Our guests for today serve as the managing director at the multifamily private equity firm Birge and Held asset management. In his role. Kent leads the private select portfolio, which has a unique strategy of leveraging Birge and Held scale and latest technology to create outsized returns from acquiring and improving mismanaged, undercapitalized, and undervalued properties.
Our guests is dedicated to teaching others how to make good investing decisions. He is the host of the Ritter on Real Estate podcast and YouTube channel, where he provides impactful interviews and practical tips for investors. Kent has achieved financial freedom and now is on a mission to empower others to do the same through multifamily investing.
Let’s dive right in and learn from Kent Ritter on how he started his real estate investment career
[00:01 – 10:30] Opening Segment
- We introduce our guest, Kent Ritter
- Kent talks about his background
- Kent give a short story of what not to do
[10:31 – 20:34] Vetting The Operator With Questions and Looking for Red Flags
- Kent talks about the top 4 characteristics
- #1 Integrity
- #2 Track Record
- #3 Financial Means
- #4 Skin In The Game
[20:35 – 42:09] You Should Only Start With 100+ Units!
- Kent’s bad investing advice
- Kent talks about his firms and private select portfolios
- Reducing the properties basis while renovating
[42:10 – 46:16] Looking Back And Realizing You Were Stupid Last Year
- Final thoughts
- Kent’s book recommendations:
Think Again: The Power Of Knowing What You Don’t Know
Tweetable Quotes:
“you have to understand you need to understand how people are paid. And once you understand how people are paid, then you can understand how they’re going to act.” – Kent Ritter
“So I started out with the intent to be active and then once I learned about syndication, I said, OK, well, I don’t you know, I’m self-aware enough to know there’s a lot that I don’t know and there’s a lot that I don’t even know.” – Kent Ritter
“I’m always thinking about it from as an investor, what I want to know that. Right. Or is that something I’d be interested in?” – Kent Ritter
Connect with Kent Ritter! See the links below:
Go to his LinkedIn, Facebook, Twitter, and Instagram, pages to connect with Kent Ritter. Visit his Website, Podcast, and YouTube.
Passive Investing Mistakes to Avoid with Kent Ritter
Anthony Vicino: [00:00:15] Hello and welcome to Multifamily Investing Made Simple, the podcast, it’s all about taking the complexity out of real estate investing so that you, my dear friend, can take action today. I’m your host, Anthony Vesnina, joined as always by Dan. I do not put chips on my sub, Kruger.
Dan Kreuger: [00:00:31] I don’t have chips on the sub. I’m going to do, I thought, really hungry now man.
Anthony Vicino: [00:00:35] Now I just called you out and I was completely off base. I’m sorry, guardianships. We were just talking about this before we went live for the listeners at home who are on the treadmill are driving to work and they’re confused as heck what we’re talking about. We have a special guest with us today as we’re talking about what topics we wanted to talk about. This one came up like, where do you put your chips? Do you put them on your sub? Do you take them off your sub? And I thought the topic is a hot topic in the multifamily space. So we’re going to unpack that and more with today’s guest, who is the only Kent reader who serves as I’m reading his bio now, people. So if you can’t tell, Kent serves as the managing director at the multifamily private equity firm Birju and held asset management in his role. Kent leads the private select portfolio, which has a unique strategy of leveraging Burgen held scale and latest technology to create outsized returns from acquiring and improving mismanaged, undercapitalized, and undervalued properties. Sounds similar, Dan said. It’s something we do. Kent is dedicated to teaching others how to make good investing decisions. He is the host of the River on Real Estate podcast and YouTube channel, where he provides impactful interviews and practical tips for investors who have achieved financial freedom. And now he is on a mission to empower others to do the same through multifamily investing. So without any further ado, the man, the myth, the chip-eating legend, Kent Ritter. How are you doing, man?
Kent Ritter: [00:02:00] I’m doing great, guys. Thanks for having me on. And yeah, I am pro chip on the sandwich.
Dan Kreuger: [00:02:06] There’s no other way really.
Kent Ritter: [00:02:07] Well, draw. I’ll draw my line in the sand right now.
Dan Kreuger: [00:02:11] I need the crust. You don’t cut it off.
Anthony Vicino: [00:02:13] That is a hill worth dying on. I’ll be honest. There are certain stances I just feel so strongly about. So it’s OK. Give us the 30-second elevator pitch. This is a long elevator ride, so we’ll give you a full thirty seconds to get to your floor to tell us who you are, what you’re about.
Kent Ritter: [00:02:31] Yeah, well, you read the full-length bio, so I feel like you did it all. We’ve hit everybody with all the content, but just quickly, so I live here in Indianapolis, Indiana, and focus on investing in the Midwest. I spend about 12 years as a management consultant for the last five years that owned a management consulting business so that at the end of 2015 that really started my real estate career. I had the capital knew I didn’t want to put all my eggs in one basket in the stock market. And so I started looking at alternatives, fell in love with real estate, started out as a passive investor, invest in other people’s deals for about four years until I took the lead myself and started running my own syndications. And I’m excited to say that we’re about to take our first syndication full cycle, and that’s exciting. It’s going to be exciting once that gets done.
