Discipline vs. FOMO: The Secrets to Winning in Multifamily Real Estate

[00:00:10] Hi everybody, it's Jake Sensayani, your host Jake and Gino Podcast. Here with my co-host, the Multifamily Mentor, the Coach, the Chef, the Father of Six, the Best Signing Author, the G Daddy. Nice and soft today with the pink shirt. Gino Barbaro. Gino, how's it going? Jake, this show is brought to you by Untuck It. Not a Peter Millar shirt, this is an Untuck It shirt. How you doing, brother? Always making it happen, big man. Today's guest is the founder and managing member of KRI Formula Partners, a real estate private equity investor education firm.

[00:00:41] Well, I'm excited to unpack that one. He has more than 26 years of real estate banking and private equity experience and has been involved in transactions valued at more than $2 billion throughout his career. So, without further ado, Ken Gee, welcome to the show. Ken Gee, thanks for having me, man. Hey, it is our pleasure. Please tell us about the firm a little bit and then your background. I'd love to understand the private equity and education, what that actually means.

[00:01:05] Yeah, yeah. We started out just as an education firm, right? We bought stuff with our own money. Then, like every investment firm, we grew up and started syndicating. Now we do funds. And along the way, we just realized, man, there are so many people that really we could affect in this business. We decided to get into the education side. So now when you come to KRI, you just go to the education side, you go to the investment side. But what we actually found out is most people do both.

[00:01:35] We have a lot of informed investors and that's really our goal. I mean, we've made so much money in this business and a lot of people have. If you know what you're doing, you'll probably do well. If you don't, you probably won't. And I want to help people really figure this out. So that's our company. That's how it's designed. So that if you just want to get into the multifamily business, we can help you no matter which way it is.

[00:01:56] Ken, you just said people that know what they're doing do well and people that don't know what they're doing don't do well. What's the difference between knowing what to do versus what not to do in your experience? What have you learned over the last 26 years? Yeah, the number one thing is people that they want they feel like this business can be played at 30,000 feet and you can't like if you've been doing it a long time, you understand what's going on on the ground and you can play at 30,000 feet.

[00:02:23] But you can't do that in the beginning. And I'm a CPA by background commercial lender by background. So I always do. I get into the weeds, right? Because everything in the world is about the details. And so that's what they miss. They don't want to do that work. I John Maxwell said, I heard him say, people want to do what you do, but they don't want to do what you did.

[00:02:44] And it's the thing that I did, the thing that we did, the thing that wasn't me, it was John and he nailed it. I mean, he's dead on. They just don't want to do that work. They don't want to get into the weeds. They don't want to figure out all the numbers. They don't. And if you do that, I mean, it's like any business, right? If you're going to be in business, you ought to understand it like really well, especially if you're going to ask somebody else to give you money to do it.

[00:03:06] So that's the number one thing that when I say people don't know what they're doing, they don't. They don't get into the weeds, right? Because, you know, you guys have been doing this a long time. If an investor asks you a question, you know what's going on on the ground and you know the answer. You're not, you ask me whatever you want. I'll tell you, right? Because you know. But if you're new and you haven't gotten into the weeds, now investors come in and ask questions and they just, they fall apart because they don't know the details. So that's the number one thing.

[00:03:33] Another way to say that 30,000 foot view piece is to treat it as a business and not an investment. If you're going to be a GP or if you're going to be buying deals on your own. And I think that's where so many people falter is that, oh, I'm going to go invest in real estate. No, you were buying a business and that's where folks really, really screw up. And it's like, oh, this is a side hustler. This is something easy.

[00:03:58] No, this is a business. Treat it that way and it will repay you and you will flourish. If not, you're going to face the consequences. A hundred percent. Yep. I just don't know why people don't understand. Because they think it's an investment though. They think it's like putting money in the stock market with maybe a little bit more headache. It's a business, guys. You are buying a business.

[00:04:17] Okay. This is like the basic private equity play across the board, but it's sort of like the foundational one, right? There's a little less nuances with it, but it's management intensive. It is. Agreed. That's why we self-manage. That's the other reason we self-manage because we understand the business. We grew up in Cleveland. So when you remember, when you start in Cleveland, there's nobody investing in Cleveland from outside. So we had no choice. We had no third party managers. So we grew up managing our own stuff. So we kind of learned it.

[00:04:47] And it's impossible to have successful third party in Cleveland, right? Everyone knows Cleveland is a tough market and you got to just do it yourself, right? Because no one's taking that pain off it, right? Yeah. It doesn't exist. I've never been to Cleveland. I'm going to be smart ass right now, but I'm sure that's the way it is. Well, yeah. I mean, Cleveland gets a bad rap, but it's not a bad city. Here's the problem. I spent 10 years investing in Cleveland. It's just not growing. Now we're in Florida. I mean, oh my God. Well, that's a problem when your business is based on supply and demand though, right?

[00:05:15] It is. Yes. Yeah. Yeah. So that's why we moved down to Florida. That's why we started doing deals in Florida because that demand supply thing is completely reversed. And I can't do in Cleveland what we can do in Florida. Ken, I want to get into your mind and I want to understand you're buying deals with your own capital. What made you want to sort of say investors? I want to get into the investor space and start raising money. And I want to ask another question. What did that look like?

[00:05:44] I want to go down that vein right now because a lot of people, they either start in syndications or they start with their own capital, then they morph and they do both. What was the mindset for you behind saying, hey, you know what? I need to start raising capital from investors. Yeah. So my background, CPA, I spent seven years at Deloitte. Prior to that, I spent five years as a commercial lender. I'm familiar with the private equity model and private equity guys do really well, right? But you got to know what you're doing first. So I spent 10 years figuring it out with my own money.

[00:06:11] And then I thought, OK, now it makes sense. I'm comfortable asking you to give me money because I've been doing this for 10. I don't know everything after 10 years. Right. But I know a hell of a lot more than I did 10 minutes into the game. So now I was comfortable. And we I mean, you know, in the beginning, it was hard to raise a million dollars right now. Now, I mean, our fund, we do blind pool funds now. Our fund has like 18 million dollars to deploy. Right. 20 years ago, there's no way I would have ever imagined that possible. Right.

