience store where they can make 35% instead of pennies.
James:
Interesting. I thought there will be some money being made on the
gas, but looks like what you're saying is it was so little money,
you may not make money or you lose money...
KK:
I've lost more money because 90% people these days use credit
cards. And then on top of that, you end up paying credit card fee
as well.
James:
Oh, so you have to pay, but is the price inside of convenience
store slightly higher than what you get from Walmart or Walgreens
or CVS?
KK:
Yes. Yes. That's why they're called convenience stores because they
are for convenience. But, yeah. So it's like they have to pay for
the convenience.
James:
Yeah. Which makes sense, I mean, I'm giving you space and the gas
for almost all on my costs. Right. And now you come and pay a bit
more on the convenience of, probably people don't care because it's
convenient for them. That's absolutely right. That makes a lot of
sense now because I always wondered this. So, is the gas station
business being impacted with some of the electric costs that's
being popular nowadays?
KK:
Well, we never made money on the gas anyways, so I don't think it's
going to affect the people still going to buy their food and drinks
and chips and candy and the cigarettes. So they do still come. I
own an electric car myself but still, I stop at gas stations
to...
James:
Buy things
KK:
Buy coffee, buy candy, and buy something.
James:
I think the location of it is much more convenient. I think that's
how like even Buc-ee's, I'm not sure whether you know Buc-ee's in
Texas they're very big. They have a lot of gas stations, like
hundred gas stations outside and it's a big convenience store.
KK:
Yup. Yup.
James:
Okay. Okay. That makes sense. Yeah. So it's like a big, slightly
more expensive because it's very convenient.
KK:
Correct.
James:
Okay. So what about a Laundromat, how does that work?
KK:
Well, I had this lot sitting by my gas station for a long time. It
was a vacant lot and I thought of buying it and utilizing it and
this neighbourhood needed a Laundromat. There was a little lot like
a block away from my gas station. There was a Laundromat, which
were the old beaten up Laundromat, it had like 20 years old
machines. So I thought that I can utilize this property and I did
some creativity and bank that lot at a very low price. And I built
a Laundromat from ground up with the best machines that they come,
bigger machines. So immediately after I opened that Laundromat, the
other one closed because it was all, nobody wanted to go there. So,
and Laundromat is a good business too because you don't need the
employees, so it's unattended. So I have a girl that comes in the
evening and cleans up and somebody will go from the gas station and
clean up or if there's any problems. So this is kind of a passive
income.
James:
So you still have the Laundromat until now?
KK:
Yes, I do. And we are building another one.
James:
Oh, that's awesome. That's awesome. So is this the machine with a
speed queen?
KK:
No, [10:00 unclear] machines.
James:
[10:02 unclear], okay. Okay.
KK:
We have bigger machines, like 90 pounders, 60 pounders, 50
pounders. Yeah.
James:
I mean, the reason I ask about speed queen, because in my
properties, I'd probably own a Laundromat as well, but indirectly,
right, in all our apartments, I think 90% of our apartments, we own
our own machines. So, we like to buy new machines, but this is for
residential. So it may not be...
KK:
[10:28 Inaudible] is good too.
James:
Okay. Okay.
KK:
But that store is good for Laundromat, commercial and it's very simple to operate, and it's a sturdy machine as well.
James:
Got it. And have you ever tried to sell these gas stations and the
Laundromat?
KK:
No.
James:
Okay. So you're keeping it for passive income?
KK:
I have a system in place and they are an automatic, autopilot, I
mean. So, because I have partners in all my gas stations, they run
the gas stations and I stay home.
James:
Okay, good. That's true passive income right.
KK:
Yeah.
James:
Now, the reason I asked you whether you sold is because I want to know how this business is being valued.
KK:
No, I haven't never sold any gas station. I have always bought gas
station, and I would still buy a gas station if I get a good
deal.
James:
So if it's passive income, why not you buy nationwide?
