Podcast Episode 142 Transcript

Episode 142: How Inflation Will Affect The Multifamily Space with Ken Gee

Are you ready to bring your real estate
game to the next level my name is James
prendamano I'm the CEO and founder of
pre-real and over the past 25 years I've
closed over a billion dollars in
transactional real estate each week I'm
meeting with outstanding investors High
performing individuals and Visionaries
operating in the real estate space these
are the people that are actually out
there in the real estate game right now
getting it done this podcast aims at
bringing anyone's game
this is the pre-real podcast
welcome everyone to the pre-real podcast
we're joined today by Ken gee he's the
founder and president of KRI Partners
folks we've had a lot of different
people on the show in the multi-family
space
um you hear me talk a lot about Tick
Tock investors Ken isn't one of them uh
he's been involved in over two billion
dollars in transactional real estate and
he has an accounting background and uh
he's made a heck of a name for himself
Ken thank you so much for joining us
today happy to be here James thanks for
having me oh it's our absolute pleasure
you know you you didn't wake up and and
one day have a management company and
and have uh this portfolio so maybe
maybe a minute or two can on the
background you know how did you end up
making the leap and getting into real
estate initially yeah that that's a
great question so I started out uh uh I
I grew up in Toledo Ohio moved to
Cleveland got married
um went to work for a bank I spent five
years as a commercial lender all the
time while I was listening to my
customers they uh had lots of real
estate and we're making a ton of money
on it then I thought for some reason I
wanted to be an accountant a CPA so I
got my Master's Degree at Case Western
Reserve small private school in
Cleveland and then went to work for
Deloitte where I spent seven years uh
mostly in the tax m a uh
multi-jurisdictional tax planning just
all the fun stuff that you'd want to do
if you're going to be in a town if there
is such a thing as fun things to do as
an accountant but again here I came all
my clients in real estate the Cleveland
office said that firm had a massive real
estate practice with household names and
just you know we watched them just make
tons and tons of money and we also had a
number of private Equity clients that
happened to have grown up in Cleveland
so when I was at Deloitte I said you
know what it's I'm working I'm killing
myself here getting to work at 6 30 in
the morning going home at 11 o'clock at
night and you know I wanted to see my
kids and and I said all right I got to
figure this thing out so I spent about
two years working on it trying to figure
out how how this thing worked I went
military seminar I could find and back
then this is back in 1997. so there were
not podcasts everywhere you know it was
a lot harder to find this information
out so you know local apartment
associations things like that and then
1997 I finally pulled the trigger uh
felicated golf ball in my throat back
then when I did it that's how stressful
it was but I bought my first 28 unit
apartment complex thought it was just
massive and uh and that's how we got
started you were clearly at this point
in a time where perhaps you were not
investing in real estate but you're
around Real Estate Investors right
you're around folks that are are doing
this were there any outside influences
outside of that any mentors or folks
that you work with
um well I learned what I needed to learn
just from going to Apartment Association
meetings and courses that they would
offer I would network with all the
people who would be speakers at these
events you know they would get local
apartment guys attorneys you know all
the property managers all those people
and I really spent a lot of time
networking with those people and trying
to learn as much as I could so was there
a one particular Mentor no there
probably wasn't one particular Mentor it
was just just everywhere I turned
everybody was doing really well in real
estate remember the bank for five years
I had to listen to my customers and
watch my customers make a lot of money
in it now is that Deloitte you know
doing their tax returns and they were
making obscene amounts of money and so
you know this driving force you know
that story I told you about my daughter
is true you know if if think about you
know your father you're there with your
your daughter and you just know that you
where you're headed is not going to get
you to where you need to go so that was
really my Catalyst that was my
motivating factor
um and I will tell you it was hardest
when remember I talked about the golf
ball in your throat kind of thing this
that's exactly how I feel I remember
that day vividly when I signed on that
mortgage uh back then it was a whopping
460 000 mortgage that I just thought was
incredibly large but the stress that I
felt
um you know you just got to push through
it so you're you right
a lot of people don't push through that
and don't make that change and I'm here
to tell you that if you just stick with
it and press through it and and deal
with that golf ball in your throat for a
minute and and now see now we have
coaches everywhere right there's people
like you in this podcast and just people
everywhere that want to give people a
lending hand we didn't have that back
when we started or at least when I
started so
um that I mean that was a catalyst my
Catalyst was my family that made me want
to do this and in terms of mentors I
just tried to pick pieces of you know as
much information as I could from from
everywhere and that's how I put it
together it wasn't the easy way that's
for sure no no look uh I started in the
business in
1996 I was 21 years old so uh back then

it it was a very different world right
you know when in on the real estate side
we we actually had the books this is
pre-modems this was pre any of that
stuff so uh but
there was a grind about that
which has benefited me I can't even
begin to to put words around what those
years meant for me in my career today
um it's almost to a point Ken where
there's too much information available
you know people are and this is what I
if anything comes across from the
