Everyone makes mistakes when they first start in real estate. This is why Mark Kenney decided that he should help them with his own coaching program. Mark has been in the real estate game for a long time, but he started in the IT industry. It took a long learning process before he got to do over a dozen deals. Join your host Sam Wilson as he talks to Mark about his journey into multifamily real estate. Mark is the Co-Founder of Think Multifamily and also coaches multifamily real estate. Tune in to today’s podcast to know how to be a good and respectable buyer.
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Start Doing A Dozen Multifamily Deals With A Little Coaching With Mark Kenney
Mark Kenney with Think Multifamily, welcome to the show.
Sam, how are you doing?
I’m great, sir. How about you?
I’m doing well. Thank you.
Mark, there are three questions I ask every single person who comes on this show. If you don’t mind quickly telling us, where did you start, where you are now, and how you got there?
I started with smaller multifamily. It was several years ago when my identical twin brother was a senior in college. I was in the big corporate world for a while and then I started doing syndications back in 2013. I have done about over 13,000 units since then in twelve states. I got there through a lot of pain. I had a partner that I partnered up with. He had more experience than me that helped get a larger multifamily property but earlier on, it was my brother and myself doing small properties. We thought real estate was a good idea, so we started investing together ourselves, but we didn’t know what we were doing at all. We self-managed, which was painful as well.
There is a lot more to this story if we really dig in on this. Several years ago, small multifamily, you’re in college, you’re buying property and then you’re like, “I’m going to go join the corporate world.” Why did you do that if you were already buying real estate?
We’re buying small properties. I grew up your typical, “Go to school, go to college, get a job.” We grew up with not a lot of extras. My brother and I want to be able to give more to our kids and stuff like that. Even though we were young, we were thinking that far ahead. We didn’t have enough money to go out and buy a bunch of properties. We would buy a property and in another 1 or 2 years, we would buy another property. There’s no way we could have lived off the income we were making with the smaller properties. We did what we were taught, go to school. I became a CPA for a while and I did IT consulting. I started an IT company, but I continued to buy small properties. Even buying more small properties still couldn’t replace my income, so we started buying larger properties.
One of the things you said there in the beginning when I asked how’d you get there and you chuckled and said a lot of pain, what comes to mind when you say that?
If you’re too busy, your stress is at level 10, and you don’t spend time with your family, it’s time to shift careers.
My brother and I both worked for a Big Four consulting. We worked a lot of hours, traveled a lot, but we ended up doing everything ourselves. We self-managed. We would try to fix sheetrock and we have an eight-hour toilet story. We had to do it 3 or 4 times because we kept cracking it and stuff like that. We were shoveling snow in the middle of winter in Michigan. It wasn’t a pleasant experience, but we were willing to go through it because we were like, “This is all we knew. We didn’t know anything about syndication or raising money from the people.”
There is no way we could have went and bought a 100-unit property at that time based on what we knew and the people we knew. We were just doing small little properties. Every couple of years, we get another property. One big event at a duplex, the heater goes out, HVAC or whatever. That’s our profit for the year and it wasn’t ideal.
When did you decide to scale?
In 2013, I had an IT business. I started 2008 and I did pretty decently overall. At least, I thought I was, but I was working 90 hours a week, every week consistently. I have never not had a project for twenty years of consulting. I was on a product every single day during that time and I didn’t spend much time with my wife Tamiel. She had a problem with that for some reason and she’s like, “This is not working out. You need to do something different.” We both like real estate because we got married young and we were buying properties together. My wife and I were too when we got married. I said, “We need to buy larger properties if we’re going to try to replace even partial of my IT income.”
Our goal was initially was not to replace all my IT income because we could still live pretty decent if I was making half I was making. That was the goal. It was, “Too busy. Not enough time for family,” and probably you are stressed. In 1 to 10, my stress level was a ten on a daily basis. It wasn’t a very good environment, health-wise and things like that. It wasn’t good.
Were you able to sell that IT company before you guys launched in multifamily?