[00:06:40] So you just you do this a little bit at a time and your deal size needs to be consistent with your experience. I mean, just you need to grow this thing up the right way. Right. Make sure you have an infrastructure, all of that stuff. But I just knew that I knew how private equity works. Right. Private equity is all about that carry interest. We don't have high fees. We don't care about the fees. We just can't go broke doing what we do. And we're just stacking this thing up for the carry interest. Right. So we're perfectly aligned when our investors kill it. So do we.

[00:07:10] And so now we're just stacking these things up. And that's why. Right. Because that's how you really create wealth if you're going to be the operator. Right. We have our own money in the deals as well. So we're creating wealth based on our cash in the deals. But we also are getting that 20 percent bonus on on the deals. So, Ken, why was it hard for you to raise a million dollars early on and now all of a sudden you're just open up a fund and it's 18 million bucks? And there is. Yeah, it's not. It didn't happen all of a sudden. Right.

[00:07:37] That was easy. This is great. This business is great. That's right. That's right. John Maxwell. Remember, they don't want to do what you did. So I grew up very modest. My dad drove taxi cab. I mean, my Rolodex was non-existent. I didn't know anybody. And every single relationship that I built was it was hard. Right. I mean, people who know a lot of rich people that I'm not saying they have it easy, but they certainly have a different path than what I took.

[00:08:08] And different exposure. Right. Right. That. Yeah, that. No, that's exactly right. That's exactly right. Because I grew up very similar. I never knew a business owner growing up. So how the hell can I expect to go start my own business? That's that's sort of a challenge. Right. If you can't. You guys are both growing up in middle classes. You guys grew up next to Kamala Harris by any chance because she grew up middle class. No, no. I grew up in a sub middle class family. OK, sub. Oh, you're sub. You're not even. OK, OK. It's all about how you brand it. It's about how you brand it, man.

[00:08:36] It was a sub middle class Midwestern childhood. So it's called lower middle class, brother. You don't have to call it sub. We can call it lower. You call it what you want. I'm telling you what it was. All right. Ken doesn't want to get political here, Gino. No, he's right, man. He's right. It is. You know, my parents were amazing people. My dad worked his ass off. So nothing against them. It's just he drove taxi cab. I mean, you're not going to make that much money when you do that. I thought you were going to say you were raised by the nanny next door and choose the other.

[00:09:05] Oh, yeah. Yeah. They can afford a nanny. Yeah, I don't think so. No, no nannies in my world. That's for sure. Nannies probably make now more than well. I know they do. They make more than my parents did. But but, you know what it is, is now you've really if you're going to raise money, I'm going to convince you that you should give me your money. It's got to be because, you know, I'm going to work my ass off. You know that I'm going to do whatever it takes. You know, I'm going to dive into the details. Right. It's a hard way. But I think in the long run, I think it has served us really well,

[00:09:33] because now raising member syndicators find the deal, then go raise the money. And the investors have the deal to look at. They can drive by the property in our world. We raise the money first now. So now just think about that level of trust has to be exponentially higher because they give us their money and they don't get to say no. Right. We're going to do what we told them we were going to do and they're going to rely on our track record. But the level of trust when you raise money before you have a deal is just so much higher. And I think that has helped us. Right. In the beginning, it was just really painful.

[00:10:03] Right. I guess you're a lot of pain then is really I feel like it's paying off now because now people get it right there. They now appreciate it right right now over the last few. Where was that pain, though? Was it growing the property management and the management component of it? Because you had your experience in financing, right? So you probably understood the buy side as well. So I'm guessing the vertical integration and the management component was the most challenging. But what say you? Actually, the most challenging was was maintaining discipline on the buy side.

[00:10:33] Because what happens to a lot of people that it's never happened to us. I have this little saying, don't ever negotiate your discipline. Just don't do it. But even if and I had a conversation with an investor in our fund right now, we're looking for a deal there. They want a deal by year. And I said, look, I don't have one right now. And if that means that you you want to take your money back and go invest it, do that. Right. They're like, oh, my God, are you serious? Like, you'd rather give me my money back? I said, no syndicator in 2021. That's exactly right.

[00:11:02] Right. Now, here's here. Now, we bought stuff in 2021. But here's the discipline. So what people do in times like 2021, it gets FOMO. FOMO is like exploding. I completely agree. Yeah. Especially with social media. It 10Xs it. Yep. Yeah. Everybody's doing this. Oh, my God. Why can't I get it? I got to get a deal. I got to get a deal. I got to get a deal. We don't ever do that. We just never have. So we require at least as close to even leverage as we can get. But here's the deal.

[00:11:31] We want two to three hundred and upside on every deal. And that means not. Are you saying 50 percent LTVs on every deal? No, I didn't say that. But if that's what it takes, I don't care. Here's what. No, no. Even leverage. Even. I mean, interest rate cap rates are pretty even. That's what I meant by that. But the important part here is the upside. People remember about doing the work. Remember that conversation we had about that?

[00:11:55] We'll go and make sure that we really do the rent survey. So we understand the rental market like a renter would. And then where's our property now? Where do we think we can take it? What's it going to look like after we're done? And my goal is to rent our very first apartment after we close at or very near my projected upside. And that's really important because what happened in 21? Well, remember, 20 percent year over year rent growth in perpetuity. That's what the underwriting said, right? It was 20 percent.

[00:12:25] No, no, no, no, no, no, no. That's what happened in 2021. That is what happened. But that is not what we did. So what we did was that's what happened, meaning that's what people underwrote for and got screwed. Right. They were writing 20 percent. And I'll be very clear. We do the same thing. So when we go in, we're underwriting based on where we think the market is at right now. And if we can get the rents to that, we're very happy. We're not going beyond that. That's that's what that's what the underwriting looks like on the front end. And it's exactly that. And I think so many people miss it.