KK:
No, it's not passive income, it's not. It's passive income for me
because I have my friends and family as partners who run the
businesses for me. It's not passive income and I don't, people call
me all the time and ask me if they can buy a gas station and rent
it out and make more money than single family or real estate, no,
it's not like that.
James:
So it's not as a, what I'm trying to say I guess is...
KK:
It's not at all passive. It's just autopilot for me because I've done this for so many years and I have brought in partners and some of them are even my employees that I have partnered with.
James:
So they are the one who is active and you are investing money and
for you it's passive. So it's not really passive income, but
because you are a silent partner, you get passive income, I
guess.
KK:
Right. Correct.
James:
So after that, how did you buy 40 single family residential?
KK:
Well. the seller was from our community, he met me at the church
and he said, I want to sell my property that he had for several
years. And I told him that I know somebody in Indianapolis that I
can refer to. And he said, no, I want to sell them to you. And I
said, no, I have never done this and I'm not going to get into the
rental business, toilet and all that kind of stuff. He said, I will
give you a good deal and I will teach you for a year how to do it.
So that attracted me and I came home and talked to my nephew and at
that time I didn't even know about [13:10inaudible] it is.
So, I talked to my nephew, we calculated, we didn't get any financials or anything from him and we were comparing, I went online to the city website and check the prices compared to what he was offering us. So I liked the pricing of everything. I said, yes, the very next day I said, yes, we will buy your houses. And we went ahead and bought, we never hired an attorney. We just wrote up purchase agreement on my computer and we bought those 40 single family houses and then he started helping me. But he had done this for about 40 years now. So, but he was all old school, everything was on pen and paper. I didn't like that idea. So I had a lot of other stuff going on. I said, no, I would do it myself. So I bought some books, I went online, did some research and started managing myself and I still manage those 40 single families myself.
James:
That's a very inspiring story, right? Because where you going from
zero to nothing, I mean to learning about how to operate 40 single
family residential. So how did you learn to make that business in
single family residential from the guy who's selling you, he's old
school? So now you are a Microsoft certified system engineer. You
are going to think on how to put everything into computer. What was
the first website or resource that you used to start managing this
40 single family residential?
KK:
Well, first of all, I started researching about the property
management software and I did some research on the property
management softwares and I found [15:06unclear].com the best
software for my purpose. And the pricing was good, the features
were good. And I signed up for a demo, I took a demo and liked it
and I moved all my properties to [15:21unclear]
James:
I used [15:23unclear] as well for my single family residential,
even though I only own like two right now, but we went through a
few iteration of property management software for single family and
then settled on [15:33unclear], which is pretty good for the single
family and [15:38inaudible] management.
KK:
Correct. Correct.
James:
So you are in Indiana? So have you ever thought about looking other
places for real estate or you wanted to do that?
KK:
No, I do my multifamily almost, I have one in Indianapolis and all
others are out of Indiana.
James:
Got it. Got it.
KK:
So, right now I'm doing the 10th view as a general partner and I
did seven deals as a passive investor. So all of them but one is in
Indiana and all of them are out of Indiana.
James:
Okay. So I want to go to that transition where you were doing
Laundromat, gas station and 40 single family residential, so, how
did you get introduced to multifamily apartments?
KK:
Well, when I bought these single family houses and I went online
to, I started researching on bigger pockets and read some books and
I realized that it's not scalable and especially there's no tax
advantage. That's why we bought these properties. We thought, oh,
we can save money on tax. Because we were paying a lot of tax, we
had a lot of cash-flow from the gas stations, so we were paying a
lot of tax. But with buying single family, we ended up paying more
tax because we made more money. So, I thought, no, we were here to
save on taxes, so this is not the way to do it. So I started
researching and finally as I learned about the syndication process
and cost segregation, how people save money on the tax. So we
started and I actually started investing passively and never
thought I'm going to be active investor at that time because I had
so much going on and I have like 15 companies. So, I thought, okay,
I will keep doing it. But I'll keep investing my passively and get
K-one losses and wash off other passive incomes. That's was my
original plan, but when I started learning about multifamily and I
learned that I have so much passion about multi-families, so why
not do it actively?
