If you want to take control of your finances, you can’t trust a job and the stock market. Sam Wilson presents Anna Kelley, the founder of Greater Purpose Capital. Since Anna managed portfolios of high-net-worth individuals and owns over 1,200 multi-family units, she has incredible experience under her belt. Join in the conversation as Anna talks about how you need to use your time wisely to make the most money with the most joy. To protect your money and assets, you need to learn how to mitigate all the risks that you can see and decide how you’ll react if it happens. Come up with a solid financial strategy for success. Want more tips? Tune in!
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Practical Finance Tips On How To Take Control Of Your Finances With Anna Kelley
Anna Kelley owns over 1,200 multifamily units across the US and has invested in over 2,000 doors. She runs a multifamily company, Greater Purpose Capital, which focuses on creating meaningful impact on the communities in which she and her partners invest. She’s also a four-time Amazon Number One Best-Selling Author, a real estate coach and a sought-after speaker for multifamily events across the country. She’s also worked in the financial sector for over 25 years and was a top-ranked Private Banker for Bank of America, where she managed the portfolios of high-net-worth individuals. Anna, welcome to the show.
Thank you so much. It’s good to be here with you.
The pleasure is mine. That’s a fun background and bio. The same questions I ask everybody who comes on the show are where did you start? Where are you now? How did you get there?
I started out in the financial sector and worked with traditional investments for over twenty years. I knew a lot about what to do with wealth once you had it and where to park it, how to make it grow, how to preserve it, tax benefits. No one ever taught me how do I create a wealth of my own if I don’t have it. I had a child in 2003 and I desperately wanted to be home with them.
I had climbed up the corporate ladder, thought that was the way to create wealth the slow long way and wanted to be home. During that time, I was watching a lot of HGTV and Flip This House. They convinced you that you could replace a six-figure income with two flips a year and I thought, “Let’s try it.” It didn’t go so well. The first time we flipped, we lost some money. My husband said, “We’re never doing that again.” I knew we could do this if we are willing to try again. He said, “We’re not doing it.”
Fast forward to 2007, we relocated from Houston, Texas to Hershey, Pennsylvania area to start my husband’s chiropractic business. We decided to buy a practice that had apartments above it. We became landlords by necessity and I said, “This could be smart to have some tenants covering some of the mortgage payment instead of us leasing space so let’s learn how to be landlords,” and we did that.
We house hacked a four-unit apartment building after selling a big house in Houston and said, “Let’s step back a little bit and protect our finances while you start a new business.” I thought I was going to lose my job because I was transferring across the country. That was going well and then the market crashed. We had the Great Recession of 2008, 2009. I worked for AIG at the time, which was one of the biggest players that almost went down during that time. I lost about 2/3 of my 401(k) in companies I knew were never coming back.
I had a crossroads in a crisis and said, “What are we going to do to survive and feed our family if I lose my job at AIG? I have no more backup and not much left in the retirement plan.” I thought the only thing going well was my apartments so, “Let’s buy another four-unit building with what left I have of my 401(k).” We bought it. They were stable through the Recession. We knew that at that point, we couldn’t trust a job and the stock market. We needed to take control of our finances and that began a long journey of building a high net-worth through real estate that I never could have built without it.
That’s a compelling story, first off and it’s painful. Many people are in that same position. Even with the stock market at an all-time high, they’re not protected from a recession. Not that anyone’s completely protected but there’s still no backup. You did that. What was your progression from that point forward? You had 4, 8 units at this point. What did you do next?
It was tough. I decided if I’m going to be a landlord, I needed to read a couple of books about apartment investing and I bought Multi-Family Millions by Dave Lindahl. It’s still an amazing book for anybody that wants to know how to build wealth through their multifamily. It was very eye-opening to say, “If I keep adding value, forcing appreciation and then trading up, I can create some wealth pretty quickly plus the income that we needed.” My primary motivation at the time was income, not necessarily growth in net worth. I knew this is the path and we need to do it.
I went to a large seminar. It was the first one that I know of in the country that convinced you to buy big syndications together. I went to that conference, hired the coach and she turned out to be a fraud. She took money from a lot of people, hijacked a course and pretended to be a CCIM and she wasn’t. It jaded me from big multifamily real estate. I said, “Forget it. If this is the kind of people in the guru space, I want nothing to do with it. We’re going to buy our own.”