It was more project-based. We did mostly projects and frankly, I started doing less, which was good. I could scale it down. We still have one customer left from several years ago when we built a product for them on top of software and they keep renewing. I didn’t do anything with it, but now I didn’t want anything to do with the business anymore. When I got out of it, it wasn’t that valuable. I had a number of Fortune 100 customers, but those are all project-based work.
How did you make the selection to get into multifamily? What were your next steps and thinking your way through that? Getting into multifamily is one thing and syndicating is another thing. You were launching a thought leadership platform, bringing other investors on and teaching them how to do it. I’m sure this was an iterative process, but walk us through that if you can.
I looked at many different avenues when I had this issue with my time and looked at some franchises and some other custom home development. Everything’s another job. A friend of mine was doing syndication in 2013 and I invested passively in his deal. Now, this makes a lot of sense. It can go bigger and could eventually get to where you could replace your income and have it as a job.
He was doing it full-time. That’s how I got started. I invested in several deals that the first year was passive because I had IRA funds, SEP, 401(k)s and things like that. I’m pretty decent with numbers and things like that. I’m like, “This makes complete sense. It’s not that difficult to figure out how to analyze deals and things like that.” It wasn’t for me. I picked it up pretty quickly, but there were a lot of other steps involved.
As you mentioned the capital raising side, I was extremely nervous about trying to ask people if you want to say for the money, even though people say, “No, are you presenting an opportunity to them?” It feels like I’m asking for money. I didn’t want to ask people for money because I didn’t like it. I didn’t ask my parents for money growing up and I didn’t want to ask other people, but it was more of a mindset. I was like, “I didn’t know about syndication and the tax benefits.”
I had an IT business. I pay all kinds of taxes. I started doing multifamily, a full-time real estate professional and I haven’t paid taxes since 2018 for federal income tax. When I started learning from the tax benefits and I like that too, I’m like, “This has a lot of merit to it. It’s something I love doing.” We went through a lot during that process. It took us almost a year to get our first deal because we were distracted looking at other things. Dallas seemed to get expensive. I started looking outside Dallas. I went to Atlanta next. Now, we’re in twelve states, but it’s iterative. I think people look at it sometimes and go, “You went from A to whatever.”
It did pretty quickly, but everyone starts out. We have a consulting or a coaching group and people are like, “I want to go do a $50 million on my first deal.” I was like, “I’m not saying it’s not possible, but you probably need to take baby steps. Initially, you’re probably not going to make a lot and not as much because you’re only doing a small piece of a deal. Eventually, after you start getting more involved in it and learn more, you get bigger pieces of the deal.
If you want to say retire or whatever that means to somebody, you can do that maybe. The biggest thing for me is I don’t have to ask anybody to do anything other than my wife. If I didn’t want to work anymore, I didn’t have to. I used to think when I was younger, “I’d go sit on the beach for a life.” I don’t want to do that either, not for an extended period of time.
In real estate, you need to take baby steps. Eventually, you’re going to get more and more involved and get bigger pieces of the deal.
You mentioned that you were extremely nervous going to ask investors for money. There’s a mindset shift there, but how did you find the investors even if there’s a mindset shift? How’d you begin those conversations? Give us the snowball of that.
We were attending a lot of events like Meetups and different events that were going on. There weren’t nearly as many events back then as there are now, but we were attending a lot of them. From an IT perspective, I was pretty successful. A lot of people I worked with, in a lot of cases, both spouses worked, so they had a good income. I had been buying smaller multifamilies, so it wasn’t like I was brand new to it. People did like the aspect that I had a strong financial background looking at deals because you’re only looking into business when you buy a little bit larger multifamily.
I started talking to people about it and when I learned about some of the tax benefits better, that was a big opening for people because a lot of people make pretty decent money. They pay a lot in taxes. When I had an IT business, I used to ask my CPA and I was like, “How can I stop paying so much in taxes?” He’s like, “You can’t. You keep doing what you’re doing and pay all these taxes.” I’m like, “I know a lot of rich people that don’t pay taxes.” I don’t know them, but I hear about them, I should say. I’m like, “I don’t want to pay taxes.”