[00:12:53] If you understand your market and the cool thing about our group is we're vertically integrated as well. We're in about a three hour radius. And so we know the market very well. And it's it's easy to act because we have eighteen hundred units in our portfolio and we know exactly what the market rate is going to be in that sub pocket. Right. Or that sub part of that market. So we can go in, get the rent roll.

[00:13:15] I care what the income is, but it's not a huge component of it, because most of the time we're going into saying this is being under managed and this is where we're going to take it. You know, kind of that private equity piece. And then that's where the magic happens. So I couldn't I couldn't agree with you more. Yeah. Yeah. No, you've got to have that upside. So I don't want percentage increases, though, is what I'm saying. That was my point. Excuse me. I want it. This is where I believe the market is. This is where I'm going to try to get it to screw the 20 percent year of year rent growth shit.

[00:13:40] That's stupid. Yeah, that is what we do after we have. We we build our upside, even though we think it's there today. We're going to factor that in over a three year third, a third, a third, because it takes time for leases to turn. The other thing that we do is after that, our rent increase are two percent. That's it. And that's that's not unreasonable. Right. On a thousand dollar lease. What is that? Twenty bucks. I mean, it's not ridiculous. So but here's why this is important. So we actually you got it. You know, your market. I know my market.

[00:14:09] But if you're new to the game, you've got to get in your car and you've got to drive around and you've got to visit this one and visit this one. Just like you're a renter and figure out what it really is. And don't lie to yourself. Right. Don't talk yourself into it, because here's why we are not in trouble in 20 from 2021, 22 purchases. Number one. Remember, I lived through 08, 09 because I've been doing this a long time and then debt became the problem.

[00:14:33] So I always, always am careful with that. I never let myself be exposed to variable rates and short term stuff because it's just too damn dangerous. Everybody thought in 21 rates would never go up. Just like. No, no, they can't. No, there you go. They cannot. It's not even possible. Just like a few weeks ago. I don't know when this will air, but a few weeks ago. Cash is trash and rates cannot go up. I heard that a lot. I'm sorry. You're not wrong. Now, you know what I've heard for the last three years? Survive the 25.

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[00:17:23] Good for you, because that's exactly what you need to do. So if you did that and you executed on your business model, so now what solves all problems in the multifamily family world? What solves against insurance rates going up and all this other stuff? New cash flow. That's why we require $200 to $300 in upside. Because you think, oh, this isn't going to happen, and that's not going to happen. You have no idea what's going to happen tomorrow. None. Fed lowers rates 50 basis points. The Treasury goes up 75.

[00:17:54] It's probably like 2.30 this morning. 3.30, right? It's like, what? Are you kidding me? How does that happen, right? Everybody thinks they know, and you can't. You have to assume the worst every single time and execute on their business plan. If you manage your debt and execute it on your business plan, you're just fine. But if you screwed up one of those two things, you're toast right now. You're having a lot of problems. When the 10-year was hitting 3.80, I was like, oh.

[00:18:19] Because we want to get to 3.00, get maybe sub-150 over on your spread and start refinancing some shit. And we're okay. We're not pressing. But we're like, let's go. And then all of a sudden, to your point, now it's back up to 4.30 or some shit. And it's like, come on, man. Yeah. Now you've got to ask yourself why. Now the Treasury is trading. It's not. It's trading like a stock. Well, inflation has not gone away, right? And I think that's the result of what you're seeing in the 10-year.

[00:18:48] So Ken, why do you think the 10-year Treasury shot up? What's your theory or your thoughts on it? Yeah. So I watch this thing constantly. Fed drop rates. And I don't remember. It was a couple of weeks later. Remember, the jobs report came out much stronger. Then followed up with retail sales. And then payrolls, I think it might have been the same day. Payrolls, pay rates were higher. I don't remember. 0.4% higher or something like that. I don't remember the exact number. So we're seeing strength in the economy.

[00:19:18] Housing was up. So now we thought the Fed was lowering rates. They made a big jump at 50 basis points. But now we're getting all this data that here's my theory. My theory is everybody thought neutral rates were in the threes. And that's where they figured the Fed was headed. That kind of made sense based on what the Treasuries were doing. And then all of a sudden, here comes all this positive data. Now, wait a minute. Now the market's like, maybe neutral doesn't need to be in the threes. Maybe the Fed will allow neutral to be in the fours.

[00:19:47] Now you see, that's why I think that's why you see long-term rates where they are. Because the market is worried that the Fed will redefine neutral and say, look, if this economy can chug along at these rates, we're not hurting the economy. Right? And that's what I think happened. I still want to throw a temper tantrum, though. Well, so do I. Because here's what's going to happen. How many... Are you selling your deals right now? No. Why? Because you don't have to. Yeah.

[00:20:17] We don't really sell. No, no, no. I know. But let's pretend like you've held five, seven, ten years. People are like, eventually they want to sell. Well, I don't sell anything I don't need to sell right now. That would be stupid. This is not a good time to sell. No, it's not. So the only people they're selling are the ones that can't get extensions from their debt, from their bridge lenders. And I will tell you, that's been a surprise to me. I thought there was going to be a lot more blood. So did I. And I didn't think about, oh, wait, all the banks were, you know, the banks had to foreclose.

[00:20:46] Freddie, Fannie, all those guys had to foreclose. Debt funds, they're regulated differently. So they don't have a regulator behind them, you know, literally breathing down their neck, you know, get that thing off your balance sheet. Fed debt funds have way more flexibility. So like, hey, guys, if you need me to be flexible, you're a good management team. We're going to be in the best shape we can. We're going to extend, even though we're not happy with the performance right now. We're not happy with interest rates.

[00:21:12] We're going to let you keep this property so that you can see us through this problem. So that flexibility did not exist in 08, 09. Some of these deals would have traded, though. And the thing is, they're still getting propped up, I think, you know, 20, 30 grand higher per door than they should be because they're, you know, they're not feeling the pressure like they should be. And they traded too high initially. Their current income doesn't justify the sales price that they're asking for. They're still in this like 21, 22 headspace.

