In The Know Real Estate Show – How to Flip Apartment Buildings ft. Kevin Easterly-Read full transcript below.

 

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Oliver Graf is in Arizona on this episode of In The Know with Kevin Easterly, a serial entrepreneur and mega multi-unit investor and apartment flipper. Kevin breaks down how he got started (with almost no money) and what it takes to go from broke to owning over 150 units in multiple states.

To learn more about Kevin and all recent projects, visit http://cashflowingassets.com

Here is how it all breaks down and some important questions we answer in this video:

:38 What Are We Drinking?

1:07 Why Multi Family Properties?

2:50 How To Raise the Value of the Property?

3:49 What is Forcing Appreciation?

4:27 How are Projects Valued?

6:37 What Does Grant Cardone Have to do With It? (10X Everything)

9:31 How Did Kevin Go From Broke to Owning over 150 Units?

16:07 How to Deal With Contractors

19:22 How Much Money is Floating Around Out There?

20:54 What One Thing Would Kevin Have Done Differently?

Full Transcript :

Oliver: 00:00
So out here today in Arizona and really excited because we’re going to be doing something a little bit different for this episode of In The Know. We’re actually going to be talking about multi family apartment complexes and we’re going to take a tour of one that Kevin and myself recently bought out here in Arizona and we’re going to talk about how we did it and all the ups and downs and how you can go and do it yourself.

Kevin: 00:20
Let’s roll.

Oliver: 00:35
Before we get started, we gotta crack these beers, bro.

Kevin: 00:37
Alright.

Oliver: 00:38
Looking forward to sharing a couple of adult beverages and having a great conversation about multifamily investing. Let’s crack these Modela’s and get started. Cheers.

Kevin: 00:52
What do you want to know? How to make money? This is what we do.

Oliver: 00:55
The first thing I want to know is, obviously there’s a lot of different places you can invest. Right? There’s a lot of different options, there’s a lot of different vehicles. Why don’t we start at the top with why multifamily?

Kevin: 01:07
Multifamily is a great asset, everybody’s going need apartments down the road, everybody needs a place to live, if you land in that B and C class, which we do. Then that’s you know if a market correction hits they’re going to go from A’s down to B’s, that’s where you want to be is in that B and C sweet spot, it’s just a great investment. You know everybody doesn’t need to go to retail shopping, everybody doesn’t need to go invest in stocks but everybody needs to have a place to live. That’s why multifamily is a great investment.

Oliver: 01:33
What is it about multifamily that makes it such a great investment in your opinion?

Kevin: 01:37
I think the advantages of multifamily over a single family for example is that single family is, you know you get an a/c break one month, there goes three months worth of profit on a middle class single family. You know you get one problem tenant that’s $5000 for a move out. Where we have multifamily, you have a 30 unit, the one we just looked at and we have 10 vacancies when we first bought it and we were still paying the bills. So I think you have a lot more room to wiggle and I think it’s just a better investment.

Oliver: 02:05
Yeah, I think that’s the important point there is you’re really spreading out your risk. Right? Because on a multifamily building, in most cases, you only have one roof to worry about, you only have one landscaping to worry about, you only have one set of paint to worry about.

Kevin: 02:19
Correct.

Oliver: 02:19
Whereas if you own multiple single family residences, to his point, you know you got three roofs to worry about if you own three. If you own 30, you got 30 roofs to worry about, 30 buildings to take care of. So you’re really spreading out that risk and then also in terms of the different types of financing that’s available. Right? Because in multifamily, the way you get those deals is it’s not the same way as in residential real estate where you’ve got to personally qualify, it’s really all about the deal and how much cash flow’s coming in.

Kevin: 02:50
Correct and with multifamily you can raise the value of the property based on cash flow a lot more than if you own a place and you’re based off of appreciation on single family. Multifamily they base it off like a business, off cash flows so you can raise the rents $100 and it’s going to make your property worth $20 grand more on one unit. If you have 30 unit, multiple that by 30, that’s a lot of money.

Oliver: 03:11
Yeah. So that’s kind of really the name of the game when you’re looking at these multifamily units. You’re looking at something that’s either under rented, undervalued, not taken care of, mismanaged, those are the types of things where you can come in and you can clean up the books, you can clean up the building, you can clean up the tenants and that’s where the real value increases come and like he was saying, you come in and you basically do all the work and you’re forcing appreciation. You can increase the value of those assets significantly in a fairly short amount of time by coming in, cleaning it up, fixing the books, raising rent and just making it an all around nicer place to live.

