Rod Khleif has bought over 2,000 single family rental properties in his career, but surprisingly he loves to invest in multifamily properties now. He bought many houses in the 1980’s when he was a real estate agent and could take advantage of low down payment investor loans. Rod had over 800 houses in 2006 and was worth a lot of money on paper, but his houses did not cash flow well. When the real estate market crashed, Rod was in big trouble. He got rid of most of his houses and survived, but when he came back he decided multifamily houses were a safer investment. On this episode of the InvestFourMore Real Estate Podcast I talk about how Rod got starter in real estate as a Dutch immigrant, how he built his empire, how he became a successful agent, why he likes multifamily and much more including his book.
How did Rod Khleif get started investing in real estate?
Rod immigrated to the United States from Holland when he was 6. He became interested in real estate when he saw his mother do well with a rental property. As soon as he turned 18, he got his real estate license and started selling houses. By his third year in the business he was making over $100,000 a year, which was quite a bit of money in the early 1980’s. Rod credits his willingness to do what others would not. He knocked on doors of people going through foreclosure, talked to as many people as he possibly could, and worked hard to build his business. Along with being an agent, Rod also began to invest in real estate. In fact Rod bought over 500 single family homes in Denver, Colorado.
How was Rod able to buy over 500 homes in Colorado?
Buying houses was much different back in the 1980’s and Rod took advantage of many programs that are no longer available. HUD and VA had special programs that allowed investors to buy with as little as $500 down! Those programs no longer exist, and investors now have to put at least 20 percent down. Not only did Rod buy houses in Denver, but he bought properties in Memphis, Tennessee and Florida. He sold many of his properties and kept many as well.
How did Rod lose so much during the real estate crisis?
Rod did not focus on buying for cash flow when he had over 800 single family homes. He was doing fine when the real estate market was hot, but when the crash came, he lost a lot of money. Many of his houses were lower end and the bottom dropped out on their value. Rod sold most of his properties in order to stay afloat, but he did not give up on real estate.
Why does Rod like to invest in Multifamily properties now?
Rod came back from the real estate crash, but decided to change his investing strategy. He started to buy multifamily investments, because he felt the cash flow was better and they are safer investments. We disagree a little bit on this strategy, especially if you buy single family homes with cash flow, but Rod has been very successful with multifamily investments. Rod likes multifamily properties because he feels he can get greater cash flow, and the value will not drop as much as single family homes if another real estate crash comes. He also loves the idea of buying under performing assets cheap, repairing them or changing management, and increasing the rents.
Rod has been able to find many great deals on multifamily properties, but it is not easy. He rarely if ever buys properties listed for sale and gives us a few tips on how to find great deals.
- Network with as many commercial real estate brokers as you can.
- Find the big players who own many multifamily properties and become as friendly as you can with them
- Take people to lunch, buy them coffee, and always stay on their radar if they want to sell a property.
Rod has a little different strategy with his multifamily properties in that he is not looking to sell them in 4 to 6 years, but keep them long term.
How can you find out more about Rod Khleif?
You can find Rod on his website RodKhleif.com. Rod also has a new book coming out called The New Rules of Real Estate. He is giving away free copies if you text him at 41411 and text “Rod.” Rod has also started a wonderful charity that we talk about on the show called the Tiny Hands Foundation. The foundation has helped over 40,000 children.
My books are doing awesome, thank you for the support!
My book: Build a Rental Property Empire is one of the top ten best selling real estate books on Amazon without any special promotions. In fact, last I checked I was ahead of Trump’s book. Amazon has it on sale for under $11, which is more than 30 percent less than list price. They heavily discount the best performing books. Be sure to check it out, leave a review, and if you send me the review I will send you a free autographed copy of this book or one of my other paperbacks. My email is [email protected]
[0:00:58.3] MF: Hey everyone, it’s Mark Ferguson with Invest Four More and welcome to another episode of the Invest Four More real estate podcast. Today I have a very interesting guest that I’m going to talk to, Rod Khleif, who is a Dutch immigrant originally, has owned over 2,000 properties in his career, been a licensed agent, big proponent of real estate investing for cash flow and he’s going to give us a lot of insight on how he got started, how his career has progressed, what he’s learned over the years. Another interesting thing is he also been very active with Charities, helping others and is not just all about himself but helping.
So Rod, thank you so much for being on the show, how are you doing?
[0:01:44.5] RK: I’m fantastic Mark, I really appreciate you having me, it’s very exciting.
[0:01:48.4] MF: Great, I’m happy to be on. I’m very excited to talk to you and learn about your story. I don’t like to beat around the bush too much on my shows, I like to get right to it. So can you tell our listeners, kind of how you first start out? I mean I don’t know if you want to start with immigrating to the country or where do you want to go from?
[0:02:06.6] RK: Sure. Yeah, let’s do it. I immigrated when I was six from Holland, like you said, and I came over on a big boat and we ended up in Denver of all places, which I know is where you’re at and as on a side I was, I mentioned to you earlier, your father was a realtor in 1978 and that’s when I got my broker’s license was in 1978, I was 18 years old. But to back up a little bit, I got interested in real estate because my mom bought the house across the street from us when I was about 13, 14 and she paid, I want to say, now don’t hold me to this numbers, but around $30,000, $32,000 and when I graduated from high school a few years later, it was worth $50 something thousand and they’re like $52, $54, something like that. Although I didn’t do very well in Math and school, I was able to do that calculation that she’d made $20 plus thousand dollars just by sitting there and renting that property.