[00:21:41] And the performance isn't there. So frankly, I'm pissed because there's a couple that I'm tracking that I want. I want 20, 30 off per door. And hey, we might be there. But it's just that they're sticking. And, you know, I don't know. I'm frustrated. Again, throwing a temper tantrum here. I just had a conversation with a broker this morning about that very same thing. Yes, sir. I was going to put Jake in the timeout for in the corner. He's throwing temper tantrums. So let's have an adult conversation here. Me and Ken. Jake, timeout, Jake. Ken, this is important because, you know, where do you think rates are going?

[00:22:10] Number one, a longer term. Two, when does that cycle break? Are we in the first or second inning where sellers are like, you know, it's time to like drop your price. I mean, like these groups are motivated. They've got to get their stuff off. They don't want to drop prices. They keep extending and pretending. When does that bubble burst? And if it bursts, does it happen all at once? And we're like, holy crap. And we're going to get inundated. What are your thoughts on that? Yeah, here's what I think has to happen. We have to have more bad economic data. It's unfortunate.

[00:22:40] The labor market has to soften. As soon as the labor market softens, inflation will continue to trickle down. We just don't need it to spike, right? I mean, look, nothing goes straight down, right? Sometimes. It's going to do this, right? And you're going to have blips in this hopefully downward trend. As that happens, the Fed will, I think, lower rates. When I think the market's locked up. I just had this conversation with my daughter yesterday about a private equity firm she works for.

[00:23:07] This whole market is locked up because of these higher interest rates. If you're raising institutional money, which we don't do, but the institutions are fully invested in deals they can't get out of because their private equity guys won't sell correctly. They're staying propped up. Yeah. So you can't have new capital coming in. So the sellers can't sell. The buyers can't buy. There's too much of a gap, right? The only thing is, as soon as rates come down, it's going to open up.

[00:23:35] And I think, here's why I know that. We're really close with a lot of the brokers in Florida, the big brokers in Florida. And the moment rates started to come down, they got a mass rush of BOV requests, right? Broker opinion. Around 380, right? When the 10 years started getting around that 380 market. That's what I've heard from our mortgage brokers, at least. Yes. Yeah. Yeah. No. So, well, brokers got broker opinion of value requests because they want to go out and sell their properties. That's why I know you just have to stay disciplined. Don't be stupid.

[00:24:03] Don't bail someone out and overpay. Don't do stuff like that right now. Just wait. You got to be patient. Be Juan Soto, not Aaron Judge right now. And wait for your pitch. There you go. There you go. Yes, sir. Yes, sir. I saw him swing last night at that fastball or that cutter, I think. I'm sure he was disappointed he did. And Jake is still in a timeout. I don't know why he's still chiming in. You're not out of the timeout circle yet. Let me continue with Ken on this conversation because it's really important because I think

[00:24:32] people have to understand that no deal is better than a bad deal is what you're saying. The second point that I love to say is you buy on Proforma. Ken's buying on Proforma, but you borrow on actuals. That wasn't happening a while ago. Yeah. Yeah. We're still going to pay based on actual. Okay. We're buying based on your zero. We just won't buy if there's no upside because I don't do the hope and pray thing. I don't hope and pray for inflation to make money. I want you make money in business by generating more cash flow.

[00:25:02] And I just have to know it's there. So, and if you're getting into the market right now and you're a newer investor, what are the couple of things that you should be doing? What markets should you be looking at? What should you be doing as a newer investor right now? Yeah. Number one, we tell our people, you need to learn as much as you can and get comfortable with not doing, not getting FOMO. You have to do that. You have to go to the market. Now's the time to learn, right? They always think that, okay, I want to buy in the Tampa market, for example.

[00:25:30] Well, I'm not going to go there until I have a deal that I think I'm going to get. What are you thinking? You got to develop relationships. You got to prove. I mean, there's a lot of people that want to buy in Tampa, right? They think it's like going to Target and buying something off the shelf retail, right? It's not. Yeah, they don't want to commit the time. I mean, I went to Florida 15 years ago. We started going to Florida. Man, I made trip after trip after trip after trip. I mean, it was nauseating, right? But you got to get to know the market. You got to get brokers to take you seriously.

[00:25:58] This takes a long time. And so what I want people to do is to take the time now to learn the details. Figure all this stuff out now. Because if you do, you're going to be rewarded when the deal flow starts. The deal flow will come again. Just like insurance rates are coming down in Florida, right? We just got a renewal on a property. You're going to be shocked. After two hurricanes, 25% reduction. Right? These things will happen. They always do.

[00:26:26] It's just remember, if you don't have 27 years to look at the whole thing, you're like, man, I'm never going to get a deal. That's the way you approach it. Insurance is never going to come down. You know what I mean? They just don't think these things will never happen. And they need to be prepared. They just want to get the deal tomorrow. And you just got to sit tight and chill and let things come to you rather than go chasing this stuff because people who chase get into trouble every single time. Ken, last question before we go to the short answers.

[00:26:54] As far as in the syndication world, are you seeing people having trouble raising capital in this part of the market cycle? And do you think it's going to loosen up once there's more deal flow? Or do you think there's a lot of deals that are just not having, they're having capital calls? They're going into, you know, getting LP equity wiped out. What does it look like from your perspective as far as people trying to raise capital in this part of the cycle? Yeah, that's a great question. So I'll tell you, the conversations that we're having with investors, they're in 5, 6, 7,

[00:27:23] 8, 10 deals, and most are not performing. And many of them, they're pretty sure they're going to lose money. So now investors who, I mean, look, you need to be in real estate. And there's been a huge push to get investors into real estate. And I agree with that. Problem is, they dove in thinking, what could go wrong, right? This is what they did. Now they are feeling the pain. And so what's happening, new syndicators are having a lot more trouble right now. Guys that have been around a long time, that's, I told you the conversation.