James:
Yeah, no. So I want to go through the thought process here. So,
what year was it that you discovered multifamily?
KK:
2015.
James:
2015, which is like what? Four years ago.
KK:
Yeah. Four years ago.
James:
And you say syndication, right? So even when you introduced to multifamily, did you look at buying a multifamily without syndication?
KK:
Yes, we did. We did four times.
James:
So you did buy some multifamily without syndication?
KK:
No, we didn't buy any.
James:
Oh you didn’t...
KK:
Because we were thinking of buying the same way we bought these houses.
James:
Got it.
KK:
So we didn't even know how to do underwriting, how to calculate the profit and loss. So we thought, okay, we bought these houses for so much and these are like just two room, one bedroom apartments so this should be half the price of the houses. That's how we started and we offered four alloys. First we started with the 32 unit and we went all the way to 96 units to buy, but every time we were overbid by others and we didn't know that we have to do underwriting and all that stuff that I realized after giving four alloys that we, no, this is not the way to do it. We need to start underwriting and they are not priced as the houses are, they are priced based on the net operating income. Then I started learning all that in 2015, and as I was learning, I was investing passively as well.
James:
Got it, got it.
KK:
I still kept investing and a couple of my partners started investing along with me too. So, we invested all over the nation in first three years, 15, 16, 17, and in 18 I decided to go at it.
James:
Why you didn't from single family, you were thinking of buying the
large multifamily, which is like 40, 50, no, 90 units, right? Why
you didn't look at duplexes, triplexes and fourplexes.
KK:
Oh, I taught duplex, triplex is the same thing as single family
because we had the money, we had the resources, we could get the
loan, we had the network, so we thought we can buy 30, 40 units. We
never thought of buying smaller properties.
James:
Okay, so you wanted to go big because you think you can do it. It's
just that you didn't have the knowledge on how do people underwrite
this commercial properties?
KK:
And that I learned, that I learned soon after being overburdened,
four of those alloy's that we did present. So I decided to learn
and then I learned a lot and I attended several boot camps and took
some courses, read a lot of books, listened to a lot of podcasts.
So actually I had a passion for it. So I was spending like five,
six hours a day, maybe even more, maybe eight hours a day. Just
learning about multifamily. For six months, I never slept before
midnight for six months.
James:
For six months you didn't sleep before midnight because you were so
wowed with this multifamily.
KK:
Yes. That's when I was learning about it, listening to podcast,
every night I would listen to podcasts, read something about it, so
I spent a lot of time learning this process
James:
And you said multifamily was more interesting compared to buying
more gas station, Laundromat and the single family because of the
tax advantage. That's what you're saying. So you need something to
offset your passive business, I mean, active business income, I
guess.
KK:
Well, I had a lot of passive income as well. Because I was not
active in all the gas stations. I was passive in some gas stations
and we own real states of several gas stations, and those LLC owned
properties. And so our operating companies were paying rent to the
real estate company. So that was my passive income as well.
James:
Oh. That's an interesting strategy there. So why not buy like a
strip mall or warehouse or industrial warehouse or South
storage?
KK:
I don't like anything else but multifamily.
James:
Why? Did you look at that [22:30inaudible]?
KK:
Yes, I did look at it; it's on my criteria as well. The second
think I would ever buy would be storing units or the mobile park,
but I would never go to commercial or anything because I know
people need at least a roof to live somewhere.
James:
Okay, got it. So you think there's a definite need for a
residential?
KK:
Yeah, because of the technology, you never know. Did you see the
strip malls, commercial buildings closing industries, moving to
Mexico, China, India and all those countries? But they can't move
apartments to China.
James:
That's right. That's right.
KK:
But they have to live here. So, that's the only, I get a lot of
other offers, but I am very, very strictly multifamily person.