podcast today folks it's it's this
there's
go to a seminar uh take a course a real
estate investor you are not right there
are professionals that have dedicated
their lives to real estate and they
understand the Cycles the tax
consequences all of the things that go
along that uh some of the newer
investors and some of them are amazing
I've had some of them on the show
they're full of energy full of life
they've got wonderful careers ahead of
them but you cannot replace experience
and experience has taught me an awful
lot in this game and today I hope to
glean from Ken's experience what folks
should be should be looking for so with
that Ken uh if you could spend a minute
or two on a typical deer deal structure
over at KRI uh lpgp what does that look
like what does it mean just to give the
audience a flavor of what you're doing
sure sure so as a firm we have evolved
we used to do all syndications so if I'm
I don't know how much your listeners
know about with syndication versus a
blind pool fund but a syndication is
simply uh the sponsor goes out finds the
deal then he locks it up with Stellar
convinces him to go under contract and
then runs around for the next 45 or 60
days and tries to raise the money and
hopefully he's established some
relationships before that so it's not
hard see I used to do that but that puts
a lot of gray hair on your head if
you're sitting in my chair because
that's a very short amount of time to
raise an awful lot of money especially
when you're in a hyper competitive
market like we primarily operate in
Florida and then the southeast so you
know there's a lot of guys standing
right be behind me if I'm if I slip up
even the the slightest so so what we've
what we've now done and we're in the
process of raising money for our second
fund right now but we've switched to the
blind pool fund model and it's really I
remember I said at Deloitte I had a lot
of private Equity experience because I
have a lot of private Equity clients
it's exactly what private Equity firms
do uh when they buy and sell companies
we just do it with real estate so now
that deal first Equity second we've
flipped that model over and we go out
and we get commitments and raise the
capital first so then we can go buy uh
the properties with the with the
confidence knowing that we have it now
the reason we did it we did it because
we're in a hyper competitive market
everybody that's competing for these
properties and you know in our markets
it's not uncommon to get 15 offers on a
deal 20 30 offers right yep almost all
of those people are syndicators so the
syndicator that wins the deal has to pay
up
but if we're a fund manager right that
broker that seller knows we've already
raised the capital they know we're
probably more experienced that means
there probably is a far less likelihood
of being retraded that due diligence
will go smoothly and that that Equity
raise risk is off the table so we now
become a much much stronger buyer and we
come become much much stronger for the
broker community so that's what we do
now is we raise funds and then in that
fund we'll put two or three or four
deals depends on the size of the fund
but and then in terms of you know a
legal structure it's no different than
we buy the property it goes into an LLC
and then the fund owns the LLC and then
we have several llc's under that fund
and our investors get the benefits of a
little bit of a diversification and for
example our last fund we have a deal in
Tallahassee Daytona and Bradenton all in
Florida but all in completely different
markets completely different uh you know
property types so they get they enjoy
some wonderful depreciation or up
diversification the other thing they
enjoy is you know this the The Upfront
cost right all the setup costs and the
PPM and all the legal fees that you have
with the syndication we get to spread
those over several deals because when we
have to do it one time with the fund so
that's the model that we use now we
found it to be very very effective
especially in and a very competitive
market you know if we were pursuing
deals in a non-competitive market you
know you wouldn't need a fund uh you
know you just wouldn't because sellers
would be you know happier there's fewer
competition sellers would just accept
that Equity rate of risk because they're
just happy to be able to sell to
somebody but in those competitive
markets you get a you know you got to
put everything on your side that you can
find yeah sure so you know you paid the
dues you did the indications and and now
uh folks are investing essentially in
you and in the company right that that's
what this is about it's that's exactly
right yep well we pledge the the money
and and you know that Ken and his team
are going to go out and find the deals
which again translate directly into deal
quality in many instances because as Ken
noted uh you're a proven entity the cash
is already available and the seller
knows that they've got a deal uh that's
in all likelihood as long as the
property passes through third parties
and diligence that that we're going to
have closing here so folks are investing
in this flying pool they don't
necessarily know or they don't know
which assets they just know uh is the
fund limited to multi-family is that
what's prescribed it is yeah so we do BC
class multi-family we're always going to
be in growth markets right that's most
of Florida and Southeast and Texas
um and we generally hold that deal for
three to five years so we're going to
add our value we're going to move rents
create our value we're going to leave
some for the next guy because the next
guy needs a reason to buy and then we're
going to turn that so the investors will
get a six percent preferred return while
we hold the deal right so they get paid
while they wait and then the big payday
and the value add world as you know is
when you sell the property so when we
underwrite we underwrite to a minimum of
15 annual returns that's what our Target
is we always want to blow that away of
course because I don't like
under promising and over no I like to
under promise and over deliver that's
what we always try to do so uh but but
that's generally the way the fund
operates right it's we get paid last
