Today’s guest is Karl Krauskopf
Karl helps High Net Worth Investors, Physicians, & Executives achieve their financial goals through apartment investing. He is a corporate strategist turned CRE entrepreneur. Join Sam and Karl in today’s episode.
————————————————————–
[0:00] Intro
[1:22] The 3 questions
[4:30] Ground up?
[6:25] State of the industry
[8:02] What are you hunting?
[9:41] Challenges when scaling
[10:54] Long term strategies
[12:07] No amenities, what do you do?
[15:04] Sticky tenants?
[17:12] Lending
[19:34] Long Term vision
[21:38] Advice
[22:50] Closing
————————————————————–
Connect with Karl
LinkedIn: https://www.linkedin.com/in/karl-krauskopf/
Facebook: https://www.facebook.com/karl.krauskopf.5
Connect with Sam:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
Facebook: https://www.facebook.com/HowtoscaleCRE/
LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/
Email me → sam@brickeninvestmentgroup.com
SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson
Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234
Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f
————————————————————–
Want to read the full show notes of the episode? Check it out below:
[00:00:00]:03 – [00:01:00]:28
Karl Krauskopf
How can we offer him in this right in a low cost way. So it doesn’t seem like an agenda, but bike racks. Right. Bike racks is a great way of making sure that you’ve got a decent amount of storage. We also would go in and what we have done is we’ve we’ve gone in and we’ve looked at the laundry facility itself, upgrading the washer dryer for the laundry matter, the laundry and servicing area. And then they start then we start having the conversations about, hey, you know, this is what this is what we’re doing. This is our plan. We’re going to be coming in and raising rents and then start talking to them about what those rent increases will be. And then we also give them the opportunity to opine with us and to come to the table and say, hey, you know, that’s fine, but here’s what’s not working in our unit. Here’s what’s not working in the common spaces, giving them kind of a town hall type environment to do that in in again and in a way that, you know, is semi controlled. So that way, you know, things don’t get out of hand.
[00:01:01]:11 – [00:01:19]:28
Intro
Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we’ll teach you how to scale your real estate investing business into something big.
[00:01:20]:05 – [00:01:22]:19
Sam Wilson
Carl Krause Kopp is a corporate strategist turned CRC entrepreneur. Carl, welcome to the show.
Karl Krauskopf
Thanks for having me. Super excited to be here.
[00:01:22]:25 – [00:01:31]:11
Sam Wilson
Absolutely. The pleasure’s mine. Carl, there are three questions I ask every guest who comes on the show in 90 seconds or less. And you tell us, where did you start? Where are you now and how did you get there?
[00:01:31]:19 – [00:02:43]:25
Karl Krauskopf
Sure. So ten years, corporate strategy, business development scaled a $50 million business services company into $150 million before we started printing up the pig to go to market and sell. And, you know, at that timeframe, I started looking at alternative investments, alternative vehicles to wealth generation. Got turned on to real estate, small multifamily duplex, bought a duplex, moved into single family flipping and fell in love with it. I really did really well for a couple of years and organically grew an investor group. Folks were just, Hey, I’d love to get involved in real estate. I don’t have the time. I have the money. So I started working with a couple investors, one off, and then that grew more or less out of control where we had too many investors, not enough deal flow. So then I started looking at what’s the next what’s the next evolution of of CRT getting into ground up construction. Same problem happened there and that moved into multifamily. Now where I’m at and will continue to be for the foreseeable future. And I live in Seattle, Washington and looking at continuing to be opportunistic in Washington, but more so looking to plant the flag in North Carolina.
[00:02:44]:04 – [00:03:09]:27
Sam Wilson
Okay. Okay, cool, man. I love it. I love the kind of process that you’ve moved there through each each phase along the way, you organically grew an investor base. That is something that is probably one of the more challenging pieces of the puzzle for new and beginning commercial real estate investors. What were some of the things you did to, as you put it, organically grow that base?
[00:03:10]:08 – [00:04:12]:27
Karl Krauskopf
Sure. So just being in it was unintentionally being in front of people, going to network groups, going being on on social media regularly and and again, just having, you know, decent relationships with family, friends and with people specifically in the Seattle market. Seattle obviously being a high tech, high salary kind of employment employee base or employee market. So relatively easy to find individuals who had the liquidity to invest, but again, didn’t have the time. So again, just flipping, this is my story. This is what I’m doing. And, you know, we were at the time this was, you know, started about four, four years ago. This was at the time where, you know, we were in a great bull market. So we’re coming into obviously different times. Right. We’re but second quarter starting second quarter, 2023 right now. And things are a little bit quite a bit more bearish than they were four years ago. So it’s a little bit more difficult and you got to be a little bit more on top of it going forward.