That was a mistake that I got jaded and waited too long to jump into the bigger deals. I didn’t have money and the banks were telling me no. I worked for AIG. We had $700,000 in business startup debt with my husband’s equipment and the building we bought. He was a brand-new business. He, I and real estate was a risk at that time. I found deals but I could not find the money.
I didn’t know that I could syndicate. I had heard about it but I was jaded. I didn’t think it was real because she was a fraud. Everything she said, I thought, was probably not viable. It was the slow, painful process of being told no for a couple of years by banks. I decided all I can do is hope that when I get laid off, I’ll get a severance package and then I can use that to buy another one with the partner. I would have to keep working on fixing up my own units to create equity so that when the banks did say yes, I had enough equity in them to buy more.
That’s exactly what we did. We started working on our own twelve units at that time and raised the values. We looked into creative financing and I started buying properties from retiring landlords who couldn’t get buyers because they couldn’t get financing. We worked out win-wins and I bought a few more four-unit buildings. My slow growth to wealth was almost all four-unit apartment buildings. It made us a multimillionaire way before we ever started joint ventures and syndications. It took about ten years to do it.
That’s a part of the story that so many people miss. It’s the grind. I was having breakfast with somebody who has done extraordinarily well in real estate and he goes, “Our growth happened in the last few years. The first years have been a grind and hustle.” That’s an encouraging story too because there are a lot of times you hear, “We started some real estate, had meteoric growth and here we are as multimillionaires. Off you go.” You’re like, “I don’t fit that bill. I’m over here hustling.” I’m glad to hear, “I’m sorry that that’s the truth.” It’s refreshing to hear a perspective that is grounded out.
Most people that I know that are doing well and have created wealth that’s solid and is not going anywhere are not taking crazy risks and the timing just happens to work out. There are people that have been doing this for a long time. You learn through years of mistakes, doing it the hard way and then things click and you gain wisdom on how to do it more quickly and better the next time. If you started in a recession, it was nothing but the grind. If you got through a few years and then jumped in the game, a lot of syndicators honestly did and it’s no knock to them. They were very blessed to jump in when they did.
If you started in 2010, 2012 or 2015, you’ve seen nothing but prosperity and growth that’s allowing those apartment buildings to become worth a lot more money than when you bought them. It’s great that it’s worked out that way but now that we’re in a recession and in very difficult financial times again, we’re not going to see that same growth without a significant amount of hard work to make these deals pan out and be wise investments.
Let’s talk about that. We certainly are in unchartered waters, financially speaking. There’s no map for what we’ve been doing with our financial system, pumping all this money into it and printing this willy-nilly money. It’s a wild time. We’ve seen nothing but growth over the last several years. How are you as an investor changing your habits to protect yourself if things do turn down?
You can’t trust a job and the stock market if you need to take control of your finances.
Through the end of 2008 and 2009, I had been in the financial industry for several years at that point, for over ten years. I thought I knew a lot about investments and the economy. I worked for Bank of America and AIG but I realized that there was so much about the financial system that impacted what I did and our investors that I didn’t understand, like how mortgage-backed securities are sold on the secondary market and betting against them can cause companies to crash.
I learned that it’s the things that you don’t see that can happen and hit you hard. You have to prepare by learning to mitigate all the other risks that you can see and saying, “If this happens and this happens, how will I react in the future? What do I need to do to balance my portfolio and have some diversification so that any one thing that happens doesn’t completely take us down financially as it did before?” I became a student of the economy and watching economics.
At about the end of 2018, I believed we were heading toward recession. There were a lot of indications. The Fed started to raise rates because they thought the economy was booming and as soon as they did, there was a massive ripple effect that said, “We’re not quite as stable, let’s back rates back down.” I knew we were teetering but we were in the longest expansion period in the United States. It was the longest period since Abraham Lincoln was president. Even though history doesn’t tell us everything, it tells us that after a long expansion in hyper supply, which we were in through a lot of the country, you come down and you hit a recession.
I started selling properties through 2019 and saying, “I’m going to sell some and get liquid.” It used to be that I wanted to spend every penny of cash that I had on another investment. I was highly leveraged and didn’t have a lot of cash. I decided this is the time to start saving some money and being prepared that if the economy does crash and we have another Great Recession type of thing, we’ve got liquidity that we can use to cover higher vacancies or potentially have to lower our rents.