James:
Yeah. Yeah. So let me give you some education to the listeners. So,
what KK was talking about is the tax advantage that you get in
multifamily, especially with something called depreciation, which
is a paper loss which offset, which shows your income. Even though
you're making cash-flow from a positive cash-flow from your
operation in apartments depreciation is going to be more, most of
the time it's going to be more than your cash-flow, which means you
are, it shows as you're losing money, which means you probably
don't pay any tax on your cash-flow; and sometimes net cash flow
minus depreciation do come out positive, but the amount will be low
because now you have depreciation. And in single family residential
houses, you still do have depreciation, but it's divided by 27.5.
But in commercial, which is apartment, you've either been doing
divide by 27.5, you can still do 27.5 but you can also do something
called cost segregation, which means they segregate each part of
the building and commercial into five years, seven years, 15 years
and 27.5 years?
They separate the windows to seven years. I don't know what exactly the schedule is, but example windows took seven years, the driveway took 15 years. Frauding took five years. And what they do is they save all this 15 years for all five years, everything is segregated. And all this depreciation is accelerated in the first five to seven years and 15 years. And even the first five years it's like 30% of total depreciation. So, the number of, the amount of depreciation you get in apartments is like, it can be huge because of this cost segregation. And now with the tax law that we have in 2017 from 2017-2023 you have something called bonus depreciation, which means you are going to take all the 15 years schedule of depreciation, you're going to depreciate it in the first year, which used to be only available for new development. Which makes sense, new developments; everything done you'd appreciate 15 years into it. But now the new tax law have given leverage for the properties that has already been built. But this advantage only available until 2023 and after that it starts reducing to 50% instead of a hundred percent depreciation become 50% and depreciates less, and in other commercial real estate, like strip centre and warehouses and all that, is not depreciated by 27.5, it's depreciated by 39 years. So you can...
James:
39 and a half?
KK:
Come again.
James:
39 and a half.
KK:
39 and a half. Okay. Thanks for clarifying, I thought it's 39. So 39 and a half, and what happened is you get much lower depreciation, they can do also cost segregation, but you know, you're going to get less number. And it makes perfect sense for farmers because of the Maslow hierarchy of needs as well. Everybody needs a shelter to stay. And especially because of those appliances they have, the kitchens, the counters, kitchens, fridge, the microwave and the stove, those things get depreciated in the very first five years. And you can get all that in the very first year.
James:
Yes, yes, correct. Correct. So that's an awesome tax strategy in
apartment and that's what we call this multifamily apartment. So
let's go ahead. So, you said you started learning how to value the
apartment and at 2015 you learned the trick about how to trade. So,
why not at that time you go and buy apartments, why did you go
passive?
KK:
Well, at that time I was still managing the Laundromat and one gas
station myself. And after about two years in 2017, my son-in-law,
my daughter got married in 2015 and her husband came to United
States in 2017. I asked him, he was a competitive engineer too, I
asked him what he wants to do and he said I want to be in the
business. He owned a gas station in Canada as well. So he migrated
from Canada. So he started doing what I was doing. So, I was only
managing these 40 single family houses and most of my stuff was on
autopilot, so I had nothing else to do. I decided to go active. So
that's when I started looking to do syndication myself.
James:
Okay. No, but my question was, like I mean after you learn all the
tricks on how to underwrite multifamily, right, why did you still
go with a passive investment
KK:
That's why, because I was busy managing my gas station, single
family houses and Laundromat myself.
James:
Oh. So, now your son-in-law is taking care of that, now you, okay. Got it. Got it. Got it. Now you have all the time to really be an active sponsor, I guess.
KK:
Correct.
James:
So, okay. Okay. How did you make that transition from being a passive to active? Because that's a day and night skills.
KK:
And you should know that too because you are sitting on this side
right hand side and Jeff Green well he was sitting on my left hand
side and San Diego mastermind.
James:
Oh, I must have influenced you.
KK:
Yeah. Something came, I pulled some of your power and Jeff offered me to be a general partner on his deal.
James:
That must be my [29:08inaudible]
KK:
Yeah. So I said, okay, I will be your general partner. I raised money for his deal to close. So that was my first transition and I was so much motivated by meeting all those people that like the mastermind in San Diego last March when I did the deal.