Dan Kreuger: [00:03:30] So you started you got out of the consulting business in twenty fifteen, then got into real estate. How long do you spend as a passive investor before you got into the more active side of things?
Kent Ritter: [00:03:40] Yes, it was from about twenty sixteen to about the beginning of 2016. About the end of twenty nineteen. It was October twenty nineteen was when I sponsored my first syndication.
Anthony Vicino: [00:03:52] And when you were doing that, were you going into these passive investments with the idea that you wanted to eventually get to the active side, or did you just as you started investing, passively fall in love with the active side and saying, look, I want to do that thing? That looks cool?
Kent Ritter: [00:04:07] Well, so it was actually like this. It is like I started out being like, OK, I’m going to go buy an apartment building. I’m going to run an apartment building. Right. So I’m going to take all my money. I’m going to go buy like a 50 or 100 unit apartment building. Right. And so my intent was to be very active. Well, luckily, before I did that, I had a mentor say, well, OK, great, you do that, then what’s next, and what do you mean what’s next? OK, I’m going to run the apartment building. He’s like, Yeah, but all your money is sunk in. That one building is like you have no money left. And that was his way of opening my eyes to what apartment syndications are. And this idea that you can actually pool money together and go buy assets and in that way diversify yourself, but also bring other people into the deal with you. So that kind of blew my mind, opened up a whole new world to me and the rest is really history. So I started out with the intent to be active. And then once I learned about syndication, I said, OK, well, I don’t you know, I’m self-aware enough to know there’s a lot that I don’t know and there’s a lot that I don’t even know.
Kent Ritter: [00:05:14] I don’t know. Right. And I was fairly new to real estate. And so I wanted to dip my toe in the water. Right. So that’s why I started passively. But I always had this idea that, man, I wanted to do that on my own. I just saw this vision of what an amazing wealth creator for all the people around me and something that that that I was like, man, nobody knows about this. Like, this is like a best-kept secret. And so, yeah. So I started investing in a few passive deals, did it intentionally with different sponsors so that I could see different styles and with the intent of kind of learning and taking what I like and not doing the things I don’t like. And so I think it’s been extremely helpful for me because every time that I look at a deal or I think about, you know, should I send an email to the investors or should I give them an update on this? I’m always thinking about it from as an investor, what I want to know that. Right. Or is that something I’d be interested in? And so I think it just helps. It’s a really good perspective to have been on both sides.
Anthony Vicino: [00:06:18] Mm-hmm. Yeah, that’s super powerful because you can really put yourself in the shoes of your customer, your investor, and understand what their pain points are. You can address those. So maybe for our audience at home who skews more towards the passive side and they might be new and starting to explore this world of syndication because you nailed it on the head. It’s like this best-kept secret. And we collaboratively this group, we all spend a lot of time in this world now. So we’re very comfortable with the concept. But for a lot of people at home, they hear it for the first time, like, wait, what? That’s crazy. So, like, what should from your perspective, what should people be looking for as they’re looking into is becoming a passive investor? Should that be like learning the ins and outs of the analysis, the underwriting? Should they be doing their due diligence on operators? Like what? What was your path like? How did you get to that point where you felt ready to put your money into a deal?
Kent Ritter: [00:07:16] Yeah, well, let me give you I will answer that through a short story of what not to do and understand. So what I did, which I would not recommend doing when I. I first wanted to dip my toe in the water because I had no relationships with anybody in real estate, right. Crowdfunding was brand new and I went out to a couple of crowdfunding sites and just started. And crowdfunding sites really start at the deal level, which we could kind of circle back to that. But you shouldn’t start at the D level. So crowdfunding, you go and there are just all these deals, right? It’s like, oh, that deal. Okay, this deal. And I was like, oh, OK, this one in Houston. It looks really nice. Numbers look good and it’s very easy. Just click the button and send your money in and money goes your money goes off somewhere and somebody you don’t really know. Right. So so to make a long story really short, what happened in one of these was the sponsor actually committed fraud? He went out. He went out and got a bunch of other loans that were also collateralized by the property, which put him in default to his loan from Fannie. And he did a bunch of other stuff he shouldn’t do. And all the investors lost. We lost all our money. So. So that’s what you don’t do now that now what I learned from doing that is it starts with the sponsor and you have to start by vetting the sponsor and you have to be building relationships. You have to be reaching out like I love when people reach out to me and say, hey, I’m interested in investing. And they may not even like they may not even really know what they want to invest in or just kind of what they want to do or what their goals are.
Kent Ritter: [00:09:11] Because that’s the first question I was asked. What are your goals? And I usually get a lot of well, you know, I want to make some money and things, but at least they’re starting to build a relationship. Right. And they’re doing their due diligence to talk to several sponsors and see who they jive with and just get a gut check of, like those people, like, do they have integrity? You know, what kind of personal life do they have? All these different things, like it, starts with the sponsor. And then I think from there you’ve got to understand, you know, you’ve got to even as a passive investor, be almost just as informed as to the active investors, because how else are you going to know that they’re putting you into a good deal? And I think the sponsors more important because a sponsor, a good sponsor, will save a bad deal and a bad sponsor will kill a good deal. But assuming you’ve got a good sponsor, then you need to start asking questions about markets and submarkets. And then and then only then do you actually get to the deal itself and say, OK, well, is the building the type of building that I want to own. Right. And so there are all these layers. So so what not to do, go out to a crowdfunding site, just start scrolling through and just start clicking and send your money off. What you should do is you should start networking with sponsors as a first step and start educating yourself on different markets.