So I decided to get into real estate and you know, I didn’t do very well my first year. I put a bus bench down at the end of the street with my picture on it and all that did was make my mom proud. I didn’t get any business from it, but I ended up scratching together about $10 grand in commissions and then my 2nd year I did about $15,000 in commissions but then I kind of built my confidence and through those first two years I was really building my knowledge about the business, about real estate in general and my third year I blew it out of the park, it was over $100,000, which back in early 80’s was a decent amount of money.
But then I started buying houses and I was surprised other people weren’t buying more of them and I ended up with about 500 houses in Denver, all on a buy and hold strategy and I ultimately ended up with a couple of hundred houses. In Memphis, same thing, I bought houses there. I didn’t have as great of an experience there but ultimately sold out of all those properties and bought in Florida and it ended up buying 13, 1,400 houses in Florida. But in 2006, I had 800 houses and my net worth went up about $17 million dollars in that year and I’ll tell you, it was very exciting and you know, I did the math on that and it was like $3,000 an hour and, you know, my head got so big, I could barely walk through a door.
But you know how it is, when you have a big head, god teaches you a lesson and that’s exactly what happened to me 2008 and I got my clock cleaned because I was focused on value instead of income. I wasn’t focused on my cash flow, I was focused on that evaluation and I had a model where I had low end houses that really didn’t cash flow great because they turned over a lot and when they turned over, I’d have to put a couple of grand into them to fix them up and if I was only cash flowing say a couple of hundred dollars a month, that pretty much wiped out my cash flow for the year and so I had a lot of that turned over and when ‘08 happened, of course it got even worse because a lot of people couldn’t work and had a lot more turn over and I had to bail.
It was ugly, but the big lesson I got and the reason that I started my own podcast as well is that I got my multi family did just great through all that. There was some contraction but I mean, it coasted right through. But my single family didn’t, and so I really have become a proponent for multi family investing since that seminar I call it. I don’t call them failures, I call them seminars and that was the biggest seminar of my life. So the lesson I got is, I know that your listeners, you teach them about flipping and wholesaling which I did a lot of, made a lot of money doing and love.
But with that, every January 1st you go back to work and if you use that money and buy multi family real estate, that cash flows, at some point, you don’t have to work anymore. My podcast is called Lifetime Cash Flow Through Real Estate investing and that’s really what I talk about is multi-family. So it’s a little different than what you focus on Mark, but that’s the reason is because of the big seminar that I had in 2008 and what happened as a result of it. So that’s my story. That’s my story from 50,000 feet.
[0:06:19.1] MF: That’s quite the story, a lot has happened to you in the couple of last decades. One thing I want to focus, I don’t know if you know this. but a lot of my audience are real estate agents. So I’m a real estate agent myself, and can you talk a little bit, I mean, making a hundred thousand dollars in your third year back in the 80’s is a pretty huge accomplishment. How did you do that?
[0:06:39.9] RK: Yeah, well I tell people, I coach people sometimes too and I tell people, “If you’re willing to do what other people aren’t willing to do, you’ll make money. So what I did, and I’ll tell you, I went down to the city in county building in Denver which I’m sure you know where that is and I went to the county clerk’s office because Denver is a trust deed state versus a mortgage state. For you brokers that you know that you know the difference, and I would find out who was in foreclosure and I literally every night would go knock on doors.
Say, “Hey, I’m Rod Khleif, I saw you’re having a little trouble with country wide funding, I help people in the situation , let’s see if I can help you and I would either list their house or I’d buy it. That’s what I did and that’s how — it takes gumption to go up and knock on people’s doors when they’re in trouble but if you go with the true intent of helping them, which I did and they can see it in your face, they can tell you’re congruent and that you care, things happen and good things happen and you help good, you know, you help people and that’s really what I did. And back to being an agent and being a broker, which is a great way to make money and you can make a lot of money, but guys, if you’re doing that business and like I said, about flipping and wholesaling houses, every January 1st you go back to work and you guys are perfectly positioned to find deals and you should be capitalizing on that. You should be capitalizing on investing for your own right instead of making other people wealthy.
So I hope you hear that, if you get nothing else out of this episode. Those of you that are in the real estate business, you are perfectly positioned to find the best deals and capitalize and ideally multifamily in my view because if you, you know, there’s nothing wrong with single families especially in Denver and as I said, I have 500 houses there that I wish I still had because they’d be about free and clear right now and netting about a half a million a month. But, I will tell you that I would have rather done it , if I rewound back to when I started and I just focused on even duplexes, triplexes, quads, smaller apartment buildings, I wouldn’t have had the seminar that I had in 2008, number one. Would have been much easier to manage number two.
Single family houses, when they’re spread out all over a town, very difficult to manage. Between leasing them and having to go show them and then inspecting them and then sending maintenance people that have to drive there, every house has different systems and different stoves, different refrigerators so you can’t stockpile materials and on and on. Multifamily is just much easier when they’re all under one roof and it would have been a whole lot easier for me to buy 500 unit apartment complex, it’s been 500 houses. Because I bought every one of those houses, one at a time from individual owners, fixed them up, managed them, rent them and manage them. It’s a much tougher way in my opinion to build cash flow.