[00:04:12]:27 – [00:04:30]:03
Sam Wilson
Yeah, absolutely. So in that four year window, four years ago, you were doing fixing flips and ground up construction. And so you’ve exited everything. Everything you’ve done ground up is now built, so. Yep. Got it. Wow. Okay, cool. Is ground up something you would do today?
[00:04:31]:06 – [00:05:30]:21
Karl Krauskopf
You know, I’d be I’d I’d opportunistically look into it. Now I say that and I’m also looking at my ground up construction in my backyard right now. So building a detached 80 you backyard cottage, 2000 square foot here in Seattle, Washington. Seattle does allow us to separately pass a loss and create condominium associations on single family lots. So what I’m doing right now, building up ground up construction, thousand square foot, getting separate financing and going to hold it long term where we’ll be I’ll be making certainly a 1% that yeah, that proverbial 1% rule where my cost of construction is less than 1% of the rent essentially. So, um, yeah. No, it’s, it’s going great, so love it. I would still look at it, but you know, right now I don’t think I’m as as bullish on it as I was, you know, let’s call it a year and a half ago.
[00:05:31]:04 – [00:05:41]:13
Sam Wilson
Right. Well, and it sounds like, you know, the project in your backyard is is a convenience project and not something you’re looking to scale that side. Right. Business necessarily so I mean.
[00:05:41]:13 – [00:05:52]:05
Karl Krauskopf
Yeah, no, that’s exactly right. So it’s a it’s a convenient it’s a low risk, right. My my cost basis is is the construction itself because I own the land already, right. Yeah.
[00:05:52]:06 – [00:06:34]:02
Sam Wilson
Right, right, right. Yeah. You’re not taking on the, the large scale development risk maybe that that, you know, some other people who are either I mean I get it on both both ways on the show, but people are like, no, now’s the time to do ground up development. I’ll give you a compelling reason why you’re the next person. Say no. Here’s why you should run so I think that’s really, really interesting. Focusing in now on the multifamily space. I asked this question all the time. You know, we’ve got a couple of multifamily projects, but it’s not something not something I focus on. A And so I guess I just want to hear your state of the industry maybe, and then or hear what you think the state of the industry is and then, you know, maybe how you guys are finding opportunity today.
[00:06:34]:28 – [00:08:02]:00
Karl Krauskopf
So I think rents are obviously flattening out. We’re we’re starting to see that here in Seattle. We’ve seen, I would even venture to say, close to dipping of of rent prices. And, you know, I think I think that’s obviously poses the biggest threat right now. I think also the other threat is regulations around, you know, affordable housing and requirements from the city municipality, which is, you know, one of the big reasons why I am looking at elsewhere outside of this market, you know, affordability regulations as well as and I’m talking more so, you know, hyper local market, not necessarily the national market because I do believe, you know, in in a nutshell, real estate is is is all hyper local. And and I think the other one obviously being is no Seattle specifically just in Washington in general, just doesn’t have the availability of, you know, class B, class C type properties where, you know, you can go in and scale a sizable a sizable business. Right. You know, back in the sixties, 1780s, Seattle in the in the Washington state was just they just weren’t building these 100, 200 unit complexes. Whereas, you know, you look at any of the Sunbelt markets, you’ve got plenty of stock in that class C, Class B hundred at 200, 250 unit complexes that are, you know, still getting traded at decent cost basis here.
[00:08:02]:20 – [00:08:15]:02
Sam Wilson
You know, that makes that makes a heck of a lot of sense. So what where are you finding opportunity? Is it in that 100, 200 unit size of complex or what are you hunting right now?