investors get paid first because that's
the way it should be so it's six percent
pref you get your Capital back and then
it's a straight 80 20 split super simple
process it doesn't need to be
complicated it looks very much like a
syndication in terms of the structures
it's just you get the benefit of getting
multiple properties in one in one fund
so when you're
building out the
the metrics for each deal and you you
have your subscription docs uh I'm
curious uh will we both know that good
markets come and go right for there's a
lot of folks that have made an awful lot
of money over the last few years uh that
don't understand what's right around the
corner
um so
what do the subscription docs look like
what can the investor expect is there a
a steadfast time period where that
liquidity event is going to happen
yeah that's that's uh so you're talking
about the exit liquidity event yeah yeah
yeah I mean the the fund
I think the the max life on it is six
years or seven years and I have the
ability to extend it uh one two or three
years here's what you don't want to do
you don't want in the real estate world
times uh times can be a friend and what
you don't want to do is be forced to
exit a deal at the wrong time you just
don't want to do that so we need that
flexibility we really do intend to hold
three to five years create our value and
move on if we create our value in years
one or two think about just something as
simple as remodeling your kitchen at
home right you remodel it today well in
seven years you're looking at it
thinking wow this thing is looking old
again right it gets beat up the kids
abuse it right that's just what happens
in our world we would prefer to not hold
that asset that long I mean if we need
to we need to we want to have that
flexibility but we want to turn that
asset because you know investors very
much appreciate not having to wait 5 10
or 10 12 14 years for their big payday
so to speak
so uh super smart structure six to seven
years you have the right to extend if
you're in one of those uh Market shifts
if you will and uh the bigger paydays
come toward the end but you're still
paying a six percent pref which is which
is a a nice return along the way
um
when you're
identifying deals
um
are you are you are you always kind of
jumping into the new markets or are
there certain markets that hey this is
where we're going to find our deals are
you Limited in that sense is it like
Florida Texas and and it's as broad as
the states where you could place the
money or what does that that look like
yeah so our the bulk of what we do is in
Central and Northern Florida but what
our criteria really starts with growth
markets right if you think about you
know the whole sales process you think
of a funnel it's no different with
identifying properties right we look at
markets that we generally like them then
we just continue to analyze the sub
market and we get right down to the
neighborhood and what we're looking for
is good is growth that's Diversified
that's not dependent on one employer or
the military we don't like you know to
buy something right outside of military
base because all it takes is Congress is
a you know to change one law and your
whole investment is worthless right we
try to get that diverse we don't want to
we don't want to locate right next to
Disney right that's not a good situation
if you have a pandemic right no we don't
we don't we're not planning for another
pandemic but the point I'm making is we
like to look at every single risk that
we know exists and we do everything we
can to mitigate those risks and we
really get in the weeds when we talk
about mitigating that risk because we're
looking at different types of employers
and different types of Industries
because that Revenue stream matters and
we always stick to good neighborhoods
you know early out of my career we went
to the tougher neighborhoods but my
friend I'm telling you that's a tough
road to hope there is no doubt about it
and uh so we don't do that we stick to
the to the good neighborhoods because
when you have recessions or downturns
you know when you think about it it's
usually the extremes of the markets that
really get hurt it's maybe the top end
gets hurt the very bottom uh part of the
market gets hurt the people in the
middle I mean they just don't get hurt
now in in our market for example think
about Central old Northern Florida right
they're building like crazy in that
market it's fair fair statement but what
they're building is all a stuff they're
not building BC stuff
and when you think about the roughly a
thousand people that are moving to
Florida every year
all those people aren't wealthy yeah for
them are but not all of them so we have
a situation and we look for this setup
and this setup existed more than just
Florida it exists in Texas it exists in
many of the southeastern states right
for for lots of reasons but we're
looking for a situation where we have
that increasing demand no new Supply
because if you think about economics it
just push it just puts upward pressure
on rents so that's that's kind of a bull
market right that's the rising tide that
you want to be part of but then you put
a value-add strategy on top of that and
that's when you get crazy returns that
just really really are nice so
um it's funny as you're as you're
mentioning some of these things to stay
away from uh which again only only
through experience can you really
appreciate those things you know there
was a time in my career where uh I would
have looked at things like being next to
a government installation or or you know
an anchor like a Disney and gosh how
could you go wrong here right and I'm
thinking of all these Decks that have
come across my desk that are
highlighting those points but again
there's the difference between uh that's
experience that's what it is right that
you you fully understanding that
um what you think can happen will it's
just a matter of when and and it's and
you've got to be positioned properly uh
to indoor and to kind of get to the
other side of the rainbow now are you
guys uh looking at
deals that are built and in need of
reposition are you doing ground up what
is the complement of deals that you're
taking a look at yeah great question we