Now, it’s a great way to buy and flip, don’t get me wrong. I made a lot of money in Denver flipping and here in Florida as well. But for you guys that are brokers, I would just assay this, I would say, take advantage of where you are and utilize that to build lifetime cash flow.
[0:09:55.5] MF: Yeah, I think that’s great advice and I don’t have the statistics with me but very few agents invest in real estate. Very few agents even know about investing and what the right parameters are and what investors need to be successful.
[0:10:12.3] RK: I interviewed a guy yesterday on my show, his name is Ken McElroy, he’s one of the Rich Dad advisers. He’s written three books with Robert Kiyosaki and he said the exact same thing. He said he doesn’t understand. Because now he owns $700 million dollars’ worth of real estate, 700 million and you know, all multifamily, he’s in the phoenix area. But he’s like, “Why aren’t brokers utilizing their position to buy property?” Guys, don’t be that, guys and ladies, don’t be that person, use that position to invest and build a fortune, build an annuity.
Because if you’re not working, you’re not making any money, god forbid something happens to you, I don’t believe most real estate companies have a retirement plan. So other than buying real estate, what are you going to do and that to me is like the best thing you could do, you’re perfectly positioned to massively capitalize on your knowledge and your connections and your ability to find great deals.
[0:11:08.7] MF: Right, exactly. Like you said too, as an agent or broker, you have a huge advantage, you know? It’s just such a huge advantage to buy properties.
[0:11:19.7] RK: Absolutely, you get them first yeah. I mean you have a fiduciary responsibility to your sellers. But you’re in the market place, you’re seeing what’s out there, you’re out and about, you’re seeing deals and if you’re acting as a principle then that fiduciary responsibility, you don’t have it as much, but you do get held to a higher standard for sure but not in the commercial arena, I will tell you. That’s in the residential and you get held to a higher standard but in the commercial arena, those principles in that arena are assumed to have a level of sophistication, and a level of competence.
So it’s not as much of a minefield as when you’re dealing — I remember when I was buying houses and I was a broker, you had to be very careful because when you’re dealing with the residential clients, you have to have their best interests at heart as well. So there is that component but that component really doesn’t exist in the commercial arena in five plus units. So residential, as you guys know that are listening, are two to four units and five plus is commercial. You don’t have that issue if you’re an agent or a broker in that realm that you have to contend with and disclose around and all that stuff.
But anyway, yeah, no I think any of you that are in the real estate business and are not taking advantage of investing for your own account using the money you make, you’re not flipping or wholesaling to build more money, are really making a big mistake and that’s, you know, please excuse my bluntness but that’s just how I feel.
[0:12:54.2] MF: Yeah, I agree completely. You had a lot of houses. How did you end up buying and paying for them? It sounds like you had loans on them because you said some of them would be free and clear now. How did that start out?
[0:13:07.8] RK: Well, when I started, believe it or not, I was in the right place at the right time, the market was going to a correction and to give you an example, I’ll tell you and you’ll know right where this is Mark. This won’t apply to anybody else but it will just give you an idea of what happened in the marketplace here. I had a house at 30th and federal, 3351 west, 30th avenue, you know where that is Mark, but bottom line is, I bought that house for $50,000. I put a garage on it and sold it for like $75,000. The market crashed in the early 80’s, when I really started accumulating properties, it crashed.
I bought that same house back for $18,000 okay? Same house that I had sold for $70 something thousand, then I ultimately a few years later ended up selling it I think for $130, $140,000. So that’s what happened in Denver and so while the market was crashed and down, there were a lot of HUD and VA foreclosures and I got very lucky because they offered financing to investors. They initially started out $500 down to investors, single family houses, $500 down and then they went to 5% down. But I was a broker and I got a 6% commission. So do the math.
When I first started in Denver, I was getting this houses, literally nothing down and some cases getting money back. So it was just phenomenal. I couldn’t believe everybody wasn’t doing it and houses were in the stuff that I know in your area, now that’s in the hundreds or $200’s, I was getting in the $20’s. So I got lucky in Denver and then what happened was I built up private investors or partners or lenders that hard money people that I dealt with. I got to a point where I was really never using any of my own money. It was always, I did a lot of 50/50 deals, you put up the money, I’ll do all the work and you get half the deal, did a lot of those and ended up buying out a lot of those partners ultimately. That’s how I did it.
[0:15:03.1] MF: I’m making some notes here. Interesting stuff you had going on.
[0:15:07.1] RK: Yeah, it was crazy. I think as it relates to anything that you do, I loved it. I absolutely loved it and I think you have to love what it is you do. Obviously those of you listening that are in the real estate business, hopefully you love it, I assume you probably do, especially if you’re surviving in it or successful in it because, as you know, many people struggle in the real estate sales business, so it can be tough. But if you associate pleasure with it and if you’re willing to do what other people aren’t willing to do, you’ll be a success.
[0:15:41.8] MF: Yes. No, I completely agree and yeah, I’m sure there are a lot of people listening right now wondering why in the world HUD does not still have those programs for investors. Because they don’t exist now.