[00:08:15]:17 – [00:09:40]:02
Karl Krauskopf
Sure. So hunting to two different spaces are two different types of assets in the multifamily space. It’s the 30 to 50 range. So that’s, you know, proverbial mom and pop size buyer, you know, first time investor, first time multifamily buyer coming out of, you know, they’re hey, you know, exactly where I was a year, year and a half ago where, you know, I was kind of grew out of that development, grew out of that single family and mid-size small, small multifamily and wanted to bite on to something a little bit different and, you know, I feel that there is going to continue to be that buyer pool and that that buyer pool is not going to dry up. And that 30 to 50 range, you’re still operating in such a space that doesn’t require the quagmire of needing payroll, but not having the operational budget to allow for it. And you know, where you see that 50 to 100 a unit range really falling into that, where again, you need somebody on site, you don’t have the money to pay for them. So you’re having to be super creative in order to get what you need in a low cost way. Now that hundred, 200 range obviously is a little bit different where, you know, you have the operational budget, you have the and obviously you need it, but you’re also not necessarily competing just quite yet with the institutional, institutional buyers.
[00:09:41]:18 – [00:09:53]:11
Sam Wilson
How or what are some of the challenges maybe you’re facing right now on scaling properties in the 30 to 50 unit range?
[00:09:53]:11 – [00:10:53]:11
Karl Krauskopf
You know, I would say it’s it’s finding the solid property man, a property manager who’s got a good control over in-house construction, repairs and maintenance construction. So they actually either a own or B employee some they employ some form of on in-house crew and also have decent relationships with subcontractors and know how to manage those subcontractors and know when to outsource that. So I think that’s that’s one of the big challenges from a scalability standpoint that, you know, you anybody will face when going into this into that 30 to 50 range. So it’s it’s imperative in finding, you know, again, a property management company who’s got the in-house crew and the relationships in a project, essentially a project manager, to be able to manage those subcontractors.
[00:10:54]:01 – [00:11:06]:21
Sam Wilson
Is your strategy to acquire, you know, several of these in a specific area. So then you can have your own in-house asset manager that’s local or what’s what’s the what’s the long term strategy? Sure.
[00:11:07]:01 – [00:12:06]:07
Karl Krauskopf
Sure. No, I think I think the long term strategy in the 30 to 50 unit ranges, not necessarily to scale just in in this space. Right. You know, in in order to get to that 150 unit, you really need to be able to understand how how to essentially how to asset manage. Right. And so I think a lot of the those 30 to 50 small multifamily ranges is going to provide the teeth cutting environment to be able to learn how to asset manage, how to property manage. Even so that way when you do get to that space, it’s going to be an effective transition into the larger scale and beginning to have those conversations around, you know, should I should not should I take on property management and house obviously, you know, that’s that’s the next kind of several evolutions ahead of where I’m at right now. But it’s certainly, you know, again, the stepping stone in getting to that space.
[00:12:07]:11 – [00:12:34]:05
Sam Wilson
When you’re dealing with a 30 to 50 unit size, you’re going to you’re going to be kind of amenity like it would be. My guess would be my conclusion. I don’t know anything in that space, but I’m just imagining that, like you said, you’ve confirmed that, okay, it’s amenity. Like, what do you do? You know, what do you do to meaningfully raise rents to, you know, just just to add what’s a value mean as ceiling? I mean, five question here, what’s a good way to implement a value add plan in that in that range? Because if you can’t offer amenities and things that kind of bring in the higher paying tenants, what do you do?
[00:12:44]:24 – [00:15:03]:26
Karl Krauskopf
So first off, it’s finding how can we offer amenities right in a low cost way? So it doesn’t seem like an agenda, but bike racks, right? Bike racks is a great way of making sure that you’ve got a decent amount of storage and that yeah, I guess I would say targeted storage, meaning if you’ve got a bunch of ones and one ones in it too, they’re a small space, you know. Do you have the parking? Do you have, do you have a large enough parking space, a parking lot where you can add in, you know, makeshift, let’s call it makeshift exterior storage sheds to looking at your unit mix. What can you do from a low cost perspective to add some some amenities? Again, storage bike racks we love again, because these are, you know, class C, class B type properties where, you know, they’re either in urban infill areas and they just don’t have that that type of product or that type of amenity. Again, bike racks, storage, you know, we also would go in and what we have done is we’ve we’ve gone and we’ve looked at the laundry facility itself, you know, assuming that they they don’t have a unit washer dryer upgrading the washer dryer for the the laundry mat or the laundry and servicing area. And that’s been one area that, you know, the tenants have really, really enjoyed and have really felt. This value add that we’re bringing in is kind of sprucing up, making those general spaces more warm, more welcoming and, you know, so that way they’re not getting off of work and scurrying into their apartments. They’re more so walking in. They feel proud of the space that they’re in and then they start. Then we start having the conversations about, hey, you know, this is what this is what we’re doing. This is our plan. We’re going to be coming in and raising rents and then start talking to them about what those rent increases will be. And then we also give them the opportunity to opine with us and to come to the table and say, hey, you know, that’s fine, but here’s what’s not working in our unit. Here’s what’s not working in the common spaces, giving them kind of a town hall type environment to do that in in again and in a way that, you know, is semi controlled. So that way, you know, things don’t get out of hand.