As you meet people face to face at events, it was very helpful. I think if you can relate to somebody, forget business-wise, but relate to somebody on some personal level, whether it’s kids or whether it’s some hobby you have. Some people think that’s a waste of time. At events, it’s not. You’re going to connect with people better, in my opinion.
On a personal level, first, they need to know you a little bit and like you. I don’t want to do business with people I don’t like. You’re not going to connect with everybody. If you can get yourself out there, make an effort to go to events. It’s a time suck sometimes. It might be your whole weekend, plus maybe you’re traveling somewhere, but if you make an effort to meet people while you are there, number one is to follow up with them afterward.
If you do that one thing, get business cards, people have them or get their contact information. Follow up with them. I used to always do it within 24 hours. I’d follow up with everybody I met at an event. I know from other people that I talk to, most people don’t do that. They put business cards on their table and they leave them there. They don’t follow up. That one thing by itself, jump on a call with them, build that relationship further and then see.
It was 2013 and you’re getting some capital lined up. You are trying to find deals. What was the next stage in your business?
We were very active in the market. We looked at deals all the time. We analyzed deals on a regular basis and we met with the brokers. Dallas, fortunately, was a good market because there were so many deals being sold. We looked at most of them being sold in the market and we were able to do a few deals pretty quickly, 64 doors, 208 doors and 255 doors. We started expanding out of Dallas and to Atlanta. We had a pretty good time in 2016. There was a lot less competition there at the time, so we were successful in buying a number of deals there and started going to other states.
We do have a coaching mentoring program. Our people in the group can leverage our contacts with brokers and things like that. They’re actively looking at deals. The deal flow is pretty high and a lot of the brokers we do business with are high on their priority list because we’ve done a lot of deals with them. They’ll bring us deals on a pretty regular basis that is not marketed to other people.
Talking about the iterations, it’s one thing to go out and buy 500 doors, but it’s another thing to say, “We’re going to build a coaching program.”
It’s probably not for a lot of people, to be frank. It was something that my wife, Tamiel and I had no intentions of doing. Through some circumstances, people are coming to us a little bit asking us to help them in certain areas. We got to the point where we’d do webinars, Meetups and one-day events. We started doing events and things like that. I fell in love with the aspect of people that are out there that may be similar to what we were going through. If we can help them, there are a lot of things that I was never taught. Unfortunately, even though we had a mentor, I wish we would have been taught more things that I’m like, “Why didn’t we know this or this or that?”
Now we’ve done over 80 transactions, I’m like, “I can share quite a bit of what I’ve gone through.” It’s not easy. People act that it’s easy, it’s not. You’re going to be frustrated. You’re going to hit hurdles and things like that. It was not planned to from the beginning. It was very gradual, a little bit of education, a little bit more than to the point where we’re like, “We’re like this.” We’re able to help people quit their job or the spouse quit their job, save money in taxes.
That whole aspect of the coaching is a family-type vibe. We do vacations together and things like that, hang out with a bunch of people from our group on a weekly basis. It was the best of both worlds. I liked the transaction side and the technical side. My wife was very much more into the culture and the community. I married those two together and now we have our group called the family syndication group on purpose because we have a family atmosphere and people work together. We try not to compete against each other and help everyone get into deals if they choose to.
What are some of the things when you say that you had a mentor and even some things were left on the table? What were some of those gaps that you aim to fill?
One of the biggest ones was he didn’t want to give me rules of thumb for anything, which I thought was odd. I know they’re rules of thumb, but you need to have some perspective when you’re first starting out because I was doing small properties. Other things like having capital set aside for contingencies, working capital and all the things you run into with a lender. We’ve had lenders sometimes hold money for 5 to 6 months before they reimburse us. You need to have that money upfront to do that. What do you look for on things for income growth and having rents that go from $800 to $900 overnight? It’s a gradual type of thing and you have to figure out how many units are going to be rehabbed in a given month. You’re going to have to increase that rent over in a two-year period.