don't we don't do any ground up
development we do everything that's
existing we prefer 80s and newer and
it's some so we we need to be able to
add value somehow most of the time it's
physical improvements and some
management sometimes we'll get lucky in
fact we have a Tallahassee deal that
we're done
um that one is mostly management it's a
little bit physical mostly management
just because the seller didn't manage
the rent roll properly he did a bunch of
improvements it's just what he did he
did his business plan it was very
effective for him but he left the bone
he left that meat on the bone for us so
that particular property is one that's
an anomaly that's in our fund but it's
mostly management there and since
November 1st I think we've moved the
rent roll
like seven thousand a month or eight
thousand a month on a little 84 unit
property Believe It or Not wow wow and
and folks that is the best
improvements in cash flow that you can
make boy when you've got a market where
through some minor improvements and
physical improvements every dollar that
you're increasing on that monthly rent
is a direct direct dollar to the bottom
line you know Ken can you spend a minute
talking to the audience about inflation
and and why you think multi-families I'm
assuming you think multi-families are a
hell of an option during an inflationary
period could you speak a little bit
about that I do I have this discussion
all the time with lots of different
people so
you know when you when you have the
situation that we find ourselves in
right now people are getting nervous
they think you know inflation's gonna
destroy everything it's not I mean we've
had inflationary times before here's
what generally happens in the
multi-family world and I'm talking from
a macro level so if you think about it
we're in an inflationary period right
now I don't know exactly when this will
air but assume we're still in an
inflationary period and so now the
government the FED they need to try to
Tamp that inflation down because they
don't want inflation to run away and
that that's I mean I'm cool with that I
get that so the way they deal with that
is they see inflation is a demand Supply
thing right so they it's hard for the
FED to deal with Supply they can't they
can't affect the supply side but they
can affect the demand side and they do
affect the demand side of the equation
by raising interest rates when they
raise interest rates Things become more
expensive to do buying a car buying a
house lots of different things Capital
Investments with with manufacturers and
things like that so what that does is it
starts to Tamp down demand right now
let's look at what happens when you
raise interest rates let's look at
specifically multi-family now right we
raise interest rates what happens
very recently I just saw an article the
first uh the mortgage loan application
rate is the lowest right now than it has
been in 22 years
why is that because the fed's raising
rates mortgage rates are going up but
here's what's not happening people don't
suddenly not need a place to live they
still need a place to live it's harder
to afford that house that they want to
buy so what do they do they come into
multi-family so now what do we have
we're back to the demand Supply thing
that I just talked about at multi-family
Supply is not going up because they're
not building BC class properties and now
we've got another reason for demand to
increase on them in the manufacturer in
the the multi-family world so that again
continues to put upward pressure on
rents because we have more people trying
to live in the same number of uh
apartments that are out there is that
yeah I love it that's a that's a
beautiful
um it's a beautiful model where the by
as a direct result of the measures that
the government has taken and is it has
been pretty candid they're going to
continue to take in raising rates uh it
becomes a funnel for you I mean you know
Christmas if people can't afford those
homes anymore they're opting to rent and
and that just helps you backfill and
puts upward pressure on the the the
supply side and the demand side and
rents go up and everybody's happy so uh
you're you're doing deals in need of
repositioning uh you lost the lease all
those those fancy terms that you're
you're focusing on to try and drive
value
um how are you vetting the asset itself
are you relying entirely on third
parties do you have an internal team
that's betting and doing some of the
underwriting what does that process look
like yeah it's a combination of both so
first of all after 20 25 years you've
been in the business a long time when
you walk a property you don't need to
spend a lot of time on the property to
just understand how it is being run
right I can walk onto a property and I
know if there's duct tape Behind the
Walls I know what kind of things I'm
going to find right so that's step one
when we develop our offer and everything
else and that's one of the reasons that
sellers like to work with more
experienced people because the seller
knows this this guy he he understands
what he's got here and he's not going to
come later with all these supposed
surprises that he didn't know about
because there are no surprises really so
now we get to our true DVD we block all
of our units we use our own people for
all that stuff but we do rely on outside
people in a consultative way to you know
to sign off on roofs to sign off on you
know breaker panels and things like that
and we don't remember we're we are the
steward of someone else's money and I'm
not an electrician right I I don't want
to have a potential situation where I've
got all these fed Pacific panels in a
property and I didn't know it because
somebody paid it over it and I didn't
know how to recognize it right so we
rely on the trades uh and bring them in
to look at all aspects of the property
so that we in the end have a good
feeling for what the property's like
what we don't generally do and I'm not
saying there is anything wrong with this
but we don't generally just hire one
inspector to go out and look at
everything because generally speaking
they're going to identify glaring
problems but they're not the licensed
electrician they're probably not the
roofer they're probably not the licensed