Dan Kreuger: [00:10:31] We agree. One hundred and ten percent. I know people who listen to our stuff have heard us say something very similar to that. Over and over again. We probably sound like a broken record. We just keep saying over and over again, the most important thing is finding good sponsors. Don’t worry about the deals until you find those rock stars to work with. So I don’t want to just circle back real quick to the whole sponsor vetting process, because you mentioned two things that are really quickly you mentioned integrity and basically just kind of getting to know the operator. Have you narrowed it down a little bit more specific than that to what a brand new investor ought to be looking for when they’re trying to vet operators out there? Integrities, obviously a huge one. Are there any other red flags that people should be looking for? Questions that you think they should be asking to figure out who they’re talking to is actually a legit operation?
Kent Ritter: [00:11:18] Yeah, and I want to disclose I just want to disclaim that, like, we did not talk about this before the show, but you’re just me up so well because on my website I have a freebie. That is the that if you go there you can sign up and it’s the top four things to look for in a syndicator before you invest with the beautiful.
Dan Kreuger: [00:11:37] We’ve got to let the show know. Santa.
Kent Ritter: [00:11:39] Yeah. And what that was, was it’s from my own personal experience, but also on my podcast I ask everybody A.I.M. is on there. You know, I ask what one question should an investor ask their deal sponsor? Like, if they only got one question and I got a lot of different answers, but I kind of went through the first forty episodes and aggregated them all together. And the things that really boiled to the top also aligned with the things I thought. And so anyway, I put it together in the short document for folks. But those four things are number one is integrity. It starts there and that’s all the things that we talked about. Like is is this person a good person? Is this person going to do right by their investors when things go wrong? Right. I mean, that’s what it really matters. Second is. Well, in a number of order, but I think track record, I think a track record is important. Ideally, a real estate track record, ideally a real estate syndication track record. But if not at least some sort of like business success. Track record, like an apartment at the end of the day, is a business, right? You’re managing employees.
Kent Ritter: [00:12:55] You’re managing expenses. So so the business experience can translate. But ideally, they’ve got some real estate experience and that comes through track record and track record is not just how many you’ve acquired, but how many you’ve as you’ve successfully sold and what was the success of those and the returns and maybe you haven’t actually sold any. But how many have you made all your distributions on time and things like that? Because I hear a lot of people spout like, oh, I’ve acquired, you know, five hundred million dollars in property this year. And that’s great. But all that really tells me is you’re able to pay the highest price. It doesn’t really tell me like you’re a good operator or a track record. Next is financial means and financial means are important because one of the most dangerous people is a syndicator that has to live off their fees to feed their family and there and make their mortgage because that person is not aligned with the investor’s best interests. That person is aligned with just doing the next deal that comes up because they want to generate those fees. That doesn’t mean that that’s the best deal for the investors.
Kent Ritter: [00:14:13] Right. And so I think having a certain amount of financial means from other sources of income just helps align interests. And then also with aligning interest is having skin in the game. So the sponsor should have their own money in the deal. I just like I just go back to being an investor myself. Like if somebody comes out to me and says, hey, man, I got this great deal, you should really invest in this. But I’m not invested in the like you really should you should do this. You should do this. You should definitely do it. I’m not doing it. But you really should. I’m not going to invest very well. And that’s essentially what but what people are saying, I feel like and there are all kinds of different circumstances of why people may not be able to, especially when they’re getting started. But, you know, it always helps for them to have a sizable amount of money in the deal. For example,, my partners, we put a minimum of 10 percent of the equity in every deal that’s gone up to like thirty, thirty-five percent on certain deals.
Dan Kreuger: [00:15:14] That’s pure gold. Everything you just read off there,
Anthony Vicino: [00:15:16] So, yeah, I want to recap that because there is so much there. So at the highest level, or I guess these aren’t in any particular order. We have integrity. We have a track record of financial means and skin in the game. I think financial means is a really interesting one, because having talked to a lot of other operators and talking to past investors, we talk a lot about integrity and track record experience and skin in the game. Find that alignment of interest. The financial means is a really interesting one that you don’t hear spoken about very much. But as you mention it, we know that there are some operators out there who are all about the fees going out there and just get the deal done and pay the highest price and collect your fees. But equally dangerous is the newer syndicator who is just getting in and they don’t have the money to put in into the game as well. And so this is the reason I bring this up is that we hear all the time like, oh, invest in real estate with no or little money down, like using other people’s money. And honestly, syndication is not the place for that. That’s it’s really not you shouldn’t be doing your very first deal because you have no money via syndication like that’s horrible.