[0:15:54.3] RK: I think we’re headed for another contraction and some of the people I’ve entered you that are billionaire or close to it, all think there’s another contraction coming. They don’t think it will be as bad as 2008 but it is coming and depending on how bad it is at the other end of it, with crisis comes opportunity. So when it happens, there’s going to be incredible opportunities for people that had the ability to buy property and the could offer financing again, you never know.
[0:16:21.5] MF: Right, I’ve never seen that in my career but yeah, things are always changing. I’m not sure what to think of this real estate market because I know back in 2006 to 2008, the lending guidelines were just crazy. My dad and I would talk about how does it make sense to give someone 120% loan on their house, you know?
[0:16:40.5] RK: Oh I know.
[0:16:41.2] MF: They just built like crazy, they overbuilt everything and this time around, lending guidelines are loosening up some, but you’re not seeing the craziness back then. But there’s no…
[0:16:50.0] RK: No, not at all, not even close. Back then you could fog a mirror and buy a house. They had “stated income” in quotation marks and that was basically “let met lie” in quotation marks. You know, people that had no business buying the caliber of properties that they bought got them and that’s why, that was all Wall Street driven, you know? They put this big trenches of billions of dollars and debt and sell it on the secondary market, they bankrupted countries like Iceland. So that’s what happens and you get greed in the equation and that’s what happens. Anyway.
[0:17:29.0] MF: This time around though, it seems like before it was huge buyer demand because of lose guidelines caused over building and just a huge up turn. This time around, I see it as they’re not building because financing’s tough, the cities and counties are more expensive, and it’s more like an inventory crunch that’s causing prices to go up, there just aren’t enough houses for people.
[0:17:51.4] RK: I know that’s the case in Denver. I’m not sure that’s the case everywhere else. I know here in Florida, it’s actually slowing down already. We’re selling my mom’s house and that’s near me, I’m in Sarasota Florida, and we’re selling my mom’s house which is in Port Charlotte Florida about an hour south of me. The prices there have actually dropped and this little lower end prices as well, we’re at I think $250 and we ended up getting down to about $220.
We’re already seeing a lot of pull back, but I think I do believe there’s a localized component to single, certainly to the single family market. But you know, it’s possible that what you’re saying is accurate as in some of the other markets for sure. I am familiar with Denver and where I’m at here, but I’m not really familiar with anywhere else.
[0:18:41.0] MF: Right. I know Florida had a huge amount of building before the crash. Are they building a bunch now or is it still?
[0:18:48.7] RK: Now, building is happening for sure, there’s a lot of the builders are building again and who knows how it will all shake out. What I tell the people that I coach is, if you’re flipping houses and wholesaling, just be careful on the high end stuff, that’s all. Because in the event, I’ve been through two or three of this crashes now and, three of them actually, and like in ‘08, it pretty much shuts off overnight and it’s very fast. You don’t want to be the last person standing when the music stops and you want to have a second exit strategy. So I think if you’re flipping houses, just go in with both eyes wide open and think to yourself, “Okay, if it doesn’t sell, what can I do?”
I would say two things. One, don’t have really short term debt on the property because then you can’t rent it if you can’t sell it and then, you know, buy flip properties that you can come close to covering your nut if you rent it or ideally cash flow if you have to rent it in the event that you can’t flip it. That’s what I would do personally and I would be very careful in the $600,000 plus range flipping just because, like I say, when it slows down, it slows down pretty quickly and what happens is the lenders dry up very quickly. So it just locks the whole thing down and that’s all. I mean, I’m not saying don’t do it because I still believe you can make a lot of money right now flipping and wholesaling, and I know a lot of people that are very successful at it, yourself included. I just — do you agree with what I’m saying here Mark? I don’t want to speak at a turn here.
[0:20:19.9] MF: Everything you said is wrong. No, just kidding. No, I definitely agree about the high end flipping. I have one high end flip right now for sale, which is actually in southwest Longmont, real close to Boulder and that’s the only reason I did it because it’s close to Boulder and if you know, prices in Boulder are insane.
[0:20:37.5] RK: That’s a hot, hot area. Absolutely.
[0:20:39.7] MF: Yeah, all of my other flips are basically starter homes, entry points because they’re so much easier to sell and I think the profit margins are actually higher on those, at least on my market because there’s so much competition for good deals in the high price ranges, owner occupants will but those to get a little equity built in. So completely agree with that and I’ve always been the theory of I never bet on prices to go up to make money, I always buy them based on what the prices are now and plan to sell them in six months or less and I have profit margin built in. If I have to sell it for less, I’m not going to wait out a market and hope things get better. I’ve always been sell it quick and move on.
[0:21:20.7] RK: Right, right. That’s smart, and anytime you can take your money off the table and you’ve made a nice profit and even if you leave a little bit for the next guy, that’s always a win. So that’s good strategy.
[0:21:35.1] MF: Yup, like I said with the rentals, I’ve always thought those for long term with cash flow, not betting on prices to go up. I hope they do and they have done awesome, but if prices go down, I’m still going to make money on them.