plumber and so on so we tend to go right
to those trades uh directly because that
makes the most sense and that allows us
to if we already know something is
potentially an issue we're going to
really hype you're focus on that and
maybe we may have one or two or three
roofers out during DD because you know
one man's opinion is one man's opinion
and we want to make sure we get a good
cross-section
okay so you're vetting we know where
you're looking we know how you're
looking uh we know how you're getting
through the diligence process so now
it's time to close the property uh
leverage uh what what factor or what
role does leverage play in these deals
and a little bit on the cap stack if you
would yeah so we're we tend to be uh
conservative as you would expect
um 65 70 is where we tend to to hang out
we don't we'll do bridge loans but we're
careful we want to make sure we have
built-in extensions and our Bridge loans
um that's really important uh we like to
manage the interest rate risk we try to
go fixed if we can and we just want to
make sure that we give ourselves
flexibility on the back end should there
be some delay in our ability to to
implement our business plan and get the
property where we think now just just a
little you know I I probably could have
talked about this before but you know
back in the DD time or back reverse to
the time before we read our Loi one of
the things that I see a lot of people
not doing and that is spend an enormous
amount of time up front really
understanding the rental market right
and go out you know we use yardi to get
our initial set of reports but we don't
rely on their rent because they're
they're late they're delayed they're
never right so we'll go out and we'll
find all the competitors within a mile
or two miles or three miles depending on
how many competitors there are and we
will go out and check everybody's rents
and the reason we do that is because we
want to understand where our property is
today this is the key to this and we
want to know okay we know what we're
going to do to the property and then
we're going to project where that
property is going to go that's our
upside what is critical to us is that
when we go into a deal we know because
of our rent survey that we know how that
property is going to compete one level
up from where it is today and we know
that it's the moment we get it there the
rents and the market already
supports that and that's the key because
some people will
allow for some increases but plan on the
market allowing them to continue to get
five or seven percent increases we would
never do that we know that today if we
put that unit out there at and and the
work's done we know that today we can
rent at our at our projected number what
really happens then is we usually beat
that number that's the objective is to
beat that number and then after our
initial value add our red projections on
on renewals are like two percent
increases which is if I go back to
conservative right we're doing
everything we can to mitigate the risks
up front and we're doing everything we
can to show our investors
the the most conservative case that we
can because then when we do over deliver
we you know it's obviously a much better
conversation to have than the out than
the alternative sure so uh again for
value in the audience
I want to make sure that I'm I'm putting
a spotlight on on this that Ken just
talked about a process that you may feel
well of course people are checking out
the rental market and understanding
absorption and understanding what's
going to happen if they they raise rents
because the blind pool fund is set up
the way it's set up they have the
ability during that time period to focus
on those things instead of raising money
trying to backfill the syndication right
those are you know can it's I've seen
some really scary decks lately
um you know and and you know there's a
lot of good folks out there that are are
that are caught up in this excitement of
of multi-family investing and
everybody's doing it and there are so
many people and a lot of them I think
are good folks I just think that they
they're excited and they're a little
ahead of their skis and they don't
understand that there's a cycle that
comes along along with this and and they
wouldn't even begin to understand that
these are the things that you wanna and
I'm not folks I'm not saying go cut kind
of check tomorrow that's not what this
is about this is about Ken's firm and
and and the type of work that Ken does
that's what we need to be looking for we
need to be looking for folks that have
been through the the war if they
understand what's coming around the
corner and they're not running around in
a manic State during you know from the
point that they execute to the end of
diligence or some Cowboys go beyond
diligence and they're headed you know
right into a closing and they they're
not funded they don't have the ability
they have not lined up all of the funds
necessary to take down the asset never
mind to to keep it running into the
future and the buddy of mine was looking
at a deal uh down south and he brought
me the deck and he said oh yo do me a
favor let's take a look at it and we're
going through it Ken and and I'm seeing
and crazy numbers on appreciation uh
that they're banking on I'm seeing crazy
numbers uh on liquidity events there was
two liquidity events that were refised
and the third that was a a sale within
the next 10 years but expenses were
stagnant there was no accounting for
inflation rents were up 30 percent in
the first three years and those deals
they do exist those things do happen
where you can unlock value because
things are are in on the market
um but when we got into the debt service
and this is something you touched on a
little earlier
um they were doing a bridge
and and I said you know why is is this
two to three years from now why are
interest rates what they are today and
this was never contemplated man and they
raised three and a half four million
dollars in two weeks off of a couple of
phone calls and as sure as I'm sitting
here I can tell you that deal will end
up in receivership because they the deal
doesn't work without the appreciation
that they're banking on and it certainly
doesn't work when rates are at seven and