Kent Ritter: [00:16:24] Yeah. Yeah. I think there’s like. You know, there are ways to kind of get involved, right, like if you don’t have the money and you want to get creative, you know, you need to partner with somebody that does right. And you need to provide the sweat equity in that. And I know a lot of people that have been very successful doing that. That’s how they got their start. But I would agree with you when you have no experience and no money, the way to start is not by taking other people’s money into a large deal. There’s a lot of red flags there,
Dan Kreuger: [00:17:02] As you know, I think you’ve got to echo something we’ve talked about so much, which is just identifying the incentives and looking at how people make their money. Just to kind of reiterate that if someone is just making their money from churning deals, from buying something and turn around and southern as quick as possible, that they’re not fiscally aligned with the investor man.
Kent Ritter: [00:17:21] I so I told you as a management consultant for a number of years and what we did was we solved problems for four big companies. Right. They only called us when when when shit was going bad. Sorry if I, if I can’t say that it’s fine. Yeah, but what one thing that I saw play out in that career over and over again of seeing companies failing was a misalignment of incentives. And so I that’s I just want to like zero in on what you said because it’s so important people act the way that they’re incentivized to act. I mean, you will have a small percentage of the population that will do good just because you should do good and it’s the right thing to do. And those are the high-integrity people that you want to invest with. Right. But a lot of people, well, are just going to act based on how they’re incentivized so that if they’re incentivized to you know, if their main incentive is to just churn deal volume because of how the deal structures are aligned, then that’s what they’re going to do. You know, if their main incentives are to make sure the deal does really well because they’ve got a lot of their own money in this deal and they care about their reputation and their friends and family are in it and they want them to do all these things then they’re going to take care of the deal in the long term. So, I mean, one hundred percent, you have to understand you need to understand how people are paid. And once you understand how people are paid, then you can understand how they’re going to act.
Dan Kreuger: [00:18:52] Follow the money,
Anthony Vicino: [00:18:54] You mentioned something there that’s really interesting is reputational risk, and it’s interesting because, you know, historically, pre-2013, 2014, when a lot of these private placements were being done, it was being done in the good old boys club at the country club. Now it’s much more open and the availability of opportunities is very wide. But that creates this issue because, in the old days, it was very reputational. Like I’m not if I don’t know, Bill, the lawyer at the country club who’s putting this in front of me like I’m not going to be doing that deal. And if he gives me a bad deal, it’s going to tank his reputation because I’m going to badmouth him all over the country club. Now, it is it’s a little bit different. Like if you don’t have as an operator a reputation established, well, that’s another red flag. And this isn’t like necessarily saying don’t invest with people who nobody’s ever heard about. But if they’re operating in obscurity, then it makes it very hard to hold them accountable after the fact because of what they have to lose.
Kent Ritter: [00:19:57] Yeah, no, I agree 100 percent. And I think that you know, I mean, I’ve even seen people kind of in this business have had bad deals and then rebrand and come back out with new branding and say it’s like it’s the same person. Yeah. Yeah. But yeah, I mean, I think the reputation piece is huge. Right. And so I think that’s another way to when you think about our incentives aligned, I mean, I think that’s just another way for people to have skin in the game without actually having money in the game. Is it that reputation that’s put on the line?
Anthony Vicino: [00:20:35] Mm-hmm. So we kind of glazed over. But I want to get back to this now because I think this is a good pausing point to address our bad investing advice of the week because this is something that I feel like having lost money on your first deal through the crowdfunding site, that you probably have some good, bad advice for us.
Kent Ritter: [00:20:57] So you want me to provide the bad advice?
Anthony Vicino: [00:20:59] Yeah, if you got some. Otherwise, I’m going to throw Dan under the bus and make him just generate something off the top of his head.
Kent Ritter: [00:21:04] You know what? Here’s my bad advice. My bad advice. So. My bad advice is that you have to start big. You have to go a hundred units plus, and that’s the only way to get started and go big or go home. I hear that from a lot of the people that are out there talking about these things now.
Dan Kreuger: [00:21:30] The Instagram gurus, the YouTube gurus, I think a lot of that might stem from them just wanting you to invest in their deals instead of doing your own thing. I feel like that’s the green card’s own logic.
Anthony Vicino: [00:21:41] What it is. It is really interesting because you see it a lot with even some newer syndicators doing their very first deals that are like two hundred and fifty units. It’s like, well, that’s a really big project. But if you’re Dad and me, we like talking about the fact that we’re dealing agnostic. Well, we’ll take any deal if it makes sense, regardless of size. And I think a lot of newer investors, start to equate bigger with better. And that’s, I think, really shortsighted. And granted, we do like the multifamily fourth scale. So a certain scale has to be there for it to be worthwhile. But yeah, I know that you started. So you’re focused on some of those smaller assets and that 50 unit range. Right. That a lot of the big players might overlook and say like, oh, it’s too small, it’s not worth picking up.