[0:21:48.2] RK: That’s all that matters and yeah, whenever you’re buying for long term hold, you’re only parameter should be cash flow and I would put in a plug for multifamily because when you do a single family, if it’s empty or 100% vacant. Even if you just do a duplex or a triplex, if you’ve got a unit empty, it’s very often that you’ll still break even or come close. I would really put a plug in for considering multifamily. I don’t know if you mind Mark, I think that we mentioned earlier, I’ve got a book right now that I wrote about multifamily real estate investing, it’s called The New Rules of Real Estate Investing and the new rules being focused on cash flow.
But it’s 200 pages long and I’m offering it for free until the end of the year and I mentioned to you that I’ll offer it to your listeners for free. If they’d like it, all they have to do is text my name, Rod, to 41411 and we’ll put you on the list for it. It should be done in about two weeks, it’s being final edited right now, which has been in for about three weeks but he’s promised me he’ll have it to me this week. So just a little bit more and it will be ready and it’s all about multifamily real estate investing, soup and nuts, from finding a market to identifying a deal to financing a deal to managing it, and everything in between. It’s like a textbook. There’s no fluff in it. So if you want it just text that, Rod to 41411 and you’ll get it.
[0:23:04.2] MF: Yeah, and glad you’re offering it to my readers for free and listeners. A great book, hopefully coming out, I’d love to get a copy myself if I can have one?
[0:23:12.1] RK: Absolutely for sure. You know, if I say so myself, I think it’s going to be one of the better ones out there. I have spent a lot of time on it and just for anybody interested in investing in multifamily real estate, it’s how to develop relationships with brokers because commercial brokers are a different animal than residential and how to talk to sellers and how to get seller financing on a commercial deal and on and on. So it’s a lot of good stuff so hopefully your listeners will get value.
[0:23:39.1] MF: Awesome, I have a question too. I’ve always invested in single family rentals for the most part, I had one duplex that actually sold this summer and the thing I’ve always run in to in my market, which is a little north of Denver, is multifamily is super expensive here. Our cap rates are probably 5%, it’s very hard to make money.
[0:23:59.2] RK: So here’s what I would tell you, this is a great opportunity to learn that business. It’s not necessarily the greatest time to buy, okay? But it’s a great opportunity to learn, like I tell people that I get free phone calls from my listeners, I do about eight a week and I’m booked out two or three months but I tell them and it’s always the same thing. Take this opportunity while the market is peaked in multifamily, and it is high. There are still deals but they’re harder to find. Take this opportunity to develop relationships with brokers, develop relationships with potential investors to learn the business, to study the business because when the market drops and it will, there’s going to be incredible opportunity.
So there are a lot of loans that are resetting there are a lot of the CMBS loans that are sold on the secondary market that are resetting and there’s going to be some incredible opportunities in the multifamily space. So use this as a growth opportunity to learn the business while you’re building a cash nest egg, developing relationships, and that’s what I recommend. And kick the tires on deals, go look at them. Go financially evaluate them, run the numbers on them, meet the people, get out there, you’ll build and intuition. You’ll build competence in the business, and then you’ll build confidence, and then ultimately you’ll develop intuition. You’ll literally be able to look at a property and your gut will tell you if it’s worth looking into further.
That’s where you want to get to and this is a great opportunity for people to do that. You’ll understand the different types of properties, the different types of areas. A, B, C and D properties and A, B, C and D areas and understand the differences and what to look for and so, I think it’s an opportunity to grow and learn and be ready for when this correction happens. Some people are saying it’s already happened. I know I heard Robert Kiyosaki on another podcast say that it’s already started. But who knows whether it has or not but it is, like anything, real estate comes in cycles and to not pay attention to the fact that we’re going to, ultimately what goes up comes back down a little bit would be you know, imprudent. Anyway, that’s my two cents on that.
[0:26:12.3] MF: Yeah, it’s interesting and I saw some statistics in Denver. Recently they said, Denver needs 67,000 new houses to meet demand, single family homes. But then a few months ago I read some articles — yeah, it’s an amazing amount of houses. They’re building high end up here but they’re not building low end, what people need. Then I saw some other articles that said some of the multifamily large complex builders are starting to pull out of Colorado because they think the market is saturated with multifamily. So it’s kind of an interesting dilemma where there’s no single family but there’s lots of multifamily.
[0:26:51.2] RK: Right, well what’s bad about that is there’s no real affordable housing and multifamily typically provides affordable housing. I think that there will always be a demand for apartments because of what you just said and, you know, we’re becoming a renter nation. I mean, less people are getting married, millennials don’t want to buy, they want to rent. So it’s just a big demand for rentals and there always will be and you know? Now are they building right now? Yes, they’re building a lot of apartments in but those are going to be A class apartments, there’s just a lot of money to be made in the C and D, I’m sorry, not D. B and C class properties, I wouldn’t do D if you’re brand new.
D is like a slum property, but in the B and C properties absolutely a lot of money to be made. If your listeners have an interest in pursuing multifamily, please come listen to my podcast, it’s called Lifetime Cash Flow Through Real Estate Investing and we have a lot of fun and I have some good guest just like you do Mark. If they’re interested in using some of their money from their real estate sales and considering buying a multifamily, we’re a good resource.
