What No One’s Telling You About Investing in Apartments

Aviva (00:00)
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This week on Commercial Real Estate Secrets, we have Mr. Ken Gee. Ken is the founder of KRI Partners. Ken, thank you for being on the show today.

Ken Gee (00:29)
Thank you for having me, I'm looking forward to it.

Aviva (00:32)
Likewise, Ken, for the listeners who are passionate about commercial real estate ownership, brokerage, et cetera, who are you and what do you do here on Commercial Real Estate Secrets?

Ken Gee (00:43)
Yeah.

Yeah, yeah, yeah. So I'm the founder and managing member here at KRI. We specialize in multifamily. So we're multifamily private equity real estate firm. We've been around for 27 plus years, and we've done 20 deals, 14 of them full cycle. So in the multifamily space, we've done a couple hundred million. And in the states of Florida and Ohio, only Florida right now.

Aviva (01:08)
Fantastic, how did you get into multifamily?

Ken Gee (01:11)
Yeah, so ⁓ it goes back to 27, 30 years ago when my kids were young, my daughter, I used to do my, used to work at Deloitte as a CPA prior to that. I was a commercial lender for five years. So it was when I was at Deloitte, I used to do my daughter's 3 a.m. feeding. And if you know anything about CPAs, they work really hard. Right. The best I could do for my daughter was 3 a.m. Right. I was working all the time and I was not in control of my life.

I was hoping and praying that I didn't walk into work one day and make the wrong person mad and get the axe. And I just didn't want my family to grow up without me. So I got frustrated after a few of those three I'm feeding. First of all, it's an awesome time with your daughter. Let me just tell you that. But after a while, you realize I need to do better than this. So that's what I did. I went, spent about 18 months trying to figure this thing out. Back then, there was nothing cool to figure out real estate, trust me.

And I listened to Carlton Sheets in my car on cassette tapes. And I probably don't even know who that is. And then I went to apartment association meetings, figured out as much as I could, bought a 28 unit, 24 unit, 22 unit, sold them in three years, made half a million bucks and realized, holy Toledo, what just happened to me? So then I just kept going. A year and a half later, I quit my job at Deloitte and this is what I do since.

Aviva (02:34)
Can I tell you why you and I are on this show today? In all honesty.

Ken Gee (02:37)
I'd love to hear it.

Sure, yeah.

Aviva (02:39)
You know, this, just eclipsed two years of commercial real estate secrets. In that time, I had a baby. We kept the show going. We interviewed a lot of people. I've talked to a lot of people about a lot of different commercial real estate topics. I started getting some duplicates. I started really researching what are people looking for on the internet? We dove deep into our YouTube analytics.

Ken Gee (02:53)
Mm-hmm.

Mmm.

Aviva (03:07)
And we

found the most searched thing in YouTube in the commercial real estate category is investing in multifamily real estate. And what's funny about that is I grew up in industrial and our whole thing is, you know, we used to do multifamily, trust me, just do industrial. And I just happened to love my family business. But the other side of that coin is there's an elephant in the room in

Ken Gee (03:15)
Mm-hmm.

Okay.

Aviva (03:36)
my life, which is this product type, multifamily real estate. So why is it that multifamily real estate investing is the most searched YouTube search in the commercial real estate space today?

Ken Gee (03:51)
Yeah, I can tell you what I think. know, obviously I don't know for certain why that is, but I will tell you, I think it's because people can relate and understand multifamily. Most people have lived in an apartment building at some point in their life, so they kind of understand it and they feel it's when I look at the various asset classes, it tends to have the I couldn't find a better risk return profile. So why does what makes it that right? Everybody needs a place to live like I.

It's hard for me to figure out how to make that go away. If it does, you and I don't need to worry about this podcast because we got much bigger problems. So it feels like something that you can't just innovate away. You got to have a place to live. And I like it now because there's some predictability. It's not it's not linear. It's not direct. It's not perfect. But it's the more I can grow cash flow, the pretty good chance somebody is going to be willing to pay me more for that asset.

So now how do I do that? Well, I do that with rents, right? So we got a lot of different people paying us rent from a lot of different places. I'm a member, I'm a CPA, lender by background. I like this diversification in this revenue stream. if I say, I get scared of what you do, congrats, hats off to you for doing what you do. Because if I lose one or two or three or five tenants, it doesn't matter. It does not change my life. But in some of these single tenant facilities, you lose one person, it changes your life. And I just, I'm just.

too big of a chicken to deal with that, I guess. So I like that revenue stream. I like fairly predictable expenses. And so now I'm like, wait a minute, if I make this place nicer than it was yesterday, I can appeal to your emotion. This is your home. Like I just made it a lot nicer. It's a prettier, I added to the amenities and now I capture your emotion. And what do I do when I capture your emotion? I can charge you more. I add value.