Kent Ritter: [00:22:30] Right. I mean, there are pros and cons to everything. Right. But like so the reason that people say go big is that they’re trying to reach a scale where they can have on-site property management. Right. I mean, that to me that that has been like the number one thing. When I ask people, why do you have to? It’s all about the outside property management and an on-site property manager is really nice. It is the. So that’s a pro. The con of those deals is when you go to buy a deal that size, the competition is huge. You’re competing not only with, you know, everybody that just came out of Guru Program A over here and B and C and D over here, but also with large institutions. Right. With groups that are with P firms with reads. The competition is steep, right? I mean, it’s not uncommon in some hot markets to have 30 people bidding on a deal. And if you’re betting against 30 other people, there’s no way that you’re buying at anywhere near this value. Right. It’s just it’s impossible. So so that’s a con is that, you know, you’re the competition is really steep and therefore prices are high. And that’s that’s the worst thing you can do in a multifamily deal is pay too much because you’re spending the rest of the deal just trying to play catch up. I mean, you really do make your money when you buy. And so the reason that I like these smaller deals, really, I would even say I mean, small is relative.
Kent Ritter: [00:24:04] I’d say under one hundred and fifty units is that the big players don’t focus on them. A lot of even the new syndicators that come out of the guru schools don’t focus on them because everybody says go big. And so there’s really just not that much competition. Usually, it’s like local or regional guys. And usually, the seller profile is different as well, where there’s more meat on the bone because these are typically mom and pop owners versus, you know, buying from if I was buying from guys like you who have, I’m sure, sophisticated process and it probably, you know, squeeze that turn up pretty well. Right. To get the returns out of it. And then you see there is no juice leftover here. I’m sorry. Yeah. Yeah. You’re buying a highly efficient property, right? There’s not a lot of juice left to squeeze versus buying a property from somebody who owned it for twenty years and managed it part-time and hasn’t raised it in three years, which is a property that, you know, just like that we just bought in March. And so and in doing that, the return profiles are just much better. I mean, if you’re looking at large deals these days, you’re probably seeing a realistic return. Profiles of like a 12 to 14 percent IRR. I know people are I’m just saying realistic returns.
Anthony Vicino: [00:25:19] I’ve yet to see anybody put that into a marketing package
Dan Kreuger: [00:25:21] On a pro forma, I’m seeing shows up.
Kent Ritter: [00:25:25] I know. But I said realistically, I know.
Anthony Vicino: [00:25:27] I know. I don’t want to I want to circle back to that because I think this is something that’s worth talking about, too.
Kent Ritter: [00:25:32] Yeah, but the deal size I’m doing, we’re still seeing we’re still able to to get a, you know, 15, 16, 17, even 18 percent IRR on a five-year-old. And because they’re smaller, a lot of our whole time is really targeting is more of a three-year hold because we’re able to come, in effect, change quickly and get out and move on. And so so anyway, for that reason, for those reasons, I like the smaller deals. So there are pros and cons. I mean, the kind of the smaller deals is they are difficult to manage. It’s difficult to find good management unless you already have a management platform in place.
Dan Kreuger: [00:26:10] Yeah, I think what you said is super valuable for a lot of the newer active guys out there, because they have seen this so many times where people come into this business with that mindset of bigger is better and they’re going out and bidding on large properties, not knowing from the seller’s perspective, they’re the least qualified buyer. And the likelihood of them getting awarded a deal is incredibly low, because one of the first questions we get asked from a seller that we don’t know yet or from a broker that we haven’t worked with yet, is what’s your track record? What do you have in your portfolio? Like, how many times have you done this before? And we had said, no, this is our first deal. There’s no chance, no matter how high we bid, the probability of us closing is probably going to be pretty low in the seller’s eyes if this is the first deal. So I think the only
Kent Ritter: [00:26:50] The way you win that is by overpaying. Yeah. To set yourself apart so much that they forget about the fact that it’s your first deal
Anthony Vicino: [00:26:59] And you’re saying that is not a winning strategy, the overpaying to get into the game.
Kent Ritter: [00:27:05] I would not recommend, according
Dan Kreuger: [00:27:07] To Grant Cardone, prices are just going up and straight up and you should just
Kent Ritter: [00:27:10] Pay. I know, because his strategy is like, you know, he bought the apartment across from the Ritz Carlton. And, you know, it’s going to if you believe real estate, it’s going to go up in 10 years, then you’re fine. And that’s OK. If you want either returns or grants are thrown off, which aren’t what I would consider returns and I would be up for debate.
Dan Kreuger: [00:27:31] He’s had some issues. But anyway, before I get sued, so we’re just one of the
Anthony Vicino: [00:27:35] Guys going to say right back, because one of the questions, I think we can make this very practical for passive investors that may be listening to this right now and they’re trying to weigh the pros and cons because ostensibly for them, there is no to going bigger. So is it better for them to try and invest in the biggest deals possible? Is that lower risk in the sense that there’s more diversification, there’s more scale, or are the smaller assets just as safe and stable and potentially delivering better returns?