[0:27:58.8] MF: Great, yeah. I’ll definitely add that in the show notes as well so people can find that. I’m curious, you’re in Florida now, are you seeing, is the multifamily market strong there? Are there deals to be found in Florida for multifamily?
[0:28:11.4] RK: No, there are deals to be found, but they’re much harder, there’s a lot of money after them. I think the sweet spot right now and pretty much in most markets, is the smaller properties and that is say, two to 30 units because they’re under the radar of the big players. If you’re a hundred units plus, you’ve got a lot of big players going after those properties. I interviewed Grant Cardone who is a sales expert and he’s taken down another thousand units this year and he’s competing with REITs and really big players. He’s got 4,000 units. That’s a different realm and like the other guy I interviewed, Ken McElroy, same thing. You know, $700,000,000 worth of multifamily real estate, they’re playing in a different arena.
But I think there’s a real sweet spot in the two to 30 units because it’s ma and pa sellers, you can negotiate seller financing sometimes and they’re just not as sophisticated and there’s not as many people chasing those deals. I would be developing, if you’re brand new to this, it’s a lot less risk, if you make a mistake, it’s a smaller mistake. The numbers are smaller and, you know, I think those are real opportunity there, we’ve seen some good deals in that space here in Florida and other places as well. So in our region right now that we target is the Carolinas, Georgia, Tennessee, and Florida.
[0:29:32.9] MF: Okay, nice. I’m all about getting great deals on anything I buy. Obviously when you’re flipping houses you have to do that and with rentals too. Talk about the multifamily sector and you keep mentioning building relationships. You can’t just go on the MLS and find a great deal most of the time. Now there might be one every once in a while…
[0:29:49.2] RK: No, you have to find an off market deal and that’s how you find a great deal and that’s why you want to build relationships with brokers. You go out, you go on LoopNet, you see who’s got the most listings of the type of property that you’re interested in, then you call it and say, “Hey listen, I’m a broker myself, I’m looking to buy some multifamily.” You don’t lie, you don’t tell them you’ve got a bunch of stuff or whatever, you don’t burn bridges. You have to do this from a place of integrity because it’s a small community but you find the hitters in whatever market you’re in and you take them out to lunch or you buy them a cup of coffee and you give them your criteria.
You come up with a criteria, however many units you’re interested in, are you looking for a value ad opportunity, you’re looking for something more stabilized? What class of property you’re interested in, and you have them start sending you deals and I will tell you as you’re developing this relationships and this brokers can make you wealthy because if they send you and off market deal or a pocket listing, you guys all know what that is, and no one else is negotiating it, it can be an incredible opportunity.
But I will tell you this, as you guys all know, if the property doesn’t close, the broker doesn’t make any money. So until you’ve actually bought one, it’s a little harder to develop the relationship and get their attention but you can still do it and you should still do it until you’ve closed your first. Once you closed the deal then they are clamoring over themselves to send you over deals because they know you’re a closer. But still, you develop this relationships and you give them feedback, okay? That’s not something you do in the residential space as much but if somebody sends you a deal to look at, you always respond and tell a broker that is. You always respond and tell them what you thought of it and why it doesn’t fit or give them feedback. It’s very important, to build this relationships over a period of time and treat them with a lot of respect.
[0:31:39.4] MF: Yeah, great. I have a question too, you’re a broker agent, let’s say you’re talking with this…
[0:31:44.7] RK: No, not anymore. I let it go a long time ago.
[0:31:50.1] MF: Let’s pretend you still are for a second. Just hypothetical and you’re talking with this commercial broker who might have a pocket listing. I know a lot of broker’s agents would be like, “Oh, I can earn a commission on this and save a bunch of money but will that take away the motivation from that lister to get you that great deal?” If you see what I’m saying.
[0:32:07.4] RK: I’m sorry. What you’re saying is, you take the selling commission?
[0:32:12.5] MF: Well if you’re saying hey, I’m the buyer’s agent, I’m going to represent myself and save a commission, are you taking away the motivation from that listing agent to bring you those pocket listings.
[0:32:21.8] RK: It could be, yeah. You could be and in that case you have to make that decision, does it make sense to let them have the commission so they send you good deals. Or do you need that commission to offset your down payment? Which I just interviewed a kid yesterday, his episode won’t go live for a couple of weeks but he has 60 units he just bought and he used his commission. He’s a broker in Michigan and he got the 60 units for $5,000 down because he got the seller to carry some of it too, and that’s the other advantage of larger commercial properties. Sometimes the banks will allow you to do that where you get an 80% first mortgage, you guys all know what that is and then the seller can maybe carry 10 or 15% on top of that and this kid and I say kid, he’s 23 years old, bought this 16 unit for $5,000 down and cash flows.
Back to your question, I personally would let them have the commission so they feed me deals because I don’t want to be a penny wise and a pound foolish but you know, it’s a case by case thing. If you need to have money for the down payment then that changes things but you know, it’s still a sale for them but you know, you guys are all in the business, you know all the dynamics there and that’s a case by case based on your personal financial situation. I mean if you can afford to take it down, you’ve got partners that have the equity to participate and allow that person to have the commission, it can be a home run versus a base hit. It can really be a home run if that property is a fantastic deal.