Aviva (05:41)
You smile on the

first of the month.

Ken Gee (05:43)
That's how I grow income. And so you can see it's kind of, it's really a risk mitigation thing. But at the same time, we've figured out and a lot of people have how to just make a lot of money doing it. So when you couple those two things together, that's why I'm here. And that's probably why this is what I'll do for the rest of my life

Aviva (06:02)
So let's talk volume. We will talk about the first time multifamily investor, but I want to talk about you for another few. What's your range in terms of unit number you're buying today?

Ken Gee (06:06)
Okay.

Okay.

Yeah, so the per property, I like anywhere from roughly 100 to 200. That's my sweet spot. When you get really big, you start competing with institutions and they have a completely different capital stack. And it's really hard to compete with that. When you get really small, it's a lot of work and you don't make nearly as much money because you're too small. So I like that 100 to 200 unit. We raise funds now. We used to syndicate. Now we raise the money in advance in a blind pool fund. So we come to the market with money already raised.

Aviva (06:29)
Mm.

Ken Gee (06:49)
So now we're not the little fish in the big pond, we're one of the bigger fish in the medium pond. You know what I'm saying? So it helps, know, it all kind of fits together and that's why I love that space.

Aviva (07:01)
to do older product newer product I hear rumblings in the space about that.

Ken Gee (07:08)
Yeah, I'm curious what you hear. But I will tell you what happens the life cycle of somebody sitting in my chair is you usually start off with the more value add stuff, older stuff. And what you're doing is you you've got to make money earlier in your career. You've got to turn and make money and you keep you just have to prove you have to prove your track record. You have to I mean, you're trying to make money. You're trying to support your family. So as you mature in the space, you kind of flip slowly to this concept called wealth creation.

So you don't want to hold a really old asset a really long time because nothing good happens to an old building when you hold it for a long time. You probably know that. So then now you start migrating toward newer nicer properties because now you can hold them longer. So now you can hold them. You can buy them. You can hold them, make them better, refinance them. And now you have an asset that you can hold and you got no money in it and you go and do it again and you go and do it again. And now you're creating massive wealth.

instead of making money. Does that make sense?

Aviva (08:07)
Yes, it's less hamster wheel, more work with your brain instead of your back.

Ken Gee (08:13)
Yeah, there you go. Yep. Yep.

Aviva (08:15)
But say I'm not a seasoned investor like yourself. I'm a first time multifamily enthusiast with your knowledge, what am I doing today to get my first deal done? And what does that deal look like?

Ken Gee (08:19)
Okay.

Yeah.

Yeah. So it's going to depend on how much money you have, what you're, mean, it really does. You really do need to look at your personal situation. Most people that get into our business, we have a whole education side of our business. So I know the answer to this question very, very well. So usually people come in just like I did, they had no real money. And so they're going to partner up. They're going to, first thing you got to do is learn a business. You've got to understand numbers. So no matter what, if you don't take the time to learn the numbers, you will get burnt in this business.

So learn the numbers, get mentored by somebody who's been there, done that. Cause you can, like, I didn't have anybody back then. It took me a long time to learn some of the dopiest things that now I just take for granted. So, so learn and then you're going to go after a deal that doesn't freak you out. Doesn't stress you out. You'll probably raise a little bit of money. It'll probably be in the 30 to 50 unit range, maybe even a little bit smaller, but the capital raise will only be a couple of million dollars.

Maybe three or four, right? But remember, if you've never raised capital, it's hard. And if you've never done this business, like who in their right mind is gonna give you their money to practice with, right? They won't. So you gotta, that's why you need to really kind of start small in that 30-ish range and then just go from there. What happens is as soon as we get somebody their first deal, their whole life changes. brokers take them seriously, other investors take them seriously.

their family takes them seriously. It's really interesting watching it happen. So that's why I want people to start there. I mean, if you have a ton of money, go ahead and start bigger. But the reality of it is if you're big and you need to raise money, the investors won't even give you the deal. They'll be like, yeah, yeah, yeah, whatever. Thanks. And they'll just use you to leverage the guy that's going to really buy the building to make a pay.

Aviva (10:15)
Why did you decide to go the fund route instead of the syndication route?

Ken Gee (10:20)
Yeah, so we did both. So initially, most people start when they start raising money, they'll go find the deal. Then you got about 45 to 60 days to raise the money. Massively, you know, you know the drill. Very stressful, right? Well, now remember, I said we buy in Florida. Florida is extremely competitive. So when we would go after a deal, we're one of 20, 30, 40 offers. So how are going to differentiate yourself? I promise you, Mr. Broker will raise the money. I promise.

Aviva (10:31)
Yeah.

Mm-hmm.

Interesting.