Kent Ritter: [00:28:05] Well, I mean, that’s a good question. I mean, as far as safe and stable, you know, I think that as long as you’re buying in good markets, you’re buying in markets where there’s job growth and you’re buying in some markets where there’s job growth and there’s diversity and there’s, you know, crime there. It’s there’s not a bad crime and you have decent schools, then I think a 30 or 50 unit property because we own a couple of those can perform just as well. And I think honestly, like one knock I hear often is like the tenant diversity were, well, if you lose one person in a 30 unit property and you’re already down in ninety-seven percent occupancy, it. But yeah, also you only have to get one person to move in and you’re back up to a hundred, you know, you’re not, you’re not trying to move like in our portfolio we have some very large properties. Nine hundred, seven hundred nine hundred properties and you’re trying to move 40, 50 people in at a time in and out. And that can be a very difficult thing to do too. So our smaller properties are really always 100 percent full, even when pushing rents up to the market, up to about we target about maybe sixtieth percentile of the market.
Dan Kreuger: [00:29:26] I’m curious because you kind of mentioned in your intro, we haven’t really gotten into it yet at the firm they are with the private select portfolio based on what we said about it. I’m starting to kind of think that those might be some of the quote-unquote, smaller properties that under 150 units. Is that what that portfolio is?
Kent Ritter: [00:29:45] Yeah, that was the fancy name we put on it. Yeah, exactly.
Dan Kreuger: [00:29:49] It’s so exclusive. I don’t want to
Kent Ritter: [00:29:51] See it’s working. It’s working. Yeah. No. Within Burgen Held, who’s a large organization, they’ve got one and a half billion in assets under management and Tag Birge is a close mentor of mine and I actually started, I started. They were one of the ones I started passive investing with first and I invested in three deals impassively. Just build relationships through that. And then, you know, as the time came on, they asked me to join. So now I’m running a line of business under their umbrella, really implementing a strategy focused on these smaller to mid-sized properties, leveraging technology to drive efficiencies of these diamonds in the rough, you call them, versus other strategies that we have. We have a ground-up development team. We have a low-tech tax credit development team. And then we have kind of the large market team, which is focused on the two hundred plus units. And so we have these four pillars within the company executing these different strategies.
Dan Kreuger: [00:30:54] So you’re basically the poster child for why bigger is not always better because you are just laser-focused on the quote-unquote smaller, smaller stuff, which is like I said, relative because the 30 to 50 units for a lot of people are not small by any means.
Kent Ritter: [00:31:08] Right. Right.
Dan Kreuger: [00:31:09] Compared to seven hundred units small. So.
Anthony Vicino: [00:31:13] Honestly, I think the 30 to 40 unit range is a really awesome, sweet spot. We spent a lot of our time in that and then those waters and I think it’s it’s way overlooked by new operators. And I think it’s also overlooked by limited partners to a lot of times when somebody is coming in looking at a deal and they see only 30, 40 units like, oh, well, maybe I should go over here to this other one’s three hundred units. It’s like, wow, kind of apples to oranges. Some of the things that simultaneously approach can also be a con if you look at it from the other side of the coin. So. Right.
Dan Kreuger: [00:31:45] But to your point, it’s like how much meat on the bone. Right. Go with the deal that’s got the meat on the bone and a good operator, then you’re in good hands, even if it’s a 10 unit.
Kent Ritter: [00:31:53] Exactly. I mean, yeah, I 100 percent agree. I think you have to look at the pro forma and you have to look at, OK, on, you know, those little Caffery deals right off for four and a quarter cat deal and it’s three hundred units. But to hit the returns that they’re saying, you know, what are the growth expectations. Right. And how realistic are those expectations? What are the expectations for rent bumps and how much are they having to spend on construction to do that? Right. And how realistic are those things? And I think that’s where you can use these smaller deals, can really differentiate themselves. I mean, we’re putting we’re doing a very light value add. I mean, it’s all about controlling the downside risk right now. The way you do that is you keep your basis low and your basis is one how much you buy the property for, but then how much money above that you put into the property in the capital. Right. So the lower you keep your basis, the lower you have to sell it for and the other side to keep your return that you need to hit. And so the way you manage risk is by keeping that basis low. So right now we’re doing very light value adds. You know, we’re putting three to five thousand into the units, just focusing on what really matters. We’re focusing on the exteriors, but we’re really focusing on amenities. So one of the things that we’re doing is we’re adding fiber-optic Internet to our properties as an amenity and we become the Internet service provider.
Kent Ritter: [00:33:18] And it’s a win-win for us and for the residents because they’re already paying somebody for cable. Right, that is for the Internet. They’re paying Comcast or Spectrum, whoever you have. And nobody ever has a good experience with that. Right. I mean, let’s be honest. We’re able to come in and we’re able to give them a better product because it’s fiber Internet, which means it’s stable like Comcast will tell you, like when they say that you have like two hundred megabits download, like the small print says, like up to and that means like it never really is if you do a real speed test. But the fiber that we have is like. Full speed all the time, it’s download and uploads and the upload is really important in environments now where we’re doing like we’re doing the zoom right now, the upload speed is just as important as the download speed. And so when people are working from home, it really starts to matter. So anyway, it’s better it’s a better product. We do a market survey and we intentionally undercut the market by about 10 or 15 dollars just to make it a no-brainer for the residents. And in that way, we shift who they’re paying for Internet, but we actually lower their overall financial burden and we get a better product.