Kevin: 03:49
Yeah you’re forcing appreciation, that’s a great tip or a great point. Because you know you buy single family, you can’t go in there and add value that much and raise the rents, it’s not going to make sense with one tenant so you go in there on a 30 unit, you raise value. That way if a correction happens then you’re still going to be in the green because you’re forcing appreciation. With the stuff like we did to that property with the rehabs, with the kicking tenants out, rehab the insides, raise the rents, all that kind of stuff. Lower property management, lower costs.

Oliver: 04:22
That’s on all that until now.

Kevin: 04:23
Modelo, best beer in Mexico.

Oliver: 04:27
Another big distinction between the residential world and the multifamily world is how properties are valued. Right? When you go and you buy a single family residence, if you want to increase the value, you’ve got to really make the property better. You’ve got to, it’s really all about the condition of the property itself, where with multifamily it’s all about the rent rolls. So the name of the game is to come in there and figure out ways that you can raise rents and reduce expenses and that’s where the increase in value comes over time. So the idea is that, what I think personally is the sexiest part of the apartment complex investing is that after like two or three years you can refinance the property and you can get all of your initial money back. So now you’re essentially playing with the houses money, you can own a property that cash flows forever and you’ve gotten all your initial investment back which basically makes it an infinite return.

Kevin: 05:20
A win-win, correct and for your investors, if you have investors in the deal, you make them money, cash flow monthly and then you return their money back in a few years and then you give them more and I own a piece of an actual piece of property and it’s just a win-win-win all the way around.

Oliver: 05:34
Yeah. So, why don’t we take a quick step back here cause I know that a lot of people are thinking, man a 30 unit building or oh man, even a 10 unit building, I could never do that. They can’t really wrap their head around it. So why don’t we talk about how you got started and what led you kind of down the path of what you’re doing now.

Kevin: 05:54   Alright, so yeah I got started, I was buying four-plexes in Vegas in about ’09, 2010 and you know we thought they were great, we had four tenants, they’re each doing $500 a month, we were buying them for $140 grand a piece. We’re like, wow, this is great. They were selling for $350 back in ’07, you know we’re going to retire and have five of these under our belt, cool. Well then you start figuring out, you get one tenant go out, one tenant that screws up the place, that’s 25% vacancy right there. So you’re like, man that just hit my whole bottom line for tow months. And then we were buying them from people that were going and buying apartments and we’re always wondering, man this is great, you know da, da, da, da, da. So we ended up watching Grant Cardone, giving Grant Cardone a shout out.

Oliver: 06:35 Yeah give good old Grant Cardone a plug.

Kevin: 06:37 My boy. So we watching Grant Cardone and he has his real estate investing podcast and you literally we started learning off of that. Like, wow, okay we could do this. Emailing him, he emails you back, it’s really awesome. So we sold all of our four-plexes, me and a couple partners and we bought a 57 and a 42 unit and-

Oliver: 06:54 10X.

Kevin: 06:55 That’s when we really 10X’ed everything and just hit the next stride. Then we figured out, wow, this is not much different than rehabbing the roofs and the paint of a four unit, just 10 times. So you know I like to really live by that motto is 10X, you know 10X everything and you’re good. Now here we are at 140 units today and building it, building our brand, building everything and now we have a bunch of experience under our belt. Contractors, property managers, start building your team and yeah, it’s great. The banks have a relationship with us now so it’s really great.

Oliver: 07:26 I think that’s definitely a key take away as well is when you really start to think about it a four unit versus a 40 unit, there’s not really a whole lot of difference, it’s just a bigger scale. Right? So the hard part in doing these deals is finding the good contractors, finding the good property manager, finding someone to run the books, finding people to do the rehab work and so at the end of the day, it takes just as much work to do a four unit as it does a 40 unit but the returns on the 40 unit are just significantly higher. So if you can just wrap your head around the fact that it’s the same process and it’s the same team and it’s the same people, it’s just a little bit bigger of a roof and a little bit more to paint and a few more units to rehab. But at the end of the day the process is the same and the procedures are the same.

Kevin: 08:14 Exactly, there’s the couple more zero’s that’s all, it’s a couple more zero’s and you just can’t be scared. You go get partners, if you don’t know what you’re doing, you go get a partner like us, you can go get partners that know 50 units, 100 units, there’s people all over the place. You get money partners, you can use your property management partners, there’s all different ways to structure a deal and do it so you feel comfortable, you get your feet wet. Now you’re on the loan, then you can go your own loan down the road, that’s how you gotta do it. It’s a team sport, it’s not a sole sport, if you’re by yourself it’s going to take forever and ever. It’s a team sport, you gotta have all your team set in place.