[00:27:52] Well, I don't know if I told you the conversation I had this yesterday with the investor. He says, Ken, I'm here to wait. I am here because I know you will wait for the right deal. He's in five or six other deals. They're all tanking. He's like, now they understand experience matters, right? I always tell these guys, four rules, experience, track record, transparency, and they got to put you first. I won't expand on those unless you want me to. But those four rules, if you follow them, you'll be good. I'm running it down.

[00:28:21] Experience, track record, transparency. And putting the investors first. So I have a three-step framework for passive investors that I'll share with you, Ken, right now. And it's very, very similar to yours. It's the sponsors first. The sponsor is the jockey. He is the one who is running the deal. The second one is the saddle, which is the alignment of interests. You have to align your interest as an LP with the GP. And the third one is the deal. The deal is last. Buy right, manage right, finance right.

[00:28:50] Most LPs or passive investors go, I want a deal. I want a deal. They're doing the opposite of what they should be doing. And coupling your framework, which is very similar to ours, it's looking at it through that lens. And if you're a general partner or someone syndicating, you should look at it from that vein also if you're trying to attract capital. You're the general partner. You're the one who's supposed to be a tough and great sponsor. You're supposed to say to this LP, well, if you've got $30,000 left in the bank and that's all you have, we should probably pass on this deal. Our interests don't align.

[00:29:19] And oh, by the way, I'm going to hold this deal for 10 years. You want your money back in two years, probably not a good fit. Your interests have to align. And then let's talk about the deal. And if you do that as a general partner or as somebody who's trying to raise capital, it'll be much easier to raise capital if you do that. All four of my rules, what do they impact? The sponsor. I haven't even talked about the deal. I haven't even talked about the deal because if you nail all four of those, that person will take care of the deal.

[00:29:47] Because you're not going to, if they really have experience, if they've really got a track record of actually going full cycle and making money, if they've really done all these things, how are you, as it may be potentially an inexperienced investor, going to know more about that deal? You're probably not. So you've got to, you're right, the jockey is first. And I don't even get into the deal yet because if you nail those first four, the jockey's job is to take care of the last thing. And that's the deal. That's how I view it.

[00:30:17] But I'm telling you, all these people that are losing money, they knew it. They're like, I knew it. I knew this guy didn't have experience. I knew I shouldn't have. They always know. And they're always breaking at least two of those rules when you find a deal goes south. Now, there's no guarantee. You know that. That if you follow this four rules, you'll make, but you're, man, you're stacking the odds way in your favor if you do those things. So, yeah, we're on the same page for sure. Cool. Guys, let's take a quick time out to hear from our sponsor.

[00:30:43] Now, we have had a great run in multifamily going from zero units to over $250 million in assets. That's over 2,000 apartment deals that we've been able to purchase through our framework, buy right, manage right, and finance right. Now, Jake and I, we created the Jake and Gino community back in 2015. We launched our first book, Love Our Profits. And since then, our students have closed over 60,000 units. That's over $4 billion in assets they've been able to close over the last six years. And that's why this community has been so successful.

[00:31:12] We call it results-based education. And we pour back into the community everything that we've learned on our journey from zero to 2,000 units and all our systems and scale that we use on our very own property management and investing companies. Jake, I love that. It's not just education. It's implementation. So what I want you to do, click on that link down below, apply to work with our team, see how we can help you on your journey in multifamily. All right, we are back. So we're going to stay with this topic a little bit.

[00:31:42] What role do you think social media played in 2021 with these investors taking on variable rate debt? Because you mentioned FOMO before, right? So maybe speak to that because I have my own thoughts, but I want to hear from you. Yeah, I mean, social media, excuse me, we use it to raise money as well. I mean, it's the top of the funnel stuff, right? I want people to, and we watch people spend a lot of time with us before they invest. That's what you should do.

[00:32:09] The problem with variable rate debt is the inexperienced person thinks, okay, their plan was good. I'm going to get in. I'm going to do X, Y, and Z to the property. I'm going to use a bridge lender to help me finance it. And then in three years, I'm out the door. There's the problem. You have no contingency plan for what happens if everything doesn't happen. That's where this thing got screwed up.

[00:32:33] I'm just telling you, if they could have exited in three years, if they had not raised rates from like next to nothing to five and a half percent or whatever it was, they did. Had that not happened, all these guys would have done well and made money, right? But that's the real problem. I don't know that social media certainly spreads the word. I think I'm personally- No, my point, the point that I'm making is the point that you made earlier, and that's FOMO.

[00:33:01] He's doing a deal, so now I got to do a deal. Oh, screw finance, right? I'm going to take on variable rate debt. Everything's going to be okay. They can't raise rates. And so people start telling themselves these lies, and they also hear the lies or the myths on social media, and it spreads and festers faster. So if you don't have discipline, if you are not the Juan Soto at the plate and you take a lot of walks, you're going to end up striking out. And that's the point that I make is that this stuff moves quickly. And so if you hear it enough times, marketing works.

[00:33:31] They can't raise rates. Cash is trash. Operations, I'm going to sell this thing in three years. This is what we get caught up in. You've got to stick to the fundamentals. And I think that's where a lot of this stuff went sideways. Oh, no, we agree 100%. Yeah, we agree 100%. People just, I don't know, man. You know how many investors we lost because they said, you know what, he's got a deal. Then you should go do it. If you need a deal tomorrow, don't invest with us. Go to this other guy, and I know they'll be back, right?

[00:34:01] I'm here for the long run. They're doing the investor walk of shame back to our boy Kenny over here. Well, I don't know about that. That would be a bit of a deal. Oh, I do. I do. I don't care. I'm speaking the truth, my friend. I'm speaking the truth. I like that. You let him out of timeout. That makes me happy. I like that. I never let him out of timeout. That's the problem. You see what I'm saying? He should still be in timeout right now. You didn't lock the door. You didn't lock the door. He knows how to get out. He knows how to get out all by himself. But no, you're right.