James:
Yeah. That's very interesting. Sometimes this mastermind brings,
the proximity is power. You have people who are doing it and you
know that you can do it if you have the right support. And
sometimes, certain words and certain discussions can motivate you
to progress. So it's very, very powerful concept of mastermind.
Sometimes people thinks that you go from mastermind, you are
wasting time. You're talking but there are always influencers,
especially in a small setting compared to going into like this
large conferences where you go and just network, right. This is not
so contagious, but in a small group setting, it can be contagious
and that's good, so you are able to, yeah, I know when we were in
the mastermind we were talking about, you are passive and I didn't
know that was the time that you were transitioning. You decided to
transition from GP.
KK:
That same day I did it and he emailed me all the information and
when I was coming from San Diego, I was looking at the costar
report, underwriting and everything on the plane from San Diego to
Chicago all night.
James:
I have to give credit to myself too.
KK:
Yeah. The credit goes to you too.
James:
That's good. That's good. I hope so. I mean, I'm sure you would
have some calling to or for you as well. But I've been, I'm happy
to help out as well. So, KK, what was your discovery when you, from
a passive investor, I mean, you were of before, let's assume that
mastermind was a transition period. At that point before that you
were a passive investor, your mindset is completely different. You
just want to invest passively. You didn't want to do any active
role, maybe its fun, it's interesting, but you just didn't want to
do it. But once you step over into the GP side where you partner
with another sponsor. So how do you think your mindset has changed
from passive to become an active?
KK:
Well, my mindset changed back in 2017 because I had learned so
much. I was thinking, why don't I put all this knowledge to work?
Why I am just investing passively. But as I told you that when he
took over, so I was completely free. And I stayed home and there
was not much, and I have so much of my single family management on
autopilot that I spend about nine hours a week. So I had nothing
else to do, and I decided to move on to, and I started looking on
deals before my mastermind, I did start looking deals and I did
some [32:19inaudible] the properties and I did give some alloys as
well, and I learned the business practically by doing it. And then
it was, I think a miracle happened when you did something at the
mastermind that I got a deal.
And I also learned that it is teamwork. It's not something that I can do myself. It is teamwork. So I think that was a great opportunity for me when Jeff offered me that deal and they were in, they were very close to the closing. So, I raised the money in about three days and became a member of his asset management team where I learned a lot as well. And after that I did a one deal with Radcliff and Robert in Lexington, Kentucky in May, we closed that in May and now I'm a general partner on a deal with Viking Capital on a 92 unit, a B class asset in Marietta, Georgia, North of Atlanta.
James:
Got it. So let's assume KK, so now you have moved to become more on
the active side, right? Part of the asset management team. So if I
split you into two, your best friend is your older, KK Singh as the
passive investor and now is the right one. The right side, KK is
the active investor, what would you turn to your passive investor,
best friend and say what are the advice that you want to give to
your KK Singh a passive investor on how to invest smartly as a
passive investor? Since now you know both sides.
KK:
Well, even when I was a passively investing, I was learning
continuously because the very first deal I didn't know much about
multifamily. So I just invested to see how it works. So I just
wrote a check to Ivan Barrett for 50,000 and I invested in his deal
in Dayton, Ohio, but after that I realized that I need to learn
about the passive as well. And I like reading a lot, listening, and
reading and so I started learning how to invest passively and I
prepared a list of like 42 questions, which I was asking. And then
I started investing with Joe [34:53inaudible] in his deals in
Dallas and I didn't want to put all eggs in the same basket. So I
tried some other syndicators other markets as well before I finally
decided to go active.
James:
Got it. So, out of that 40 questions that you have in your passive
investor checklist, and don't worry, I'm not going to ask you to do
all the 40 questions, but is there any like five to 10 questions
you think all passive investors should ask before investing in any
deals?