eight percent so these are absolutely
invaluable things that we we often don't
take the time to put a spotlight on but
gosh those are the things that we need
to be looking for when we're parting
with our hard-earned cash and looking
for somebody to place it in the market
yeah no agree 100 I always like to see
the people that are new in this business
I want them to succeed in fact my advice
to them is you need to make absolutely
100 sure that your first deal is a home
run because if you don't you won't be
back your family that you probably went
to for money they're they're you know
they'll support you but they'll be
frustrated right it'll be a bad
situation and all it takes is doing the
work up front that is the number one
thing that I see because we do third
party management as well and I see this
all the time that people just don't want
to do the work or they don't know how
and all I I just plead with anybody take
the time figure out how to do the work
and actually do it when I talk about our
rent increases there there's not it's
not a gas it's not a we think rent will
go up we're going to show you a rent
stack visually with real life rents in
today's market that we checked yesterday
literally yesterday and we're going to
show you where this property property is
now and where it will be and it's
already well within the the market range
that it should be right I like to have a
lot of I call it a lot of air above us
right because then I still have even
more to go because that's my goal is to
tell you I'm going to do X and do X plus
whatever 200 300 whatever it is but
that's the important part I have no
problem with pie in the sky projections
I just want to make sure people do the
work because there are crazy things that
you can find out there but you just want
to make sure that it's for sure and you
want to be able to say to your investor
I know that we're raising rents and
here's why I know it and when you do
that and you show that to them and you
show them the comps then it then it's
then it's lights out right then your
investors will feel comfortable and you
actually have no problem getting into
the weeds with them because you know and
that's the other thing I tell investors
when you take that time to learn and to
know I have this little saying it's I
probably stole it from somebody but I
can't remember who I stole it from but
knowledge builds confidence
it just does and when you're sitting in
front of an investor you don't know what
question they're going to ask you next
and I I challenge them ask me whatever
you want about the deal I I don't want
to know what you're going to ask in
advance I don't tell me let's do this on
the Fly because I am that confident that
we understand our markets that well and
we've done that level of homework and
that's what I want to see new people in
this business do because when you do
that you you will be shocked at how much
more conflict you are and you'll just
you'll just know you're right when you
have that conversation with investors
they know and they can sense that you're
certain and you've done the work and
when you haven't done it they sense that
too
yeah without a doubt Ken so you
mentioned third party management
um
could you talk to us a little bit about
what the firm I I have you put together
are you managing all of your own assets
or what does that look like yeah yeah
we're vertically integrated because uh
you know remember part apartment
communities are just their business they
just happen to be apartment communities
and so just like any think about a
business executing its business plan
execution is critical right if you hire
a bad management company one that
doesn't understand doesn't know what
they're doing your investment's not
going to go very well it's just not
because it's the operations that are
going to get you from point A to point B
and we always manage our own stuff and
we do some third-party I mean it's not a
massive part of our business but we do
it because well it helps build out our
infrastructure and excuse me pays the
bills and things like that so we do it
um and we've we've developed you know a
lot of investor relationships through
that process believe it or not and the
other the other thing that it does for
us and I didn't understand this in the
beginning but it changes your
relationship that you have with the
brokers in those markets because when
Brokers refer you a third party managed
client they do that with confidence
knowing that you're not going to screw
it up and they know that you're going to
take care of their client well think
about you know you're kind of on their
team there for a minute right most
people are adversarial with Brokers and
we're never adversarial with them but in
that situation we're kind of on their
team so they get to know us they get to
see how how well we operate then when it
comes time hey here's our fund we're
ready to go find us a deal they are all
over it because they are we've already
developed just that super deep Network
and that relationship but if you think
about a hyper competitive market like
Florida your relationship with the
broker world really matters it
absolutely does so third party
management has had a lot of benefits for
us and that not just implementing our
own business plans but you know there's
just so many benefits to it it's not the
most fun part of our business I won't
lie to you I mean third-party
Management's tough stuff
um it just is but uh you know we really
feel good when we help a client you know
buy and and we're able to lead them
through that process and they make a
killing on the way out right that makes
you feel good yeah so uh just a minute
on on managing it's another place where
um we're seeing folks be
foreign
over optimistic on uh the revenue that
it's going to throw off and and the
opportunity there
um self-managing without a doubt gives
you autonomy over the asset and uh I'm a
big fan if I'm placing money with with a
fund I want them to self-manage because
it closes the loop but for those of you
that are looking to get into these deals
where uh maybe folks don't quite have
the runway under them uh especially if
it's their first asset and they want to
self-manage
um that that's a that's Rife with with