Oliver: 08:47 Yeah, that’s a critical point and something that we talk about all the time is that real estate is team sport and once you’ve built the team, now it’s easier. Now you can scale. Right? Now that we’re out here and we’ve got the contractors, the managers, everything and it’s starting to run like a well oiled machine. Now it’s going to be easier for us to go out and but another one and just plug the same team in, use the same resources and it’s a lot more plug and play at that point.

Kevin: 09:12 Yes, that’s correct, 100%.

Oliver: 09:13 So one thing that I really think is cool about your story that I think you should share is, and you were sharing with us at dinner last night was where you were at in 2009 when you got laid off from your job. So tell me about that, right because that was even before you started. Right? Before you even got your first property.

Kevin: 09:31 So back in 2009, I was working at video project, I had a video degree, I got laid off when everybody else got laid off and I had $2500 bucks in a bank and a video camera to my name. It’s like, what am I going to do, so I started selling stuff on Ebay to pay rent and I ended up starting my own production company, did a bunch of video’s, did a ton of weddings, became number one really quick. Then we started doing flips. I had some partners that were doing flips. Again, a team sport, they were doing flips, I was giving them money, they were giving me a little money, da, da, da, da, da and then we started building it up and then we went to the four-plexes. So that’s how we started and we got the capital to do it and I mean I’m here to say, true living story, anybody could do it, I mean if you have zero right now, I mean just go get some partners start learning the field. There’s plenty of new people out there with money. If you have the skills, you can definitely have people with money on your side and your team and buy anything you want.

Oliver: 10:23 It just goes to show you, I mean this guy literally went from $2500 bucks in the bank to over 100 units under his name in a very short amount of time and I just want to stress the point that that’s really doable for you. Anybody can go out there and do it, it’s not something that you need to be a rocket scientist to do. You just gotta go out there and put in the work.

Kevin: 10:44 Gotta hustle.

Oliver: 10:45 Yeah, you gotta hustle. So really great story man, very inspiring. So why don’t we touch on now kind of what it is that you’re looking for in a deal. Like when you find a deal, how do you know it’s a good deal? What is it that you look for when making your next move?

Kevin: 11:01 Yeah so you want to find deals like what we’re specifically looking for is a C building and a B area and something that we can turn a C area which is like not so nice, we can go in there and paint it like the deal you just saw and we can make it nice, we can do the insides, the rehabs, get the new tenants and we know that there’s a demand for it in an area, that’s really our bread and butter, it’s what we’re looking for.

Oliver: 11:23 So really value add opportunities?

Kevin: 11:25 Value add, value add opportunities. What we’re doing is we go in there, we put 10% of the purchase price sometimes in there. Fix it all up, raise the rents and if the numbers make sense and the higher rents make sense then it’s going to work. It’s just a numbers game, it’s running a business, that’s what it is.

Oliver: 11:40 The next question and I’m sure a lot of people have this same question is how do you find the deals?

Kevin: 11:45 So, good question. You can find the deals, you start building relationships with brokers, that’s my number one thing I do. So once you have a brokers relationship then they call you, hey I got this deal, then they’ll start calling you off market if they know you’re serious. If a broker ever sends you a deal, always reply to them no matter what. Even if you don’t like the deal, even if the deal doesn’t make sense, reply to them and acknowledge that you have them or you got the deal because then they’ll start sending you, now you’re 20% of their people they send out to, you’re 20% of those people that actually reply, they’re going to start sending you deals that the other people don’t get. So always reply, always respond to the broker. Even hey this doesn’t work with my team, sorry but thanks a lot. Just little stuff like that, that’s one little nugget that you guys definitely should do.

Oliver: 12:29 That’s a really good tip, yeah. It’s so simple too.

Kevin: 12:31 Yeah. Oh and then another person, the termites, we called the guy for a termite inspection on a property and he said, “Oh yeah, you know I have these owners that don’t even care about their place, you can just tell.” And I’m like, well hey, give me the owners contact, I’ll call the owner and see if they want to sell their property. If they don’t care about it, then we’ll go in and care for it and we’ll get better tenants and we’ll make a profit on it and that guy can get rid of it and it’s a win-win situation. So you could talk to vendors, you could talk to contractors, you can talk to brokers. So there’s all kinds, that’s just three, there’s so many people you can talk to.

Oliver: 13:04 So at the end of day what I’m hearing is it’s all about relationships.