James:
I think the most important thing is in this all the syndication
process is the operator. So I always even tell my investors the
same thing that I did myself. I always looked at the operator. Who
is the operator? Who is their team? Do they have an office? Do they
have a complete set up? And then do they have a track record? Have
they gone through a full cycle? So I always look at that first,
even as a passive investor, even as a general partner, I do the
same thing; and the second thing is the market. What market is the
property in? So does that property market have a rent growth,
continuous rent growth? Does that market have a continuous
population growth? Are the companies moving to that area? Is it a
bigger like population over 200,000?
I don't invest in smaller cities. So those are the second things, and then I move onto the property. Is it really a value added property? Every property sale, value add property, sometimes there's no value at all or there is no rent growth. I have seen like people wrote, right, 300 rent bump. Do you think the previous owner was dumb? So he was $300 below market. It doesn't happen all the time. So I prepared a list of questions. I learned how to do all the comps, sales comps, rent comps, and I do get my investor do the same thing as well.
James:
Got it. So what you're talking about is operators, the second is
the market, third is the deal, which is absolutely the right
priority. So let's say for a new passive investor, how do they find
about, before we go there, can you define what's an operator
is?
KK:
Well operator is the guy who finds a deal, brings it under
contract, signs the loan or brings the team together, or if they
already have the team, and then after the closing they operate,
they make sure they are performing as for performer, the property
management in place is working, doing a good job. And they are
giving the reports quarterly or monthly, whatever information to
the investors and also paying the investors as promised.
James:
So how can a passive investor know about the operator? I mean,
without asking the operator directly because sometimes it's hard to
know. I mean, as I say, a new passive investor comes, sometimes
they are very shy to ask a lot of questions because they are
worried that they will not get into the deal. But is there any
other way that a new passive investor can find out about the
operator without asking the operator directly?
KK:
Well, they shouldn't be shy. I even asked the operator if you die,
I go that far, if you die.
James:
Absolutely.
KK:
Yeah. I mean, I don't mind if somebody asks me if you die, where are we going to ask for our [38:57inaudible] or money? I mean, it's obvious if somebody could die in a second. Yeah. So there has to be some things in place that if somebody dies who's going to take care of. So I think that should be and I have uploaded those 42 questions on my Tenex Facebook group several times and Radcliff has those 42 questions on his website. I think passive investors should download there as well. But I can tell you how people find me. They follow me everywhere on social media. They check my profiles and they listen to my podcast and then they approach me, oh we know you for a year or two; I saw your video live or podcast. So they probably know everything before they come and contact me unless they are referred to me by someone who is already in my investor or my friend. So they trust me too.
James:
Yeah, I mean that's true. I mean once you are...
KK:
I'm very active on social media so people know what I do.
James:
Yes, yes, yes. Correct. Correct. Correct. So what about market? Can
you tell the audience, especially passive investor, any specific
resources they can go and see before investing in the market? I
mean, I know you said you do not want smaller cities, you want big
cities, but what else they should look for in a market before they
even invest even passively?
James:
Well they should, first of all, we talked about the operator and
then the market research is very important. They should look at
there are so much free services available, ctdata is one of
them.
James:
ctdata.net?
KK:
ctdata.com
James:
dot com, okay.
KK:
Dot com and they can go there at least or just write down population and there will be a population of so and so city. They'll get so much information and there's another world review website that it will automatically pop up under the CTdata and you can go there, research the market, sub-market and even the neighborhood.
James:
So have you seen any deals that was presented to you as a, I mean
when you are a passive investor, when you presented to you that you
think are this guy, he didn't underwrite the deal as conservatively
as he is claiming. I mean, everybody claims their underwriting
yes.
KK:
All the time. Right. All the time.
James:
It's like a value add. Right. All deals are value add. Same thing,
all lead sponsors, all our sponsors are saying all their deals are
written conservatively, they fill up quickly.
KK:
Some people are very smart to write their OMs and they'll write it in such a way that a passive investor who's not very literate about the multifamily. And if they don't have time to do their own research, they can fall in that net very easily because they are written so smartly. So they don't understand. And they don't spend much time either.
James:
Yeah. But how do you, can you give us a few example where you were
able to cut some, I would say...