Ken Gee (10:50)
That's what everybody is saying. Whatever, whatever. Right. So how do I make him take a chance on me? I have to pay up. So I got tired of that. Right. So after a while, I said, you know, what if I just I understood the private equity model, because when I was at Deloitte, I did a ton of private equity work. Go raise the money. And now you show up with money in the bank. All of a sudden, everything changes. You no longer have to pay up to differentiate yourself, because now you've got that certainty of close.

Aviva (10:54)
Yeah.

Yeah.

Ken Gee (11:20)
They know you don't have to raise the money. They know you can close quickly. They know that that distressed seller can count on you to get the deal done. So everything changes. So that's why it was out of necessity. Actually, we made money in the syndications. I'm not saying we didn't. But boy, is it easier to get a deal now. We want a deal. It's a lot easier because when you got 10 or 15 million dollars in the bank, people listen, they just do that the way it is.

Aviva (11:20)
Yeah.

Yeah.

I have a, this is just a totally random anecdote. I have a theory that the wealthier the buyer and or the higher the value of the transaction, the lower the threshold is for the financial due diligence. Like if it's somebody who's highfalutin or a high, it's like an article is sufficient for proof of funds. Whereas,

Ken Gee (12:01)
Mmm.

Yeah.

Yeah.

Aviva (12:11)
If

it's a million dollar deal, they want your P &L for the last three years. Anyway, that's a side.

Ken Gee (12:16)
Yeah, no, you're not you're not wrong about that.

You're not wrong. mean, now, I think they run soft credit checks on me, but nobody runs a full credit report on me anymore. On my very first deal, I guarantee you they did, because they're just trying to figure you out, right? See, after 20 deals, they kind of know who we are now. They just know and the brokers, we're in that market all the time, all the brokers know who we are. You know, it's trust. Remember, brokers only get paid when you close. That's what they care about.

Aviva (12:27)
Yeah.

Ken Gee (12:42)
Don't screw up the deal, don't retrade their salary and close so they get paid. That's what they care about.

Aviva (12:48)
Be good to your brokers, folks, and they'll be good to But Florida is an interesting place where I know it's highly competitive, but you also have some issues. And I don't know where in Florida you own right now. maybe, okay.

Ken Gee (12:50)
Mm-hmm. They will. That's true.

Yeah, it is.

all over the place, but which

I'm curious to your issues. want to I'm dying to hear what issues Florida has. yeah, that's OK. Yeah.

Aviva (13:14)
Insure, insurance.

Ken Gee (13:17)
You just budget for it. You just budget for it. So what happens right when you're in the business, right? Everybody that's successful business knows all the little details that matter. Like they really dive in and we do the same. So I've been doing this 30 years. I watch, know what insurance is going to do. It's going to cycle. It's just, it is what it is. So when insurance companies take losses, they jump out of the market.

that makes the supply, the capacity they call it, the cool people call it capacity, it goes down. When there's nobody there, there's no supply, the prices go way up. And here they go. Everybody jumps back in because now the business is insanely profitable. And now the capacity opens up again. So you just got to know where you're at in that insurance cycle so that you can budget for it the right way. Does that make sense?

Aviva (13:57)
I see.

Yes, that's fascinating.

Ken Gee (14:09)
You just

know the market. You see what happens? You just know your business. It's literally that simple.

Aviva (14:14)
Mm-hmm.

All right, that's cool. know, everybody is losing their mind here in Colorado about taxes and insurance. When I tell you, I talk to owners every single day, multiple times a day about how these prices are going haywire. But nobody has ever said what you said about insurance being cyclical. And so it'll be a fun vantage point. It actually makes sense what you're saying in terms of supply and demand.

Ken Gee (14:34)
It is.

It's greed, right? When they think

they get a lot of money, they come back in. Now what's going to happen? When the capacity grows, prices went down, prices in the last year, you would be shocked to hear this, they're down 40%. 40%. That's a massive reduction. Massive, right? So now what's going to happen? Eventually, they're going to start taking losses.

Aviva (14:45)
Now...

Sure.

Ken Gee (15:00)
And the whole thing starts all over again. you, again, you just got to know where you're at. But now how do you protect yourself against that? Right. That's what's driving your owners nuts. now you got to go back to being disciplined when you buy. we don't buy something unless we are really certain there's two to $300 and upside. Why? Because what solves all the problems? More cashflow.

Aviva (15:03)
Okay.

Hmm.

Cash?

Ken Gee (15:25)
This is the way it works. So, all right, yeah, insurance sucks, but guess what? I have, if I have a hundred unit building and I raise rents 300 bucks, which is not uncommon for us to do, that's 30,000 a month, 360,000 a year. That's a lot of insurance. You agree? So then when the insurance goes down, which it will, it turns now into profit.

Aviva (15:41)
Yeah. yeah.

Okay, I'll be able to sleep a little better tonight for that explanation alone.