[00:15:04]:24 – [00:15:17]:22
Sam Wilson
Right? Do you do you think and I’m again, I’m just projecting here. Maybe I’m imagining is the is the tenant in a 30 to 50 unit sized building, do you find that they’re stickier tenants.
[00:15:18]:18 – [00:15:41]:10
Karl Krauskopf
When I when I’m I’m thinking about my tenant base right now on our central Washington apartment complex and the average tenancy there is a little over three and a half years. So in my opinion, that’s a pretty and, you know, obviously you don’t have the data, so you can’t see what the high end and what the low end is. High end is, you know, we’ve got someone who’s been there for 30 years. So you kind of discount them. And from a single year turn perspective, you know, out of the turnovers that we’re getting, we’re only getting about 10% of those are one year tenants. So we’ve got a pretty we’ve got a pretty strong tenant base that’s staying with us. Yeah, that’s staying with the apartment itself.
[00:16:05]:12 – [00:16:25]:11
Sam Wilson
That’s a really compelling statistic if you want to call it that or. Sure, yeah, probably not the right word for it, but but a three and a half year tenancy, I don’t know what the national average is or even what the you know, your that local market average would be. But again, I’m just kind of imagining that that in that particular is an advantage to what you’re doing, I guess, is what I’m getting to. Yeah. Is that the type of tenant that would like to stay in an amenity light situation that, you know, obviously has a commensurate rent to go along with that, but also probably isn’t someone that is moving a lot. It is probably a very stable tenant base and I would think three and a half years you know is a pretty a pretty long tenancy would be for an industry.
[00:16:49]:26 – [00:17:12]:26
Karl Krauskopf
Absolutely. And you know, one of the big things that drives, in my opinion, tenancy tenant, that length of tenancy is going to be your unit mix as well. Right. Your studios, you one ones are going to be a little bit more on the transient side. This particular apartment that we own is a solid higher mix of twos and threes.
[00:17:12]:26 – [00:17:21]:02
Sam Wilson
That’s really, really cool. I love that. Let’s talk about lending. How what was the lending environment like right now on these types of assets?
[00:17:21]:13 – [00:17:51]:02
Karl Krauskopf
Sure. So on the 30 to 50 unit range, especially here in Washington, 30 to 50 unit range are going to be relatively old. So they’re going to be in the, you know, predating the seventies, back to the 20 1920s. And the the issue with getting any kind of agency debt on that is going to have to do something that’s cost prohibitive, which is seismic retrofitting in order to qualify for agency debt. So that leaves, you know, either a bridge debt, which I am vehemently against or recourse local credit union, local banks, which is what we are using right now.
[00:18:05]:09 – [00:18:13]:21
Sam Wilson
Got it. Got it. That’s yeah. Seismic retrofitting. Never heard that that terminology. But it sounds like something that would be.
[00:18:13]:29 – [00:18:42]:19
Karl Krauskopf
Oh, it’s, it’s, it’s a challenge and it’s expensive. You know, I did that with the single family flipping when we had to go in and do these big gut jobs and studs out remodels, and you’re essentially having to go into your entire STEM wall. So where the concrete where the foundation meets the the wood framing and do these massive earthquake straps to make sure that the house is protected when it shifts left to right and ensure that the house just doesn’t topple. So obviously and I think in some of the developing world, developing countries, you know, there’s been earthquakes that have just completely annihilated cities and towns. And you look at kind of the reason why it’s there’s earthquakes, you’re shaking them side to side. And, you know, none of them are earthquake retrofitted.