KK:
The biggest one is the comps.
James:
It's the comps. Okay.
KK:
And the second thing is the rent growth. Sometimes they'll write 3%
rent growth and they will say, oh, it's very conservatively
written. And I have been managing these houses since 2014 I have
never seen 3% going up every year. I mean there has to be some year
when it's going to be down, it might go up to 3% again, but all
five or seven years or 10 years, whatever the whole time is. They
don't go up all the time. And another thing is the vacancy. A lot
of times they will write the vacancy or we can, we're going to have
it 95% occupied, but when you look at the four star report or
others resources, the market occupancy is at 90%. So how can you do
it 95% if the market is at 90%? So some of those assumptions they
make are sometimes very aggressive.
James:
So you say rent comp, and use also talked about the comps? So
you're talking about the rent comp that they are projecting?
KK:
Rent comps, rent comps, they are projecting this and sometimes I've
seen on the OMs, they are not comparing apples to apples. They're
comparing one bedroom to three bedrooms and then they'll say, oh,
there is a threat, $315 rent bump. You're not comparing apples to
apples.
James:
Do you think they make a mistake or they just...?
KK:
They intentionally do it and nobody can challenge that either
because they don't, they say nothing there that it is three bedroom
compared to one bedroom. So that OM doesn't say that we are
comparing one bedroom. It's just going to say that apartment has
this rent and this apartment has this rent. And they'll show you
that there is a $300 bump which is not true. So far, I never seen a
bump more than $150.
James:
And even 150 is difficult to get, so yeah
KK:
No more than $150. I have seen up to $150 which is also, as you
said, by renovating, adding like $500, $600 to the unit, you might
be able to raise the rent by a hundred or $150 maximum.
James:
Very interesting. So was there any aha moment as a active sponsor,
as active person, more on the GP side now that you think like in
the past six to eight months that you think, oh, I've learned
something new about multifamily. Can you share it with the
audience?
KK:
I always learn every day, every day I get some new experiences. I
learned new things from sometimes even from people who know nothing
about multifamily, but sometimes they teach you with, and I am very
motivational and I'm motivated myself. I try to motivate my members
in my Tenex group as well. Like every day you learn, in this
business, every day you learn some thing new.
James:
So, I mean, so you had been pretty successful in investing into
multifamily and now you're going more into the GP, so what do you
think is the most I would say secret sauce to your success?
KK:
First of all, and I would also suggest to your audience, which I
didn't do, but I didn't have to pay the price, but somebody might
end up paying the price. I would say invest in yourself, that means
learn the process yourself before you invest in any real estate, it
could be single family, multifamily, any kind of real estate, do
your homework first and don't be scared to spend some money on
yourself, your personal development and learning and boot camps.
Those are really helpful and I will, when I started learning at
bigger progress, bigger progress always said that you don't have to
have a coach, you don't have to attend any boot camps and
everything. But when I got out of that mindset, I said, no, I got
to go checkout some boot camps. It doesn't matter if I have to
spend some money. And I realized that I learned a lot, I got
motivated a lot. And also when I was holding myself accountable to
do something. So, it's before that it was flow free flow. So,
whatever I could do, if I got a deal, I would go ahead and make an
appointment. Go look at that deal and end up there. But I think
these things help, these Facebook groups, these masterminds, these
boot camps, there are all these real estate, multifamily events,
all of them help.
James:
Got it. So it helps in terms of giving you some guidance to move
ahead or give you some motivation or how does, or give you some
knowledge?
KK:
So, as long as you have knowledge, you feel very comfortable doing
something.
James:
Got it.
KK:
If you get out of your comfort zone and have knowledge and once you have the knowledge, you feel very comfortable doing anything. If you don't have knowledge, you always in fear, you get scared, or what if I do this? What if I can't raise the money? What if I, so there's lot of questions. Once you have the knowledge, you know that you will be able to do this. If you have a good deal, the money will come. And I hear a lot of people saying they're on Facebook as well, that a lot of people say that if you have a deal, money will come. We have a deal, but we can't raise the money. So that means something is wrong with your deal.