Dan Kreuger: [00:34:33] Does that. I’m just curious because we’ve never done that in our properties. Is that something that becomes a new revenue line item for you or is it just an expense that’s used to get people in the door and increase attrition?
Kent Ritter: [00:34:45] No, it’s become another income item. That’s awesome. Yeah, yeah. So we’re getting you to know, so it’s something where, yeah, we’re able to create an additional income stream. And I think those are the things that are really important to focus on, like these revenue-generating amenities. Like another thing that I love to do is buy apartments with washer dryer hookups and rent the washer-dryers to the residence. Again, it’s another revenue stream where you’re not just having to focus on interior improvements and pushing rent.
Dan Kreuger: [00:35:15] Yeah, there’s only so far you can really bump the rents if you’re not doing those extra things to justify it.
Anthony Vicino: [00:35:23] So there are two questions I want to ask right here because this is gold from us from an operational standpoint. But then also for our listeners, hopefully, you know, who are also operators and can get some use out of this, because on the Internet side, is this something that has you have to achieve a certain scale for it to be beneficial? Or are you utilizing this even on your smaller properties?
Kent Ritter: [00:35:46] So we’re using we’re utilizing it on all properties, so we’re in the process of installing it across the entire portfolio, which includes the smaller properties. It’s basically you pay a per-unit price to the person that’s actually providing the Internet. Right. So we partnered with a company that’s actually providing the Internet service. Right. And then they get it to the pole. We actually have to pay the capital expense to run the line and wire the building, though. So we pay that upfront capital expense. We put the modems and the routers in the units. So we control all that. So when somebody moves in, we flip a switch and their Internet live, but we pay a month. We pay the upfront capital expense to get the lines in the ground, and then we pay a monthly fee to our partner. And then we charge, we pay X, we charge Y and we get to keep the spread. Essentially, that’s how that works. So because it’s a per-unit price, it scales up and down.
Anthony Vicino: [00:36:48] That’s awesome. And then on the dryer washer hookup side of the equation, it’s just so I understand this correctly, you’re going in and finding units that have a washer dryer in the unit and then having the machine rentable. So somebody is like, oh, I would like to have that machine in here. And then you’re like, here I have a machine. You can rent it and then you just wheel it in there for him.
Kent Ritter: [00:37:09] Exactly. Yeah, exactly. We say, OK, you got the hookups. If you want to rent one of our machines, we’ll give you you know, versus renting from some other company. We’re going to give you a brand new machine and we’re going to move it in for you. And then, yeah, it’s just a monthly fee.
Dan Kreuger: [00:37:25] It’s amazing. I love it. I love it. I feel like it was in the home amenities or just even more important these days, post covid. But everyone’s basically living and working from home. You know, the Internet, all those things are just that much more important than they used to be.
Kent Ritter: [00:37:39] Absolutely.
Anthony Vicino: [00:37:41] And Kent is this move towards reducing basis and doing white renovations like this was a conscious shift that we went through during covid was changing our game plan from heavier renovations to light renovations to really reduce that risk in the same way that you’re talking about. Is this something that you guys did as a result of covid or was this even pre covid that you guys were thinking along those lines?
Kent Ritter: [00:38:02] So it was pre covid, but accelerated by covid? I would say so. So really, it was the private select strategy is really the evolution of a lot of lessons learned over like five or six years of over-improving interiors. Right. And focusing too much on that and trying to just push rent bumps and these things that we did and, you know, had lessons learned because of it. So this idea of the private selection of going down to these smaller properties, finding properties with more meat on the bone, and what that strategy was really just a recognition of how competitive the market is for the larger units. And we saw the opportunity and we weren’t going after it. And so that’s why they approached me to say, you know, we’d like you to come and focus on this strategy where we don’t have we don’t have the management capacity to do it. We’re focusing on all this other stuff. We thought we know there’s an opportunity here. We’d like you to come in and build out a business unit to really go after this and focus on that strategy and really leverage technology to make it all work.
Anthony Vicino: [00:39:13] That’s awesome. I, I think there’s a lot to be learned from big organizations like you guys where you have so many units under management and you’ve taken the lumps and you’ve tried things and seen what works and what doesn’t. And so it’s a little bit like the kind of for us as a smaller organization, being able to draft in your wake is always helpful.
Kent Ritter: [00:39:35] Yeah, yeah. I have so much data. I’ll tell you the other thing that’s just been a game-changer for us is a self-guided tour. Oh, yeah.
Anthony Vicino: [00:39:44] You know, was this pre covid or during covid as well.
Kent Ritter: [00:39:47] This was a result of covid really. It was the result of covid wanting to create a contactless leasing process. Right, and so it’s from beginning to, you know, how they interact. So we’ve installed a chat box like on our website. So you can know they can answer a lot of the questions people have. You can schedule through that. So being able to schedule the tour, go and do the tour, get a high-quality tour. But it’s self-guided. It’s all it’s curated through your phone. There are geolocation beacons in the properties. As you walk through the property, it knows where you are and it says, oh, welcome to the fitness center. Here’s all the great stuff about it. Looks to the pool. There’s all the great stuff about it. And then you can sign up for release right there as well. So we’ve created this entire contact list leasing process, and it’s allowed us to expand the hours of showings. Right. So we show from 8:00 a.m., 8 pm p.m. now, not just when the management office is open and allows people to do it on their schedule versus doing on a leasing agent’s schedule, you know, they can they can make an appointment. There are 15-minute appointments every 15 minutes. You can make a 15-minute appointment and you can go look at the check of the apartment.