Thank God I did that because then we had the pandemic. We managed hundreds of units for ourselves and our investors during a pandemic when people couldn’t pay. It was having that liquidity that allowed me to sleep at night even though there was so much beyond my control. Part of it, for me, is having liquidity, not spending everything and learning to say no to good and average deals and say yes only to the very best deals that are going to do three things. Preserve my wealth and my investor’s wealth if the economy struggles and takes a few years to recover and then income and growth. I’d love to see growth.
We invest in deals that have a lot of upside in the potential. We know that as the consumer psyche has been shaken during this pandemic, people aren’t going to pay $300 more rent to get stainless steel appliances and nicer vinyl plank flooring and granite than they already have. That’s not going to work anymore. It does when the economy’s booming and people feel like the money’s never going to end. People are rocked so we have to be very careful about what we think the consumer will pay for and how much value we can add.
I’m looking for stable deals that have income and are doing well, stabilize where I can get Fannie and Freddie debt and not go for bridge debt because that has risks that I don’t want to take. If I can hold it for a long time and get rates locked for ten years then I know that I’ve got some malleability so that we know when to sell. We don’t have to sell because we have a bridge loan that’s coming due and if we continue at this point, our IRR is going to go down because the market has softened a little bit. Cap rates have gone up and prices have come down.
If I have a longer-term debt at a very low rate then I can have some time for the economy to recover and not be forced to my exit. I can decide when it’s the best time to exit based upon what happens with interest rates, what happens with cap rates when the recovery moves more to a growth phase and have more control over when I sell the asset to control our preservation of what we have plus how much upside we have.
That’s an excellent point. From the investor or sponsor side, that makes me feel good. When it comes to the projection side of things, there’s a slight conflict there because we want to build in a five-year exit. We want to build in that. How do you balance that with presenting something that intrigues investors? There’s a way to make an investment look like it’s going to be the best or safest investment in the world but the returns could be nothing, like, “We’re going to hold it for twenty years and then your IRR is 2%.” You’re like, “That’s a terrible investment.” You get nobody to buy-in. How do you balance those out?
There are a few things. The biggest thing is an investment is made or broken based on the team that’s running the deal. I have years of experience working with high-net-worth investors and ultra-high-net-worth investors with hundred-million-dollar portfolios and banks, corporations and institutions that are investing their money. I see how their brokers and agents talk about returns.
One of the things that I see in the syndication space and investors who are used to investing in syndications is they all talk about IRR. Wealthy people don’t care as much about IRR. The reason for that is because we don’t control the time value of money. We don’t know that when we sell an exit or the first investment opportunity, there’s something just as good waiting for us at the point that we exit.
I might have a deal that says it’s going to be 18% IRR. If it performs, checks all the boxes, everything goes right according to my underwriting and I hit that number, I can sell that great property but I might not be able to find a deal that I can purchase as good of a basis. I might have to overpay for that deal because of where we are in the economy. Interest rates may be different. The type of debt available on those new deals could change. Fannie and Freddie, on a new multi, could say, “No more IO,” if your deal is already stabilized. They could require a higher debt coverage ratio, which they are and more reserves, which dilute the returns because you have to raise more money.
IRR makes an assumption that everything remains the same. In reality, that doesn’t happen. That’s the first thing. The second thing is I don’t have to sell to choose my IRR. If I have a strong property, a market that’s going to provide stable returns and the ability to refi at that point or put a supplemental on it, we can get a lot of our cash back and then go redeploy that cash while keeping the asset. That allows me also some flexibility when tax codes change, which we’re seeing. There are a lot of changes coming and those things significantly impact IRR.
I talk to my investors and try to educate them on why IRR is not the Holy Grail for your investments. You need to think about where are we in the economy and what’s your first and foremost financial strategy in a growth period. It’s growth. In a period of recession and uncertainty and there’s a lot of uncertainty ahead, asset preservation is most important. It’s way more important than my IRR or growth. I need a deal that’s going to preserve my wealth and mitigate a lot of these risks and unknowns. If it has some income, upside and tax benefits, that’s a strong investment for where we are and the types of risks that we have ahead of us.