potholes along the way there
self-managing is not an easy thing to do
um so if we can talk for uh a few
minutes on the fund again are you able
to take exchange proceeds uh is there
any opportunity for that or yeah I wish
there was that that's the one thing that
I can't figure out how to fix I mean it
is
technically possible to do it the
problem is it's not it's not practical
so you know it's not it's not something
that we could entertain I mean it I
won't go into how you could add you
could actually do it but who I said the
legal fees would probably be more than
the taxes that you're saving yeah uh and
I assume
um opportunity fun same thing not not a
place for Oz money
well um so we no no probably not because
you're going to be in multiple Assets in
our fund and if they all happen to be an
opportunity yeah
that I wouldn't say the typical investor
for us High net worth individual uh
family office
um
uh self-directed IRAs people that's
becoming more and more popular because I
I love self-directed IRAs for for
investing in funds like ours I know
there's ubit and whatever we won't get
into all that but what I like about it
is it matches up real estate is
generally longer term investment right
well that's exactly what IRAs are right
so I like that matching when we look at
the investors that come into our fund it
is really important to us that their
goals match what we're what we're doing
right if they're trying to make a quick
hit and get in and out in a year and
flip well we just we're not right for
them you know if they're trying to hold
something for 10 or 15 years and want to
have no you know Buy sell friction well
we're not that's not what we're gonna do
right because I don't want somebody in
our fund that I know is not you know
that that matching of goals is really
really important to us so typically the
individual the high net worth individual
we have a number of uh private wealth
management firms that we work with that
put their clients in our fund
um they love it because that gives them
a lot of diversification for their
clients because their clients don't know
where to uh go find this this
opportunity right it's it's you know it
used to be kind of the scary place that
nobody knew about but now you know doing
what we do is becoming far more
mainstream and so you know our investor
pool just continues to grow over time
so what what are uh just a couple of
things that on the surface if if you
don't have the opportunity to sit down
and and talk to someone like yourself
for an hour or or you don't don't have
or haven't heard a podcast like this
where we're laying it out on the surface
Ken what are a few things investors can
look for
um in in identifying a right place to
place their money
yeah that is a really good question so I
I think we have beat the experience
thing to death right no question about
it
um I want them to really take a look at
the track record I don't know if you've
ever heard of veravast it's
v-e-r-i-v-e-s-t It's a website no um I
have nothing to do with them but we did
pay them a lot of money and they vetted
our entire track record so you can go to
veravast.com KRI dash Partners I know
that's a lot but you can find us on
their site all 23 years of our tax of
our record has been vetted by them we
spent them we sent them hundreds and
hundreds of pages of tax returns bank
statements settlement statements I mean
you name it they really beat us up and
make sure so the full track record is
vetted they also do background checks on
us regularly every year they do them
they check with the SEC they do a full
background check the reason I'm talking
about them again I don't have anything
to do with them but I love what they do
because
if you're a potential investor talking
with us you don't have a good way to vet
us you were I mean you're probably not
going to ask me for 23 years of tax
returns yep I mean you're just not so
this company exists for that purpose
they're very expensive for us to pay
them to vet our track record but it's
hugely valuable in my opinion because
it's an we're an open book I mean if
you're going to give us your money you
should know exactly what we've done in
the past and exactly how we did it and
you get to see pictures of the deals and
the whole thing it's out there I would
encourage everybody to go there
um I would encourage people uh to take
the time to talk to someone like me with
the firm somebody that's knowledgeable
right a lot of the larger firms will
have investment guys or gals but they're
so far removed from the deal most of the
answers are generic and things like that
right now I'm not knocking big firms I'm
just saying that what what would matter
to me is that we could have a very
similar conversation to what you and I
are having right now where you can ask
me very pointed questions and I have
very specific answers because I know
exactly what we do and I think you you
want that right as a potential investor
you want you want to make sure that you
uh you see that and the last thing I'll
talk about is look at the terms of the
fund or the syndication or whatever it
is you want to make sure that they get
paid last
now the problem is that gets kind of
tricky because sometimes some of the
some of the fun terms and syndication
terms they put together are just
confusing and and whatever
um you know find someone that
understands it and walk through it with
them I always tell people I want you to
ask yourself a question and look at the
terms and try to figure out is there any
way that that investor or that sponsor
can do well and the investor not
it shouldn't be like for example I'll
give you an example our fund this is an
argument against us forming a fund right
for our sake we have three Deals in that
fund
our our bonus is back loaded meaning
there's three deals they're gonna sell
the first one I still have to return
everybody's money there's no bonus there
the second deal I've got to make sure
that the balance of everybody's capital
for the whole fund is returned and then
their preferred return and only then do
we get into the bonus so think about
that how long we have to wait to get
paid
you need that kind of backloaded
performance uh payment right you you
don't want your sponsor getting paid
before they've done anything amazing