James:
Especially on this market cycle, where there's a lot of capital chasing the small number of deals, the true deals, I mean there are a lot of deals, but most deals are 98% of the deals doesn't really underwrite well as what it used to be.
KK:
I was looking at underwriting yesterday, this property had since
2015, the occupancy is 60,000 and all of a sudden now it's on sale
it's at 90%. I looked at the costar report. I said what? Within the
last three months, it went up to from 60% to 90%.
James:
Hey, hold on, hold on, hold on.
KK:
Okay. I looked at this deal yesterday and since 2015 I looked at
the CoStar report and since 2015 the occupancy was at 60% and then
the last four months it went from 60% to 90% because now it's on
sale.
James:
On sale. Yeah, correct. Correct. You have to be very, very careful
about these kinds of deals. I mean, unless it's an experienced
operator, you are ready to go and turn it around; otherwise it's
just going to be difficult to once you take over.
KK:
And I think they already offered a little bit more money, but now the broker wants them to raise their price. I said, don't even raise a penny. Whatever you have offered is already on the higher side, but a lot of times they want that kind of money and they can get, because somebody else will pay. And I told this guy that somebody else will pay more, but they're going to be in trouble.
James:
Correct. Correct. Right. I mean, market is saving a lot of people
out there right now. Right. People have all paid in bills and made
a lot of mistakes in the underwriting. But market has been saving a
lot of them for the past nine years. I mean, a rising tide raises
all ships, so it's okay to make mistakes now, but it may not be
okay when the market turns. Because now you'll see who is in
trouble once the tide comes down. So, you have to be very, very
careful right now
KK:
The market is at such speed now, tending to slow down. So it,
people should be very careful and they should do their sensitivity
analysis as well. Do the stress testing on their deals to make sure
that they will survive if the market sort turns a little bit.
James:
So KK, can you, is there any proud moment in your life, in your
business life that you think you cannot forget? That's going to be
that if you really think you know, the next 10 years, one proud
moment that you think that you always really proud that you did
something.
KK:
I think I have been always proud of what I did because I do my
homework before I do anything. I've spent a lot of time researching
when I built a Laundromat. I had spent about a year the same way
and I am very proud that I spent that time and I'm making a lot of
money on that Laundromat and it's a very successful business.
James:
So you do, I mean, you're proud that you're doing a lot of research
before you entering into a new venture. So...
KK:
Correct, correct.
James:
And if you want to let our audience know how to find you
KK:
Oh, I am very easy to find. They can go to Facebook and I have a
Facebook group, Tenex multifamily investment group, and we have a
little over 3000 members in about six months. I think we started
the group at the same time.
James:
Yeah. You started late but you are slightly ahead of our group
right now.
KK:
Yeah. And that's where they can find me. They can ask me questions
and every Tuesday I have a zoom calls where they can come and join
us and learn something, network. And they can ask me questions as
well face to face, every Tuesday, nine o'clock Eastern time. And
the zoom link is always in the Tenex Facebook group and then they
can reach me through our website as well growrichcapital.com, or
they can call me on my cell phone, 260-341-1964.
James:
All right, sounds good. So KK thanks for coming for the show. You
add a lot of value. I like to, I mean I think I really found a lot
of nuggets because you moved from different, different businesses
to multifamily. I think that was very helpful because a lot of
listeners could be doing other businesses and always wonder why not
that business, why not this business? Right. And then why
multifamily? So you, I think you summarize it pretty well and I
think you, I think I did get a golden nugget of a few golden nugget
when you move from passive to active, right? And how that
transition worked out and your thought process when you go to that
whole process. So appreciate you coming on board. Thanks for coming
and that's it.
KK:
Thank you very much for having me, James.
James:
Yeah, most welcome. Thanks KK.
KK:
Love to be back on your show again, sometimes when I'm a bigger
syndicator
James:
You are already a big syndicated. Thanks KK.
KK:
Thank you. Thank you.