Those are excellent points. Going back to Warren Buffett’s rule, number 1 and 2 is to never lose money. Let’s talk a little bit about going back to your liquidity scenario. I know you said you got liquid in 2019, which helped you weather the storm of 2020. How do you protect that liquidity? It’s tough as you see things inflating in price and consumer goods going up in price. How do you protect that dry powder from not becoming worth less over time?
There are a couple of things that I do. I do believe that inflation is ahead. I could be wrong. My crystal ball doesn’t always work. I believe that inflation is ahead so you don’t want cash that’s going to be deflated because of rising costs and inflation. You’re in this middle where you want to protect but you also know that sitting on too much could devalue that.
I do take some of my cash and rather than keeping it in a bank account, I’ve got it in some liquidity-type funds that provide somewhere between 6% and 10% return on my money. I can get them pretty quickly and access them within 30 to 90 days. Some of that allows me to still have some stable returns and balance out the zero that I’m getting on cash so I might be making 3% to 5%.
The big institutional investors are pretty smart. They’ve got pretty smart people and economists on their staff. The reason they’re buying multifamily and making prices go up for syndicators like us is that they know it’s a safe place to park money as preservation of capital play. They’re not focused on getting their investors 10%, 14% or 20%. They’re saying, “Let’s put it on something stable or an asset that’s going to go up in value with inflation. The income’s going to go up with inflation because if expenses go up, we’re raising rents.” Their primary is the preservation of capital.
You have to prepare by learning how to mitigate all the risks that you can see and decide how you’ll react if it happens.
I am starting to invest some of that cash that I held in deals that are smaller for my own portfolio where they will go up in value. I’ll have some income. I might not have quite as much growth because I’m paying top dollar for those assets like everyone else is. By buying some smaller properties, I have some malleability. If it’s time to exit, I can exit quickly without having to ask 100 investors and my GPs, “Can I sell?” Buying some smaller properties allows me the flexibility to sell a few if I need to and get money quickly, as well as invest in some other opportunities.
You’re making 1.000001 million sound arguments here. I love buying the smaller properties thing. The other thing about holding liquidity is that even if it does go down, the purchasing power, let’s say it’s $1 million and if it goes down, it’s only worth $900,000 of purchasing power in a year. If we have a downturn, your opportunity to buy things at a discount may more than well make up for that difference. It is a balancing act. It’s a good problem to have liquidity. Tell me about some things in the last several years of your growth that you would do differently. Are there some things you’d say, “If I could rework that, I would do it this way instead?”
There are a lot of things. I’m always thankful for the path that I took because it makes us wiser and realize the reality of one way and then we see the other way and it’s like, “I could do this. It could be a little faster for the next ten years.” I would have done syndications and joint ventures sooner. I did everything on my own. I should say my own and my husband. I have to give him credit as well.
We bought our own properties and I handled the financial side, finding the properties, the business plan and working with the money, banks and lenders. He was responsible for updating the units and overseeing the maintenance and supervision. When you work full time, have children as we do, we have four and do real estate on the side, it truly becomes 70 to 80 hours a week for a decade. That’s the reality of our lives for years.
When we started doing joint ventures and sharing the responsibilities, we were making so much more money for our time, the dollar on the time, versus when we were handling every small thing, like opening every bill, writing every check and handling every tenant call. I learned to value the dollar amount on my time and start delegating, hiring out and partnering out things that weren’t the highest and best use of my time that was going to make me the most money with the most joy. I would have started partnerships and syndications much sooner. That’s the biggest thing I would have done differently.
What was that process like for you? Transitioning from, “I’m doing this all by myself.” That’s a tough transition for most people going, “I’ve got to raise capital.” What was that like?
I decided first to start doing some joint ventures. I had a partner on a property and had another partner on a couple of properties. I found a 73-unit apartment building and thought, “I’m going to syndicate it. I have this off-market opportunity. It’s a good opportunity but I need to raise about $2 million.” I had never raised money. I had asked a partner to partner with me but never raised. I found a partner who had money investors that helped fund his flipping and home-building business but didn’t have the multifamily scale. We decided, “Let’s get together. I can find the deal. You can find the money. Let’s see how we do.”
The first investor we went to said, “I love the deal, what you all are doing and your experience. I’ll fund the whole thing.” We did the first joint venture with one investor and it was a beautiful thing. We worked through how it needed to be structured. I learned a lot of give and take for the benefit of everybody. I gave up more than I wanted to but I knew it was the right decision. Since then, my two partners and I have bought 240 units together here locally as a joint venture.