[00:34:30] I think in the long run, it is tough. In the long run, this experience stuff matters, right? The slow, boring, conservative guy that's been doing this for a long time who's watched people fail. Man, pay attention, right? Stop trying to make a quick buck. Just come on. And these people don't even get me started on this, and I'm going to do this to myself. Five, 10, 12 people in a GP pool, and everybody gets in for raising a million bucks or something.

[00:34:58] Those things start to get so dangerous because now you don't know what you're doing. You're bringing your friends and family into a deal that you have no control over, and nobody in the deal really has any real experience. And how many times does that happen? It's the economic swinger party, and they don't use protection, and people ultimately get diseases. And you want to stay away from that. You want to stay away from that, all right? If you see an upside-down pineapple, you might want to just go to the next house. So the funny thing is we went through FOMO.

[00:35:28] We're seeing all this stuff. We had our slowest year in 2021 from an acquisition perspective. And then the funniest thing is we've done three deals in the last 90 days. We staggered them one deal a month, and we're finding some value out there. But even with that, I go through a different type of mental issue, right? And you pointed to it a minute ago. When the deal is done, you feel like you're never going to find another deal again. How do you personally deal with that?

[00:35:55] Because it's a real thing, and it's hard to find really good deals. And the minute you do one, a week later, you're like, shit, we're never going to do another deal again. So how do you deal with that? And how do you also kind of work with your investors, like the guy that you had to send down the street? Yeah, this is, I tell my, every investor meeting we have, I say, guys, you've got to come to grips with one word, and that is patience. You're coming here because you want me to do a good deal.

[00:36:23] My goal is to not put you in as many deals as I can find, but to put you in deals that make money. Because I don't want to have the conversation with you that my deal didn't go well, blah, blah, blah. Now, how do you get over, I can't tell you how many times people have come to me and said, hey, Ken, can you look at my underwriting? I'm like, man, that doesn't even make sense. He's like, you know, if I follow your method, I'll never get a deal. I said, well, if you follow my method, you'll probably not lose money. Now, which is it? Which do you want, right? And so how do I get over this?

[00:36:52] I'm never going to do another deal. Speaking from the guy that I'm never going to do a deal, but the guy that's done over 2 billion in transactions. So just let's make sure we're aligned. No, no, but think about that. Like he's saying, he's telling you, Ken, if I follow this, I'm never going to do a deal. And you're sitting back saying, I've done over 2 billion in deals. Yeah. Well, my question, do you want to make money or not? Right. Do you want to just, I mean, are you trying to buy the S&P 500, the SPY?

[00:37:19] Or are you trying to buy a stock that's going to explode on you, right? Well, if you want the SPY, that's what you're doing. If you're just getting in deals, hoping and praying that the market goes up for you. That's not what we do. That's not how you make money. I keep the faith just because here's what I tell people. What will happen to you if you maintain discipline is you will get so frustrated. You'll be like, there is no way I'm going to get another deal. And as soon as that comes into your mind, this is what happens to me. I get it. I'm like, oh my God, there's my deal right there.

[00:37:48] And then you got to look at it three times. Cause you're like, wait, something's wrong. Something's missing, right? What am I missing here? What am I missing here? And you look at this, you look at the math like multiple times and you're like, oh, wait, wait, is this vintage correct? What's the plumbing? What are we doing? What's what am I missing here? That's always the question, right? Yeah. You just have to be disciplined if you want to make it long-term because you will make remember, this is not a great rich quick, get rich quick thing. I know you guys know that, but so many people just want to make money. And I want you to make a million dollars on a deal. That's what I want.

[00:38:17] It's going to take time. That means you got to, you got to just vet it out because in the end, I want you to be not an investor in one deal because investors are hard to get. I want you to do this over and over with me, right? And just slowly build. We've raised now like $46 million. Okay. That's a lot of money. It's not in the grand scheme of things, but we did it the hard way, right? And we have people who have given us millions of dollars. They just keep stacking, right? Because of our discipline.

[00:38:44] That's, I go to sleep at night knowing that we have this discipline. I tell people, look, my last deal I closed was March. Brand new deal in St. Pete. Hard deal. The only reason we got it is because we had all the money raised and these guys needed Yeah. And you're ready to go. And that matters right now. That matters in this part of the cycle. That's a great point. It totally matters. We get into any best and final we want to get into because we have $15, $18 million to do. You start showing them the case, you know, he's like, look what I got here. I got a pile of money.

[00:39:14] But what else is important? Yeah. That's it. That would be the arrogant side. But I want to back that up with the way we do business, right? We're Midwestern guys. I'm from Cleveland. If I tell our brokers, man, if I give you an LOI, we're prepared to close at that number. And we are not going to jerk you around. We are not going to do all, you know what everybody does, get in our contract and just screw the guy on the retrade. We don't do that stuff. That is 100% our approach as well. Yeah. There's a lot of fake buyers.

[00:39:42] A lot of our coaches are telling us there's people that are putting deals in the contract and going on LinkedIn, trying to wholesale or a daisy chain. That's what they're doing right now. The Atlanta, Georgia model. Dude, there's a lot of that stuff going on right now. Yes. Yeah, there is. Do you see a deal in Atlanta and they say that the broker, you got to look three doors down to find the actual source? Do you really see? I didn't know that was going on. I just learned something. Yeah. Now that that's not going on in Florida, but it sounds like Atlanta. I can never figure out how to make money in Atlanta. So if you can do it, good for you.

[00:40:11] Now we've, we've, we've looked, we've, we've window shop, but that's about as far as it went. Gino, just before we, I forget for SEO purposes, I think we got to label this the Juan Soto podcast and then let people dig, dig deeper. So next question. When is the economic cleansing coming? You're a Florida guy now. Now hurricanes, they, they, you know, make the forest nice again, but it takes a little time. When is, when is it coming? When are we going to really see some distress here? When are we going to DC distressed?