Kevin: 13:07 It’s a relationship, it’s a team sport and a relationship short.

Oliver: 13:10 Yeah because if you can get in with a good broker, they’re going to bring you deals before they hit the market and if you can get access to deals before they hit the market, that’s where the real gold is. Right? Same thing with like you were saying with pest control and property manager’s. Right? Most property managers they know other property manager’s and those property manager’s all know people that own buildings. So if you can get them and maybe structure a win-win with them to where they feel good about it, they’re going to start referring you deals also before they even hit the market and that’s kind of really where you want to be.

Kevin: 13:41 Relationship, it’s all relationship and don’t burn your bridges, you know always be nice to people. Always pay it forward, even you don’t need something from somebody at that time, even act like you need something or you’re going to need to something down the road because you’ll never know when that comes around and you’ll need something from somebody or you’ll be working with somebody and if you burn a bridge it’s a real small world and everybody knows everybody.

Oliver: 14:03 That’s true and just like you said, just being good at communication, just respond to people. Pick up your phone when it rings, return voice mails when you get them. Right? It’s the simple stuff that most people aren’t doing, which is kind of mind boggling but it’s the truth.

Kevin: 14:17 That’s crazy, it’s the little things man, the one little things that sticks out in the realtor and they will keep calling you and give you deals. You’ll make a million bucks off them, boom, just from making those calls.

Oliver: 14:27 Yup, yup, all about those relationships. Once you’ve found the deal, what’s kind of like how you structure it? How do you structure the deal or how do you make a typical purchase happen?

Kevin: 14:37 Well when you’re looking for deals there’s a lot of ways to structure it. You can structure it you know it’s a value add deal where you come in there, you buy it for a million bucks, you spent it for you know you put however much money in there to do it, is it going to make sense, is it going to be worth X when the rents are higher and it’s rehabbed. There’s other deal structure where you buy the place and it’s just the cash flow and it’s turn key, you buy it today, cash flows tomorrow. There’s other deals that are full rehabs that are one year out, you don’t get a penny. Those ones you get a way bigger return in a year but you don’t get a penny tomorrow. So it really depends on what deals you find and what deals you’re looking for as your team. Our team in specific we look for value adds. So a lot of times right off the bat you’re not going to make a whole lot of money but down the road it’s going to be a great game, get your money back, keep making money. That’s kind of structure and motto.

Oliver: 15:24 So a typical deal would look like what? Let’s say it’s a two million dollar purchase price and how much are you looking to put down, how much are you planning to spend in rehab costs?

Kevin: 15:36 Yeah so when you buy a property a good rule of thumb is 20 to 30% down, I’d probably do a little extra and go for 30% down and I mean the banks your biggest partner. You’re going to be in the 70 to 80% loan from the bank, they’re usually like a 20 year fixed, I mean a 20 year amortization with a five year fixed, seven year fixed, 10 year fixed. Just depends on where you’re at, how long the rehab’s going to take.

Oliver: 16:02 So you’re saying about 25 to 30% down. How much are you budgeting for a rehab?

Kevin: 16:07 So for rehabs when you know you want to look, you want to go get your contractor in there while you’re in contract, get your contractor in and before you close the deal and have him give you a bid on what’s going to need to be done. That will give you a good ideas is okay I need X amount, I need $80 grand, I need $100 grand to make this rehab done so I can get those rents where I want them to get and make sure I can make money and profit at the end of the day.

Oliver: 16:28 Yup. Yup and one key tip on that too is when you are walking through with the contractor, make sure that you’re getting an itemized line by line bid because a lot of times what contractors will do is they’ll just give you the total bid number and they’ll be certain things in there that are like really good deals and they’ll be certain things in there where they’re just trying to rake you over the coals and make their money.

Kevin: 16:49 100%.

Oliver: 16:50 So if you can get the line by line bid, then you can get two or three bids and you can kind of put the work to wherever you get the best price or wherever you get the best deal or wherever you get the best terms.

Kevin: 17:01 Right, that’s correct, yeah. I mean the contractor’s out there to make money too. So if you find a crooked one, which there’s plenty of them out there, you gotta watch out and if you don’t know what you’re doing and you don’t get multiple bids you’ll never know the difference. So always get multiple bids on everything. Two to three bids regardless if it’s to redo a floor or whatever in a unit.