[0:33:47.4] MF: Right, I completely agree and I’m considering buying a larger commercial property now and it’s out of my comfort zone. I know residential very well but I need the help of the broker and I’m like sure, maybe I’ll take a referral fee on the buyer side but he gets the majority of that commission because he’s going to help me, because I know he’s going to be motivated, and like you said, if future deals come around then he knows I’m not just going to be some agent using him for information and taking all the connection.
[0:34:17.7] RK: Sure, there are lots of ways you can be creative in commercial just like in residential. For example, if you negotiate a lower price prior to rewriting the contract, you can tell the seller, “Hey listen, we’re going to go back to the higher price but you’re going to give me a repair credit for the difference in what I negotiated here. That will offset some of your down payment. There are lots of ways — maybe I did that too fast.
Let’s say you’re negotiating on a building for a million dollars, they’re asking a million dollars and you get them down to $950, or let’s say $900. You get them down to 900 and you know, then you can go back to the seller and say, “Listen, we’re going to stick with the million dollar price but I want $100,000 repair credit,” and use that to offset some of your upfront cost. You can be creative with commercial deals and multifamily deals as well and you certainly can have the seller participate, like I just described in that kid in Michigan’s deal.
In that regard, there are some similarities to residential and it’s not as regulated and not as — I’m not going to say it’s the wild, wild west because it’s not but it’s definitely not as regulated because there are no consumer laws associated with commercial property. A commercial property like I said can be a five nit okay? The other big advantage with commercial versus residential is commercial property is valued based on the net operating income divided by the cap rate. Versus residential that’s all based on comparable sales. So there can be a real benefit to buying a five to 10 unit versus four unit based on your ability to impact the value by improving the net operating income.
[0:35:59.1] MF: Right, yup.
[0:35:59.7] RK: Did I go too fast on that or did you guys…?
[0:36:01.9] MF: I think it makes sense. A lot of value can be added to multifamily by raising the rents, increasing the income. Because that’s what the value is based on.
[0:36:10.4] RK: It goes right to value. For example, if you have a hundred unit building, you know what? I can’t do the math here real quick. But anyway, it goes right to the value. If you raise the rent a hundred bucks for example on a five unit and you annualize that, if you’re at like a six or seven cap it’s about a $100 grand in value. I mean, I believe and I’m doing that but it’s that exponential and those numbers could be off but they’re not crazy off. That’s what’s possible with multifamily, a commercial multifamily versus residential multifamily. Residential, you’re locked into what other duplexes, fourplexes and triplexes are selling for. Anyway, as an aside.
[0:36:54.4] MF: I’m curious too, I’ve talked to a couple of different multifamily players who use syndication, get a lot of investors together to invest in it. They always seem to have an exit plan of you know, four to six years, we’re going to raise rents, increase the value and sell. Are you in that same mindset or are you looking to keep…?
[0:37:13.9] RK: Absolutely not and I’ll tell you, the big hitters that I’ve interviewed on my show, my first interview was a guy named Albert Berez, they own 35,000 apartment units and he made a comment that I knew in my head that I felt the same way but he articulated it perfectly. He said, “I’m a real estate buyer, I’m not a seller.” I asked the same question to Ken McElroy who I interviewed yesterday and his interview goes out on Monday and this is the guy with $700 million dollars’ worth of property and he said the exact same thing, he said and I will tell you, everybody I’ve ever interviewed that has sold properties has regretted it, they always look back and it’s like why did I sell it? Now, sometimes you have to, to raise capital to buy other property.
If you can make your liquidation event a refinance versus a sale in my opinion, you’re much better off. First of all it’s tax free and second of all it’s tax deferred at the very least but usually tax free and ends up to be. If you’re going to hold on to it forever it’s tax free. So if you’re buying for example and you bring your partners in and investors in and you buy a multifamily and you get those rents up and you get those expenses down, you improve that net operating income, then you refinance, you get the investors most or all of their money back and then you just sit back and enjoy the cash flow. It doesn’t get any better than that.
[0:38:31.6] MF: Right, no I like that idea too. I think, it’s like when you sell them, you’ve got to replace that with something else. That’s usually the hardest part is finding those great deal and getting those properties to perform.
[0:38:45.9] RK: I can speak to it in a single family space like I did when we first started talking. I had 500 houses in Denver. If I hadn’t gotten rid of those houses, I’d be netting a half a million dollars a month right now. Duh, I mean I can’t believe, you know, “would have, could have, should have”, but it is what it is, I learned that lesson the hard way myself.
[0:39:04.7] MF: Right. I agree completely and there’s — Rod, there’s a lot of other things I want to talk to you but we’re getting pretty short on time here. One thing with your — do you want to touch on your charity real quick, I found that very interesting.
[0:39:18.1] RK: That’s very kind of you, thank you, yeah. I have a foundation called the Tiny Hands Foundation and about 16 years go, I decided to feed families. I’m a big fan of Tony Robbins’ work and I went to one of his events 16 years ago and now I’ve gone to three or four events and helped him at his events for about the last eight to 10 years and he does what I’d started to do, which is called a Basket Brigade and so I went out with my brother in Denver as a matter of fact and fed five families and one of the families was in a shotgun house where you walk through the living room to get through the bedroom, to the kitchen and the bathroom’s off the kitchen. Just a really, they’re called shotguns and they’re just about as crappy as a house as you can have.