That gave me the confidence to say, “If I can do it on a we-own-everything scale, surely I can do it raising money from other investors.” I did have experience working with investments for many years and did private banking so I was very comfortable talking about money and financial strategies. That made it much easier for me to transition. The hardest part for me was learning to give up control, knowing that other people could do things well enough that I could trust them to do it and focus on what I needed to do.
What were some of the things that you had to give up on that first deal that now you wouldn’t necessarily structure the same way?
I gave up more acquisition fees and a higher percentage of ownership than I wanted to but I needed to do that. I also realized that he was funding the entire deal so he had a lot more risk in it than I did. We all signed on the loans but the trade-off was, essentially, you’re trusting me with a couple of million dollars worth of your money and I need to be able to say that if I don’t do a good job, you can buy me out and take over the property. I understood his desires and needs to have more control and not give me such a big acquisition fee initially. We did some negotiation and landed where we were very comfortable.
I’ve done syndications and had multifamilies since 2007. I have the confidence that I can raise money from any investor. I don’t necessarily need one investor. There’s beauty in doing it that way. I love joint ventures as much or more honestly than I love syndications just because of that level of long-term hold and control. I did give up more than I wanted to but it was the right decision and yielded to a long-term partnership that’s done well for all of us.
That’s a point that many people who are starting to scale need to keep in mind. Sometimes, the speed of the money is worth more than the price of the money, especially on your first deal. Your objective here is to get it done a little bit along the way and establish that track record, not necessarily hit a home run on the first bat. Anna, I’ve enjoyed this. We’re out of time so let’s jump here into the Final Four questions. The first one is this. If I gave you $20,000 to invest in real estate and you had no previous real estate investing experience, what would you do with it and why?
I would see if I could find a partner to buy together a four-unit apartment building, a duplex or whatever you could do. I’d buy your own property first. $20,000 isn’t enough to be in syndication and make meaningful money on it. It’s going to lock up that only $20,000 you have for a very long time. Buy your own property, learn small and commit to educating yourself even through the process of buying that property. Once you learn and build some equity, buy something that has some ability to force the value, raise the value, cash out more equity, keep that property and then use that bigger chunk of change for the next deal. Once you grow more wealth, at that point, start investing passively with other people.
If you could help our readers avoid one mistake in real estate, what would it be? How would you avoid it?
Don’t put all your eggs in one basket and don’t buy stuff that you don’t understand just because you want to make money.
You’re speaking my language. I felt that answer. I’ve been there. Question number three is this. When it comes to investing in the world, what’s one thing you’re doing to make the world a better place?
This is something I am so passionate about. I wish we had another hour to talk about it. For me, my company, Greater Purpose Capital, we are committed to investing for meaningful impact. What that means is we go in and make a difference in the lives of our residents. While we’re producing strong returns for our investments, our investors were producing returns in the lives of our residents through financial literacy, community partnerships and trying to make their apartment community a place where they feel at home.
Make the best use of your time that will make you the most money with the most joy.
Last question. If our readers want to get in touch with you or learn more about you, what is the best way to do that?
Thank you so much. If you want to follow me, you can find me on Facebook, LinkedIn, Instagram or YouTube at Anna REI Mom Kelley. If you are a credited investor looking for passive opportunities, you can find me at GreaterPurposeCapital.com.
Anna, thank you so much for your time. I do appreciate it.
Thanks, Sam.
Important Links:
- Greater Purpose Capital
- Multi-Family Millions
- Facebook – Anna ReiMom Kelley
- Instagram – Anna ReiMom Kelley
About Anna Kelley
Anna Kelley has ownership in and asset manages over 1200 multifamily units across the US, valued at $165M, and has invested in over 2000 doors. Anna runs a multifamily company, Greater Purpose Capital, LLC, focused on creating meaningful impact on the communities in which she and her partners invest. She is a 4X Amazon #1 Best Selling Author, real estate coach, and sought after speaker for multifamily events across the country. In the last 20 years, she has purchased, renovated, and rented millions of dollars in real estate across numerous asset classes. Anna worked in the financial sector for 25 years and was a top ranked Private Banker for Bank of America, where she managed the portfolios of high net worth individuals and businesses.