In my mind, a lot of things are considered very basic now. We weren’t taught. You’re not talking tens of thousand dollars. You’re talking to maybe hundreds of thousands, maybe even millions of dollars. It’s the whole perspective type thing. How much should your property be worth when you sell it five years from now? I give some rules of thumb around that. I tell people, “It’s based on experience only. You don’t necessarily use them as the end all be all,” but they have no reference point at all. This is not useful.
If you rewind the tape, what are some things maybe that you would do differently in your journey?
The biggest thing, probably for me, would be having more money raised upfront, which we do now. The other thing was that we weren’t taught anything about how to structure deals. There was one way to structure a deal, which I think is silly. There are many ways to structure a deal. There was only one loan option, which I think is silly. We bought deals before that are 26% occupied, double your money in a year. You can’t do that on a Fannie or Freddie alone.
Now you might choose not to do those deals. That’s fine, but to not educate people on that or raising capital where you can do 506(b) or 506(c), you can advertise. I never thought of that before. I’m like, “This is so basic.” We do our best to expose people to every single aspect of the business. You can pick and choose. You’re an adult. You’re trying to build a business and what you want to do, but to not have exposure to all those things, I think you’re doing a disservice to people that you’re trying to coach or mentor.
When you say you wish you would have raised more money upfront, what are some experiences that come to mind that you say, “That would’ve been helpful if we’d done that on this particular project?”
The number one downfall that I have enough money upfront is when you have contractors that have to get started and they want to be paid upfront, at least some percentage. You have to usually pay them first and submit it to the lender. The lender sits on their hands for weeks or months at a time, back and forth, “I have a question on this.” “What was that?” Before you know it, three months later, you’re waiting for $400,000 to come in that you had to payout.
What do you do? Do you stop work? The lenders aren’t going to necessarily work for free. If you don’t pay them, they’re going to be like, “You’re on my list now. I’m not going to come back to your property until you pay me.” That’s probably the number one thing that a lot of people miss and it’s a basic thing. You think, “How would you know that?”
I didn’t know the way draws worked with a lender. My mentor never told me that. I didn’t know that you might wait months to get reimbursed by a lender. They never told me that. Working capital was not even discussed and contingency wasn’t discussed. These were some basic things in my mind that anybody new starting out should know. There’s no reason to go through these headaches and mistakes that people make because, in reality, that we’ve made mistakes. We can make a lot less mistakes now, find them a lot faster and fix them a lot faster. That’s the whole goal.
There is not just one way to structure a deal; there are many ways.
You said you’re now at over 13,000 units, is that right?
We’ve done over 13,000. We have a little over 10,000 now and we’re selling too many, more than I want. When we do syndication, I would tell people that, “Look at the projections.” People will say, “You’ve been returning X% on the other deals.” Assume that’s not going to be the case because everyone’s been a little spoiled, including us and the market’s cooperating. We have two deals now. We bought the one in December 2020 and have offers on them where we’ll hit our five-year projection through some circumstances.
It’s pretty hard to go to investors and say, “We don’t think we should necessarily sell.” We could do a refinance. There are some things around us. In an individual deal, you want to look at whether you should sell or refinance, do a supplemental loan, but some of the offers we’re getting, frankly, it makes sense to sell. It’s pretty hard to argue if, in 1 to 2 years, you can meet your 5 to 6-year projection.
What do you do with the money? You have to go buy another deal that is the same price as the deal you sold. I get that and with the refi, you get them tax-free and things like that. I say too many because I wanted to keep the streak of not having to pay taxes. You get recaptured. We’re looking at maybe even doing 1031, even though syndication and stuff like that. We have more deals in 2021 we’re getting offers on that are quite frankly ridiculous offers and pretty hard to turn down.
If I had property and I was the only person in it, I’d probably hold it for 10, 15 to 20 years, but you need to make sure you have money to do capital again. After 5 to 10 years, you have to recapitalize the property because now you need to redo stuff. That’s the other disadvantage. You don’t want to hold property too long and be like, “We redid it. Five years later, we have to redo it again. We don’t have the money. You do a refi, you may pull money out or you sell it.” I’m not saying it’s selling the bad thing by any means, but we’re selling more in 2021 than we planned on selling for sure.