right in our world if all you get out of
our fund is a six percent return and
your money back well guess what
I don't deserve a bonus because that I
mean that didn't do very well right I
mean that is not why we all got together
to earn six percent right we did it to
do better than that so just focus on
that
um investor first thing you did and
sometimes it gets a little squirrely
because the terms are get they start to
get confusing but do your best to figure
that out well the guys this is
tremendous advice veravast uh site I was
not aware of I think it's a great place
to consider if they're actually going in
and betting the deals it may seem like
on the surface oh of course I I want to
get my money back before uh my
syndication Partners do time and time
again we see huge fees on the way in who
found the deal who sourced the deal who
missed the deal who underwrote the deal
I mean big fees man big fees where folks
are eating on the way in
um
again there's a lot of different
structures out there and many of them
work uh but
where where I believe headed into some
Uncharted Territory here so please make
sure you're being real smart and doing
your homework before you're cutting any
checks with that can uh could you spend
a minute or two and take the crystal
ball out and and tell me what you see on
the horizon in the next couple of years
in the in the the economy yeah I uh I
spend a lot of time thinking about this
researching this talking to economists
specifically I try to stay away from the
news media because they're very headline
driven but if you talk to we use a
company called it ITR economics again I
have nothing to do with them but they're
economists yeah they're looking at real
data and they're projecting and whatever
I I think I think look I I think we're
all going to be just fine I think we're
going to have some inflation for a while
I think the fed's gonna knock it down
I've already where I'm already seeing
um information that tells me that
shipping rates uh in the forward
shipping rates not in the not very far
future I guess that's right yeah uh
they're coming down considerably down 40
plus percent right that in my mind has
always been a leading indicator on
what's happening with pricing with
demand and things like that and you know
just recently we saw you know Target
Target bought bought bought because they
had to build up their inventory because
they didn't know what was going to be
next and now they're dropping prices
right so I think this inflation thing is
going to gonna Trail off if you look at
all the forward rate curves uh with with
that are out there with the the sofa
rates and the FED fund rate and all that
kind of stuff it's expected to go up but
then it's expected to level back down
and go down like the treasury I think is
expected to stay under three uh you know
for the foreseeable future after that
right we're just in a period of
adjustment and whenever we have these
periods of adjustment what I have
noticed over the years and again I'm not
an expert here but I just noticed people
tend to overreact right stock market
tends to sell off more than it should
then it tends to run up more than it
should right we kind of are this this
we're in this back and forth thing and
it's it's kind of the same way with
interest rates I'm actually thrilled to
see rage move a little bit because it
gives us some breathing room right it it
knocks some of the buyers out of the
market that are a little scared because
they know they're new they know they're
nervous they know and they don't want to
make a mistake so that allows us to
compete with a few less people when
we're buying but we consider right now
to be a buying opportunity and we are
looking to deploy as much Capital as we
can right now because we think there's
tremendous opportunities right now
especially in growth markets like
Florida I can't figure out how to screw
up Florida in terms of demand Supply I
just can't we keep asking ourselves how
that gets screwed up and I can't figure
it out yeah so look I I think that every
Market's a buying opportunity genuinely
if you're positioned properly and you
have the right plan uh so again this has
been uh incredibly informative a lot of
value delivered for the listeners here I
really appreciate it tell the folks the
best way to find you and to find KRI yep
so
um we've talked about two things at
length here one is how people are trying
to figure out how to get real estate
into their life the second thing we
talked about is how do vet real estate
firms those just happen to be an idea
you didn't know this does happen to be
well the the exactly what I wrote about
in my book so go to KRI partners.com
ebook it I wrote it it talks about those
two things right and I and the reason I
wrote about them is that every person
that's trying to figure out this real
estate thing wrestles with these two
things how does it fit into their life I
go through a whole analysis of you know
should you be active should you be
passive what kind of real estate do you
like do you not like you know and help
you get through that process then
because most people really should be
passive because they don't have the time
to go figure out a whole new business
because maybe they're a physician or a
doctor or something or or an attorney
then I help you figure out exactly what
we spent time talking about and that is
how to vet sponsors like us because I
think the long-term health of what we do
here is going to be dependent on good
sponsors people vetting those sponsors
and uh and people are going to make an
enormous amount of money as long as that
whole thing stands up and that's why I
love what verifest does because it
supports that directly so it's KRI
partners.com ebook and uh you can
download it you just got to trade your
email address for my book that's all I
ask and if you don't want to hear from
me again just unsubscribe and you're on
your Merry way so you've given so much
information here Ken it seems like a
hell of a proposition so folks as always
the links will all be down below uh Ken
gee KRI Partners thank you so much for
the time today really appreciate the
information you bet thanks so much for
having me my absolute pleasure is always
everybody out there please stay safe