[00:40:40] What the thing that's making me hesitate with a good answer to that is the debt funds and how flexible they have become. I think at some point, if, if, if the fed keeps rates up and the treasury doesn't come down at some point, the debt funds are going to get nervous and start to pull the plug. Um, that's the, the variable that I didn't account for like a year ago. I mean, they've been way more flexible. They're doing the right thing.

[00:41:06] I mean, they are, if you've got a good management team, occupancy is good. Just, just work with these guys and let them work out. Participation trophies is what you're saying, right, Ken? Yeah. Yeah. Yeah. That's pretty much it. Yes. Yeah. So I went, when is it going to happen? I don't know. I thought it would happen. I thought we were there. You said March, 2025. Is that your exact date? That's the answer you're giving me? March 17th. No, I don't know. I don't, I don't know, man. I do think it's going to be, I do think it's, we just got to get some more relief.

[00:41:35] See rates now got to come down another 75 basis points on the treasury. We're so close. I wanted really three, uh, for the 10 years, my strike. I'm like, we're getting like, you know, four deals over the line of that. His three. What is it? 430 today or something like that. Yeah. Yeah. We got a way to go. An absolute stinker, Ken. It's a stinker. Hey, Jake. It's not often that we get a sponsor that transforms their industry. You're telling me. After years of fine print contracts and getting ripped off by overpriced wireless providers,

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[00:43:58] See Mint Mobile for details. But you don't have to sell yet. So just chill. Just chill. I know. Just wait it out. Just wait it out. He said, be cool, man. He said, just be cool. That's what I said. Yeah. Yeah. I like that. He's good. He's good at paraphrasing. He really is. He dumbs it down for his partner. He makes it easy. It's simple for me to understand. Thanks, Jake. Yeah. Yeah. No problem. So you got the education arm of it.

[00:44:24] Anything that you've read or absorbed in the last couple of years that you want to share with the folks? I mean, if these people are looking at getting into multifamily, roll up your sleeves and do the hard work, man. Just do it. Stop. I don't know why people fight this. I've got people in our program. I'm like, I want to buy an X market. I said, well, how many times you've been there? I haven't been there yet. How many brokers have you called? I haven't called in yet. Like, how many deals have you underwritten? Well, I kind of underwrote this napkin at one. I said, come on, like, just go do the work. Go do the work.

[00:44:53] That's what I want your listeners to do is to dive into the details and do the work. And here's why. This is a little selfish, but I'm tired of competing against people who don't know what they're doing. And brokers talk sellers into taking flyers with these guys, hoping they will close. And sometimes they do. Now, the good thing is Freddie and Fannie said, time out. Enough of this nonsense with no experience. We are not doing loans for people without experience. That is going to help rein that in.

[00:45:22] But that's on the education side. That was my initial motive. Plus, I mean, we've just done really, really well. I want you to do really, really well. And I don't want you to go into deals that you don't know. You don't understand. You don't know how to manage because you're going to bring in a bunch of investors who could someday be my investors. And now you just want people lose money. They're not coming back probably. Right. I mean, you lose a hundred grand. I'm interested. I'm interested to see in the multifamily space. We don't raise money. We don't syndicate. We did a couple. Oh, you don't? Okay.

[00:45:52] No, we did it. We did a few and we did really well. It's just we started off with our own money and we just prefer that kind of own it yourself long term buy and hold model. And so we did we did three syndications. And and in my opinion, it sort of forces you to sell at some point. And I really like to hold and just continue to get cost seg and roll with these things. So so the thing that I'm wondering is how much damage did this last part of the cycle

[00:46:22] do to investors in the multifamily space? And how long will it take to get that demand back? And I think there's going to be and for us, we're excited because we're buying hold, you know, competing with, you know, syndicators. Right. So we really are price conscious. And so it's been nice in the last few months. We've we've seen some better deal flow. And the more syndicators rush in, we're we're at like the deli line with ticket number 20, you know, waiting to get the middle finger because, you know, to the point you just made

[00:46:50] this group of inexperienced investors came on and bid the deal up. Right. So when do you think the demand comes back? Because it's clearly not there right now from an investor standpoint. Well, I will tell you, we've been around a while. We are not having difficulty raising money. Why? Why? Because I think I think that's you know, I don't think that's the case for everybody right now. I know. No, it's not. It's not. You're right. The less experience you have. I mean, it's exponentially harder now. It just is. So did some people fall out?

[00:47:20] Absolutely. Do I know it's got to be harder for you than it was two years ago. I mean, be honest, right. It's not as easy as it wasn't, say, 21. Well, what balances me against that is, I mean, when you start to do well in the money raising, it does. It's not a straight line. It kind of goes like this. And so and I'm not trying to be a prick about it. I just think everything in general is a little harder right now. Right. It may be. But if so, here's what you don't know. What you don't know is how many people just said, I'm done. I'm out of here. I lost money.

[00:47:49] I'm not doing it again. A lot of people did that. But the people that know that you can make a lot of money in this business, they're coming to people with more experience. Well, because the time is now, right? Like this is the time where you can really create some wealth because I think you're going to be getting deals at a better price point and you're going to be able to perform really well. So I think the opportunity is now and we're buying more now than we did in 21 because we like the market better. I just don't know that the average investor, the average LP is able to get over the sort

[00:48:19] of icky feeling, which is the economy right now. And I think people tend to hold back, even though I believe this is the time they should be pushing in. Yeah, I don't hear investors as worried about the economy just because, I mean, we're in multifamily. Everybody needs a place to live. I try to just mitigate every risk, right? That's why I do money. I agree with that statement. I just don't think the economy is what it was. Well, it's not. No, it's clearly not. But when I look at investors looking for opportunities to make money, most of the time they just get

[00:48:47] sick to their stomach with the stock market volatility. They want low risk. They want to build this long-term wealth. Those people are coming to us. We're not having a lot. I'm just telling you, we're not having a lot of trouble. Could we raise more in a different scenario? Maybe. I don't know because I don't know what that scenario would look like. But remember, as we continue with our marketing efforts, everything that we're doing as a firm to put ourselves out there and just me being here, for example, all of that stuff starts to stack.