Anthony Vicino: [00:41:00] And that’s so awesome, too, because I know when I was renting I hate dealing with leasing agents or realtors. I just don’t like talking to people when I’m doing that type of thing. I just want to be in there by myself and look and be like, OK, cool. Yeah. You’re going to
Kent Ritter: [00:41:14] Be sold
Anthony Vicino: [00:41:14] To. Right, exactly. Like, oh, look at these new floors. Like, I don’t care about the floors.
Kent Ritter: [00:41:20] Yeah, I know about but like there have been surveys done and a lot of people feel the same way. Oh, yeah. You know, and so that was a big driver for us to look into this and covid for sure. Right. It was just a protection aspect of it. But that’s been huge. It’s been huge for us. So if there’s yeah.
Anthony Vicino: [00:41:39] That’s a huge saving to that expense line item of leasing agent or property management. And they can put their time and energy elsewhere.
Kent Ritter: [00:41:47] Exactly. Exactly. I mean, I like to think that they spend less time trying to sell apartments and spend more time trying to, like, build the community with the people that already live there.
Dan Kreuger: [00:41:58] It’s focus on customer service. Exactly. The tenants. That’s huge. Right. Go ahead. I was going to go in for the book. I was going to go for the book. If you’re ready,
Anthony Vicino: [00:42:10] You always go for the book. I’m ready for the book.
Dan Kreuger: [00:42:12] This is very
Anthony Vicino: [00:42:13] Funny. Then bring me the book.
Dan Kreuger: [00:42:15] If you have a book recommendation, we would love it. We have one rule. Can’t be that little purple book any other book will do. It doesn’t have to be real estate either, don’t you? Any good book that you’re in, John.
Kent Ritter: [00:42:26] Yeah, you know, I’m like halfway through it now, so I haven’t read the whole thing, but there’s a book called Think Again by Adam Grant came out fairly recently, and it’s all about just challenging your beliefs and your belief structure and this whole idea that, as your beliefs are not part of your core being. And so you shouldn’t hold on to them in that way. Like a lot of us form our beliefs in our formative years, which for me is like 30 years ago. And so I’ve learned a lot since then. So why would I still hold onto the same beliefs I had when I was eight years old that I learned through my parents? Right. And there’s a really good quote in it by Ray Dalio. It’s like, you know if you can’t look back every year and say, wow, I was really stupid last year, then you didn’t learn a lot in the last. And the and I like I just like that idea because basically his idea is that we should always be rethinking things and we should always be challenging our beliefs based on the new knowledge that we’re always gathering. Right. Every day we’re learning something new. And so I just love that idea that beliefs can be fluid. I think, especially in the climate of where we are now in our country with a lot of people really kind of planting flags and drawing lines, that this idea that beliefs can change and evolve I think is really important.
Anthony Vicino: [00:43:50] This reminds me of John Maynard Keynes, who has this great line, it’s something like when the facts change, I change my mind. What do you do, sir? And he was talking to like a member of parliament. And it’s such it’s but it’s so hard, right. Because we’ve become so ingrained in our beliefs and we don’t even realize anymore. These beliefs are so all-encompassing around us.
Kent Ritter: [00:44:14] Yeah. And your first response in your beliefs or challenge challenges becomes defensive.
Anthony Vicino: [00:44:19] Mm-hmm. Because it’s a challenge to your identity. And I think that’s exactly.
Kent Ritter: [00:44:24] And that’s the idea is to be able to separate those beliefs from your identity, you know, and try to look at things objectively.
Anthony Vicino: [00:44:33] I love it. I’m going to go check that out. So thank you for that. I really appreciate that. All right. So before we let you out of here, let everybody know where can they get a hold of you.
Kent Ritter: [00:44:42] Yeah. Thanks, guys. You guys can find me at red or dot com. That’s that’s my website. We talked about that that freebie earlier. You can check that out there. And if you sign up, you get on the newsletter, you’ll get my info. I’m also I’m all over social media. You’ll see me on LinkedIn and Instagram, so you can just hit me up there if you want to message me. And last but not least, check out my podcast. It’s written on real estate. And I talk with really cool people like Anthony here. And, you know, we can we just go through how do you make better investing decisions?
Anthony Vicino: [00:45:17] Yeah, I highly recommend that podcast. It’s fantastic. I was actually you had a really great promotion right at the beginning when you launched that, and I took advantage of the promotion and got me hooked on the podcast. And so I highly recommend it for the listeners at home. If you’re looking to add another great multifamily investing podcast to your repertoire. That’s the one to do it. So that’s going to do it for us here. We really appreciate you again. Thank you so much for joining us. For you guys and gals at home, that took a little bit of time out of your day to join us. We appreciate it. And we’ll see you next week. And.