There are lots of different schools of thought around that and like you said, “Holding the capital or recapitalizing the project in ten years because now it’s time for remodels again.” If you’re going to stay competitive in the marketplace, you can’t have something that is 10 to 20 years old.
We’ll do about twenty deals in a year, too, so we’re still buying a lot of deals.
That’s almost two deals a month. It’s not like you’re standing on your thumbs. Speaking of a hot market, what are you doing right now that you feel it’s allowing you still to find opportunities?
It’s from the several years of building up relationships with the brokers. We’re not the only group, typically. There might be 4 or 5 other groups, but a handful of groups that are going after deals versus 100-plus people looking at deals. Building those relationships with brokers and letting them sell properties. A lot of properties are selling in Atlanta. We have primarily had one broker for that. We bought fourteen deals with these guys in a few years, but we let them sell the properties too. That’s something that you want to do. Provided they’re competitive, which they are, and they’re great to work with. If you can be a good buyer, a good seller, do what you say you’re going to do, you can be in the business long time. If you’re going to be short-sighted, hard to work with, people think you’re rude and things like that. You might still get stuff done, but people don’t want to work with you.
Mark, this has been great. Thank you for your time coming on. Let’s launch into a final few questions here for you. The first one is this and you may have answered this already, but we’ll give you another crack at it. If you could help our readers avoid one mistake in real estate, what would it be and how would you avoid it?
For me, raise more capital. It’s pretty easy to avoid it. If you can raise the capital and know-how much extra you need to raise. You can’t be ridiculous about it because they impact your returns, but that’s probably the one thing that’s given me the most heartburn on earlier deals is not raising enough capital.
Is there a budget or cushion where you say, “We need X number of dollars to get this deal done?” Is there something like that plus 10% that you always say? What’s your metric on that?
For working capital, we always do one full month of potential gross rent. It’s 8.33% for that. The contingency will vary a lot on whether we’re getting the lender-provided funds for CapEx or raising the money. If the lenders are going to provide it, we’ll usually do more. We usually start at 10%, but if you’re doing a bigger deal, you don’t necessarily need 10%. It’s going to depend on your CapEx project, so it can vary widely for that, but it needs to be more than zero for sure.
Your rule of thumb here is that you’re going to use 10% over for the CapEx budgets. It’s $1 million, so you’re going to raise $1.1 million for the CapEx.
It can be lower than that. It is on the raise. It’s going over 10% of the raise.
That’s helpful. If that’s a lesson that you’ve learned the hard way and that’s what you do now, I think the readers will find that very valuable because those are tangible action steps that we can take. Mark, when it comes to investing in the world, what is one thing you’re doing right now to make the world a better place?
People make mistakes. Try to teach people how they can make a lot fewer mistakes and find a lot faster ways to fix those mistakes.
It’s giving back to other people, the less fortunate. We are very much into orphanages and things like that. The sex trafficking industry are the two areas that we’re most focused on as far as giving back.
Mark, if our readers want to get in touch with you, what would be the best way?
The best way to get ahold of me will be my email. Its Mark@ThinkMultifamily.com.
Mark, thanks so much for your time. I do appreciate it. This was great.
Important Links:
- Think Multifamily
- Mark@ThinkMultifamily.com
- https://www.Facebook.com/MultifamilyInvestors/
- https://Twitter.com/ThinkMulti
- https://www.Linkedin.com/Company/ThinkMultifamily.com
- https://www.YouTube.com/ThinkMultifamily
About Mark Kenney
Mark and Tamiel Kenney are seasoned real estate investors and the founders of Think Multifamily, a leading Multifamily Acquisition & Education company that prides itself on a family-oriented approach to business.
Mark & Tamiel started their real estate career over 25 years ago and have a passion for helping others succeed in the multifamily arena. They are coaching others to go BIG, fast with Apartment Investing.
They have invested in 8000+ apartment units with a strategy focused on acquiring, owning, and operating apartments, and providing clients with the opportunity to invest in real estate through syndication at a reduced risk, that would otherwise be unobtainable.
The duo at the heart of Think Multifamily stand firmly behind a business model promoting transparency, authenticity, and servant leadership.