[00:49:16] So it's hard for me. It feels easier to me. But if I hadn't done those things, oh, I think it would have been a lot harder. Right? So we've opened up the funnel, so to speak. Right? And I think you said you didn't do any bridge loans, too. And so you don't have people that are not getting paid right now, I'm assuming. So that makes it a lot easier. Right? If everything's going well, it's much easier to come back to the well and ask for more money. Whereas if you put people in a couple shit deals and you're doing capital calls, going

[00:49:45] back to the well and asking for more money is probably a challenging conversation. Yes. Yeah. You can write those investors off. Right? It depends on what happened and why. We have a real deal webinar that we do once a month. And it's real. I'll tell people this is what our occupancy is at every one of our properties. This is what our delinquencies is. This is what our insurance is going to cost. And we get them real data. Right? That's that transparency thing that I think is really important. And we get a couple hundred people on there and they're asking us, I don't know what they're

[00:50:15] going to ask me. And I'm going to tell them exactly what's going on. We invite them to come by the properties. All that kind of stuff now is stacking in our favor, I believe, because it... I mean, just think about that. Right? People need to build that trust. And we just keep at it. Right? Just like... Do you have more interest in that type of information now than you did two years ago? What type of information? Maybe I'm going to go do a property visit. Maybe I'm going to jump on a webinar to see what's going on in the property. Like, I feel like people would be more attuned to that now.

[00:50:46] Because I feel like 21, the money was just free flowing here, writing the check, and I'm going to go do my thing and you take care of this. Right? Where I feel like people are more in tune with management and more interested in looking at the operations right now. Yeah. They want to be educated investors. And I want them to be educated investors. It should be. That's what I do. And I'm not... I'm by no means a proponent of that mentality from 21 that we saw. I just think it's changed. And that's a good thing. Because people should be educated and know what they're buying.

[00:51:16] Warren Buffett says, make sure you invest in what you understand. Multifamily is not that difficult to understand, but you do need to take a minute and figure it out. I mean, I've just... That's all. You just got to... Be an informed investor. You're going direct, right? You're not going through a re... You're not going through some publicly traded security. You're going direct to the person buying the deal. And that means you need to know more. You just do. You need to know more.

[00:51:40] I think that over time, this private wealth side, this private equity side, this private place, whatever you want to call it, this direct to the investor thing is going to explode. That's why we're here. And you said, how do you deal with investors? Well, the exact same way we deal with these properties. I'm not here... If I don't get you today, if you don't want to invest today, that's okay. Just keep watching what we're doing. And if you want to come back, great. I don't... I'm not worried about closing that deal today, right?

[00:52:10] Just the same discipline with investors. You deal with properties. And what people have come to realize over time is, you know what? Maybe this guy's not wrong. Maybe this guy is the guy still standing at the end of the day when all these other people, right? Trying to speculate, trying to do crazy things. You know, they're accepting a risk profile that I wouldn't get with Ken. And that's what matters to me. This discipline thing. Does it take me longer? Yeah, maybe. But that's okay. I don't need the next deal. That's why I tell people.

[00:52:39] I can buy my next pair of shoes. My kids are grown. That's the Cleveland coming through right there, Gino. That is. This deal to pay my bills. These people that are new with 5, 6, 7, 8, 9, 10 people in their GP, they need that next deal. They are trying to get out of their W-2 job. They want those fees. They need those fees to do that. And that means that they're now... I'm not saying they're making... They're doing this on purpose. They're just getting FOMO.

[00:53:07] And I'm just going to maintain that discipline. If you maintain that discipline, and I know you guys are doing it with your own money, just don't ever negotiate that. That's why I say that. Just don't. It will serve you. Well, so what? You missed a good deal. All right. That's better than making a bad deal. I'm okay with that. I agree. As you can see, I feel pretty strongly about that. The Juan Soto FOMO podcast. All right, Gino, tell us a little something. Jake, Ken Gee is a young CPA turned investor slash entrepreneur.

[00:53:35] And I have to say, Ken bucks the trend because most CPAs are not very good investors. Todd Newman, I'm just saying, you guys are terrible investors. You almost just called out a CPA. I mean, he's the most amazing CPA, but not a great investor. And I'm sure that out there saying, you know, that's not true. But I have to say, it's not your skill set. So for the fact that you got on, and it's really ironic because CPAs, they really know numbers. They really understand the numbers. That's what multifamily is. It's income over expenses. It's what your NOI is.

[00:54:05] It's where you can bring your NOI. If a pizza guy and a drug rep can figure it out and we can do it, anybody can do it out there. But what you say is it takes discipline. It takes hard work. It takes vision. And it takes a little bit of understanding of the business. And I think the quote that you use, don't ever negotiate your discipline is truly important. The deals will come. And I'll end with this, but Ken, we need you to get your information out to all the listeners. But what I would say to everybody, no deal is better than a bad deal.

[00:54:34] So if you can live on that, on your discipline, not negotiating it and having the ability to stave off the FOMO. Because now, listen, the next 12 to 24 months, you're going to have a bunch of deal flow. So Ken, where can the listeners get a hold of you and get more information about you and your company? Yeah. Easiest way, just go to kripartners.com. kripartners.com. And then just decide, do you want to do your own deals? Do you want to invest passively? Maybe you want to investigate both. You can also call our Texas at 216-290-1710.

[00:55:04] Either way is the best way to get in touch with our people. And here's what's important. We're not going to just start to cram you down some. We're going to figure out what you're trying to do. What do you need? How can we legitimately help you? And if we can't, we'll tell you. Right? That's a really important thing. So kripartners.com. That's the best way. Be willing to get your hands dirty. Gang. As always, we believe in buying deals for the long-term thinking decades. I'm Jake. He is the G Daddy. That's right. We make it happen. We'll see you next time. Thanks, Ken.

[00:55:35] All right, man. Thank you so much, guys.