Oliver: 17:18 Yeah and the key is line by line, right? Don’t say, “Oh I want to rehab unit 101, give me a total cost for that.” You want to know how much is it for the cabinets, how much for the paint, how much for the flooring, how much for the windows, how much for the a-, whatever it is, you want it line by line and then you can go in and dissect it and say okay, I’m using contractor A for X, Y and Z and I’m using contractor B for A, B and C.

Kevin: 17:42 Correct. Yup.

Oliver: 17:43 That’s how you squeeze the most juice.

Kevin: 17:45 Yeah and we have talked to people that have paid way too much and it hurts your bottom line and screws your cash flow up and that’s the name of the game is cash flow and if that doesn’t happen then it’s not a good business and it’s not a good deal. So watch out for that.

Oliver: 17:58 That’s right, yup definitely. So I know a lot of you are thinking probably like, I don’t have the money to do a deal like this. I don’t have a couple hundred grand laying around, I don’t have the money, 30% down on a two million dollar property. So that’s where something like syndicating deals come in. Right? So how does that work? What does a syndication typically look like?

Kevin: 18:18 So a syndication, I mean if you have the knowledge, it’s a team sport again. So if you have the knowledge and you go out there and you do your due diligence you go learn the deals, you learn how to do deals, you go find a money partner that has the money and then you guys can close on the deal. Then you go find a sponsor that has the net worth for the bank and you close the deal. So you have three partners right there, you don’t have to have one penny, you can make a percentage running the deal. So it’s all, you have to learn it but you don’t have to have money to start this.

Oliver: 18:44 Yeah and I really want that to be a key takeaway is because like you said, you don’t need money, you don’t need your own money. You do need money but you don’t need your money.

Kevin: 18:53 Correct.

Oliver: 18:54 By partnering with the right people and creating win-win relationships you can insert yourself into these deals that are much bigger than you’d be able to do on your own without actually having to put your own capital on the line.

Kevin: 19:06 Yup, go to seminars, read, there’s tons of books out there on multi-family, there’s tons of seminars, podcasts, you can learn the ropes. There’s a lot of people with money out there that want to invest money and make money and they want somebody like you to know how to do it. You don’t have to have money at that point, knowledge is power.

Oliver: 19:22 Exactly. That’s very true, you know there’s so much money floating around out there and they are just looking for a place to place it so if you can show them somewhere where they can place their money that’s secured by real estate and has a nice return, you’ll be able to raise money pretty easily. A lot easier than you probably think.

Kevin: 19:41 Correct, 100%.

Oliver: 19:42 Once you bring on investors, obviously that comes with an added layer of responsibility. So how do you make sure that your investors are protected in the deal?

Kevin: 19:50 So when an investor comes in the deal you show, you have a whole webinar for them that shows them the exact layout, the deal, the location, they can go to the deal with you. They can check out the deal. You explain where you’re going on, you explain your experience, you show them the numbers, you show them the projections, you show them what’s going on the loan, all that and then you’re basically just a partner on the deal and you guys go in together and make some money together, cash flow. Then when you’re ready to go play with the big boys, 10X.

Kevin: 20:22 So if you’re interested in the deal then there’s multiple ways to go about it. You can come talk to us, you can come talk to other syndicators, other investors, go ask some people how they did. Go shadow some people, go listen to podcasts. We have deals, they have deals, whatever you guys want, you come talk to us we’ll give you advise, whatever we can, help you out. That’s the name of the game, just help everybody out.

Oliver: 20:45 Very cook. You know now that you’ve done a lot of these deals. What is one thing that you wish you knew when you started?

Kevin: 20:54 One thing I wish I knew when I started was go bigger faster because it’s a lot easier when you go bigger. You have a lot more room if you have a couple tenants move out and it’s easier. It’s easier when you go bigger and I wish I would have took all those four-plexes and exchanged them up way earlier. It is what it is, I learned my lessons on those ones and they were good and everything was good from there on out.

Oliver: 21:14 So go big or go home?

Kevin: 21:15 Go big, 10X.

Oliver: 21:18 I love it. Well very cool, I hope that you got a lot of valuable information out of this interview. Obviously we’re really excited about these kind of investments, we’d love for you to join in. So if you’re interested in a future deal that we have going on, just reach out, we’d love to kind of show you want we got going on, future deals that we have coming up and we’d love to have you get involved with us. So if you’re interested, contact me, contact Kevin. We look forward to talking to you on the next one and now you’re In The Know. Want more In The Know with Oliver Graf?
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To Your Success,

Oliver Graf

Inc 500 Entrepreneur Real Estate Trainer President of the #1 Fastest Growing Real Estate Company in America Connect at: http://www.OliverGraf.tv

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