[00:19:03]:08 – [00:19:29]:09
Sam Wilson
Wow. That’s that’s wild. Absolutely wild. Well, yeah. So let’s avoid the expense of having to do seismic retrofitting. I’m sorry. I don’t know anything about that, but that’s that’s that’s really not a cool couple of words either way. You look at it. Tell me about how we talked about the lending, the type of debt that’s available on this, what your grand strategy for you and how you’re going to build your company in acquiring these assets.
[00:19:29]:09 – [00:19:33]:28
Karl Krauskopf
So the question again restated is how are we growing our brand?
[00:19:34]:04 – [00:19:49]:19
Sam Wilson
What’s your long term vision with this? I guess I’ll just I’ll just turn redness back right into what we talked about earlier in or before we got on air, was that you said, hey, I’m doing this as a solopreneur. There’s a lot of people that go out, they build their business, they syndicate it, they raise capital, they bring other people in. You want to take your business in a different direction, and I’d love to hear what that is.
[00:19:53]:02 – [00:20:37]:26
Karl Krauskopf
Yeah. So right now it’s it’s all about how do I create the systems and processes to delegate and then automate some of those processes? And again, you’re looking at your, your deal flow, your, your underwriting, you’re closing and then you’re at your effectively your asset management. So looking at it from a funnel in that sense, it’s where can I plug in, where can I hire either local staff, local people that I’ve met from the meetups, networking events here in Seattle and even potentially leverage virtual assistants to help with again deal flow underwriting is are the two primary areas for immediate delegation in hiring and hiring team members. So right now that’s that’s my you know as of April 2023 that is my number one focus and getting some folks hired and getting that process started. So that way I can boil myself up, bring myself up and focus on the capital raising asset management.
[00:20:56]:04 – [00:21:18]:22
Sam Wilson
Got it. Got it. I love it. Carl, you’re doing some really cool stuff and I have a particular affinity for kind of exactly what you’re doing. I think I think it’s a it’s a largely overlooked space. I know you said it’s a mom and pop space, which I think is is I don’t know. I find a lot of strategic advantage to finding those mom and pop spaces just from a a lack of sophistication standpoint. Anytime you can come into an industry like what you’re doing or this particular, you know, a niche within an industry and bring sophistication to it, it’s just it’s a it’s a goldmine for those that are willing to go in and really roll their sleeves up and figure out ways to systemize. And like I said, this brings sophistication to the space.
[00:21:37]:10 – [00:21:38]:10
Karl Krauskopf
Yeah, absolutely.
[00:21:38]:10 – [00:21:51]:05
Sam Wilson
Very, very cool. What you’re working on, if you are listeners, one piece of advice, maybe something you’ve done right or something that you’ve done wrong along the way, that you can help them either either repeat and or avoid. What would it be?
[00:21:52]:17 – [00:22:25]:18
Karl Krauskopf
That is a that is a great question. So I think the number one piece of advice is, you know, understanding what your end goal is. Right. Why are you doing this? It’s and it’s you know, it’s it’s the proverbial why, of course, you know, a family being able to have that. Like for me, it’s it’s it’s it’s having having that legacy being able to go wide and go deep in terms of a legacy, being able to offer not just to my family, not to my friends, but also to the community in having and bringing you know, comfort. Right. For me, growing up, it was, you know, I was a little bit of a challenge situation. I was blessed. I had a great, you know, great roof over my head. But, you know, understanding that there were people that worked with us, worked with my family from a landlord perspective, you know, if I have that opportunity to do and bless somebody else like that, like that’s that’s what I want. I want to be able to bless families as much as possible.
[00:22:50]:01 – [00:22:58]:19
Sam Wilson
Man, that’s awesome. Carl, thank you again for coming on the show today. I certainly appreciate it. I learned a ton from you. If our listeners want to get in touch with you or learn more about you, what is the best way to do that?
[00:22:59]:06 – [00:23:04]:29
Karl Krauskopf
I love LinkedIn. I’m on there daily, so come follow me. Carl Krauss Cops on LinkedIn.
[00:23:05]:14 – [00:23:11]:01
Sam Wilson
Awesome, fantastic. We’ll make sure we link to that there in the show notes. Thank you again, Carl Will coming on. Certainly appreciate it.
[00:23:11]:12 – [00:23:12]:13
Karl Krauskopf
Thank you, guys.
[00:23:13]:10 – [00:23:34]:22
Sam Wilson
Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts or whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.