And this lady came out when I dropped the food up and she had five kids and she came out, she started crying when she saw the food and then the five kids came out and they all started crying. Then I started crying and I was hooked and the next year I did 50, the next year I did a hundred and doubled it every year. 200, 400, 800, 1,600 and I paid for it and then that was 2006 when I did 1,600 and then you guys know what happened after that. So I started taking donations and we have now fed 45,000 children for the holidays and a few years ago we also introduced, and that’s the Basket Brigade, we give them a big holiday basket filled with food and toys.
And then we also now do a Backpack Brigade where we’ve given away thousands of backpacks filled with school supplies to at risk children and then we also do a Teddy Bear Brigade where I give teddy bears to the local police departments here for the officers to keep in their cars when, you know, to give to a child if they encounter and experienced a traumatic event. That’s the greatest joy in my life and I’ll tell you, those of you listening, if you’re not incorporating giving back in some fashion into your lives, you may find success and achievements but you won’t have fulfillment.
If you want fulfillment, give back. Even if it’s just your decision to smile to everybody you see that day or just to ask the person at Starbucks or at the restaurant, how they’re doing? That’s giving back and obviously if you can do something financially, that’s even better. But whatever you can do, it doesn’t take money, it just takes your desire to help other people and that’s what brings fulfillment to your lives and that what brings you happiness.
[0:41:34.5] MF: Yeah, that’s great information. It sounds like a pretty awesome foundation you setup. So if people wanted to help out with that, what’s the best way for them…
[0:41:44.7] RK: It’s tinyhandsfoundation.org, every dime goes to the food or the supplies, I cover the operating costs. So I mean, there is no overhead. I cover everything else, every dime goes to help and I even participate on top of the operating costs and contribute as well. But if they send us a dollar, that dollar will go to help people. It won’t go to pay operating expenses. So thank you for letting me put a plug in for that, I didn’t expect that Mark and I’m very grateful for you for letting me do that.
[0:42:11.5] MF: Oh yeah, no problem, that’s great to hear that. That’s the one question I think everybody has when they hear charities like, “Oh great, how much of my money is actually going to go to it?”
[0:42:21.4] RK: Right.
[0:42:21.0] MF: Great information. Well one more thing I want to talk to you about, I know we’re kind of switching subjects all over the place here. You mentioned Tony Robbins and the events he’s been to and I know that attitude mindset is a huge part of your success as well. Do you have any quick tips for people who you know…
[0:42:39.9] RK: Yeah, I’ll give you the real quick rundown because I’m actually running out of time myself. But let me just say this guys, if you don’t have goals written down, write them down, if you don’t have the why, those goals are a must written down, write a paragraph on each goal as to why it’s a must and don’t just write the positive why’s, write the negative why’s. For example, “I want a hundred thousand, as an example, hundred thousand a month positive cash flow and because I want to be able to take care of my spouse, I want to get the house of my dreams, I want to live the life of my dreams. Bu if I don’t,” here’s the negative why’s, “because I’ll feel like a failure for example or I’ll have let my family down.”
Write those negative ones down too. I know it sounds harsh, but people will do more to avoid pain than to gain pleasure. Then get pictures of those goals. I notice, Mark, that you’ve got a Lamborghini. That was one of my top goals and of course I wrecked it a couple of years ago but I had a Lamborghini and I visualized that thing, I had pictures of it, all these exotic cars that I’ve ever had have been a result of having pictures of them on my wall. I had pictures of the things that I want on my wall right now.
I have pictures in my planner, I’m looking at right now of the things — I’ve had this pictures in here for 16, 17 years and what’s astounding is about three fourths of these things, I have. They were goals 16 years ago. So get pictures so that you see them and when you hit those speed bumps that you’re going to hit, when you get knocked down, when you get bloodied, you have the motivation to get back up and focus on why you’re doing what you’re doing and it keeps you going. So that’s some advice.
I also by the way in my podcast, I do a little five minute clips called Your Driving For Success Tips that are all about the psychology of success. Because, Mark, like you know, 80% of your success in anything is your psychology and only 20% is the actual mechanics, you know, the mechanical information. I really enjoy talking about the psychology of success.
[0:44:33.6] MF: Yeah, great information, I completely agree with all of that and yeah, I do the same things as well. Although I never feel like I’m doing enough but I try to get to it as much as I can. Rod, awesome information, great job. I think we went through quite a few things. Once again, tell us about your book and how to get it and what’s your podcast?
[0:44:52.9] RK: Sure, if they want the book, just give me a couple of weeks because it’s not quite done yet. But text 41411 and put in “Rod” and we’ll put you on the list and then if you want to check out my podcast, it’s Lifetime Cash Flow Podcast. We have a lot of fun, I have incredible guests and I also do those psychology related episodes that will really give you a boost every week. And my foundation is tinyhandsfoundation.org. Mark, thank you so much buddy, I really enjoyed it, I really enjoyed this forum to talk and I hope we can stay in touch buddy.
[0:45:24.7] MF: Sounds good, yup. I want to stay in touch for sure and thanks for being on and hope you have a great rest of your day.
[0:45:31.3] RK: Thanks buddy, take care.
[0:45:32.5] MF: All right, you too. Bye.