Ken Gee (15:53)
Yeah, they'll be

OK. They'll be OK. It's just people that are getting beat up right now are the ones that they bought and they maybe didn't execute as well as they had hoped or they didn't really understand that you've got to really go crazy. See, everybody in 2021, 22 was buying everything in sight and they thought they had three, four or five, six hundred dollars in upside. But they ended up with 100 or 150 because they didn't do the homework. They didn't really understand the market. The property management company didn't execute for them.

on myriad of reasons. now interest rates went up, insurance rates went up, and they got no new income to cover it. So they're toast. That's what's hurting people right now.

Aviva (16:30)
You know, we do hear of first time syndicators jumping in in 2021, 2022. And the story is not good thereafter for folks who bought incorrectly.

Ken Gee (16:45)
Right. mean, look, it's tough. have to defend them for a minute. Even if they tried to do everything right, it is very, very hard to protect against a 500 basis point increase in interest rates. I mean, you can't protect against that. You've just got to hope that you put longer term debt on it, which most people didn't do. And then you got to hope that you got a lot more income and then a patient lender. That's why people right now, I mean, you hear the administration.

Aviva (16:56)
Hmph.

Yeah.

Ken Gee (17:11)
talking about firing the Fed chief. They want interest rates down. Remember the guy in the White House at the moment is a real estate guy. And it doesn't matter if you like him or hate him, that's irrelevant. He's a real estate guy. He knows lower rates are better for the business. And that's now what you're going to see everybody paying attention to. Because right now, if we get a 50 basis point, maybe 75 drop in the treasuries, everything changes in real estate. Everything. Because everybody can get out of their problems right then.

Aviva (17:17)
Yeah.

Hmm.

Wow. Yeah, I, have a few friends with a few problems right now, but I, yeah.

Ken Gee (17:44)
Everybody does. Everybody does. Yeah.

But that's all it takes. It's really 50 to 75 basis points. That's it. When you look at it that way, it's like, well, that's not very much. And it's not. And I know that because when the Treasury's hit back in September of 24, Treasury 70, I like the seven year, it hit three and a half. The broker BOV request went through the roof. They're like, holy Jesus, what just happened? Two weeks later, what happened? It disconnected, right? The Fed lowered

Aviva (17:50)
Hmm.

Sure.

Ken Gee (18:11)
Treasury went down and then it disconnected because of some inflation reports and then all of a sudden, whammo, all those BOV requests were withdrawn because it went up to four. It's just 50 basis points shut everything

Aviva (18:15)
Mm-hmm.

you

Every day I am humbled by this business because it is the Wild West.

Ken Gee (18:29)
It's well, it's kind of fun. mean, it's after a while you just it is fun. It is fun to watch. I'm telling you 50 basis points. You and I do this again in a year. We're having a different conversation.

Aviva (18:40)
I have no doubt we are. I really feel like I was talking to a broker this week. I said, how you doing? said, better than I was 30 days ago. And I have felt a big change in the last 30 days with sentiments. It looks like buying season, I think is coming and we should do this podcast in a year from now and see what the, what in the world is going on.

Ken Gee (18:49)
Mm-hmm. Yeah.

We'll to play excerpts

from this one and then respond and we'll see how wrong I've been right probably but you never know. We'll see.

Aviva (19:09)
⁓ I don't think

you'd be the one who was wrong. Ken, you're clearly a wealth of knowledge. What's your commercial real estate secret?

Ken Gee (19:22)
Yeah, my commercial, I've already talked about it. It's discipline. You've got to stay. I've been through ⁓ I've been through all kinds of cycles. I haven't been through everything, but the number one thing that kills people is they lose their discipline. And you know what happens when you lose your discipline? You get this fatal disease. It's called FOMO. And when you get FOMO, it is worse than COVID. It is worse than cancer. You're done. It's you're done. It is not curable.

Aviva (19:48)
Okay. Yeah.

Ken Gee (19:51)
Once you're in it, you're done. So that's why I want people. That's the secret. You've got to stay disciplined. Ignore all the other, oh my gosh, I got a deal and I got a deal. That's what they're doing 21. Just ignore them. Don't worry about it. You do the deal that you know is good and don't get FOMO. Stay disciplined and you'll be fine in this business.

Aviva (20:09)
Fundamentals, not FOMO. That's my slogan I'm gonna go with. I did, we're gonna need to put it on a hat sometime.

Ken Gee (20:12)
I like that. like that. I think you just came up with that, you?

I

think you are. Fundamentals, not FOMO. I use don't negotiate your discipline, but I like fundamentals or FOMO. I like that. That's even better. I'll let it, it's yours though. I won't take it.

Aviva (20:27)
Hey,

okay, you can borrow it, don't worry. Ken, for the listeners who wanna find you, follow you, learn more about you, where can they do so?

Ken Gee (20:40)
Yeah, just go to our website, KRIPartners.com. And when you get there, you're going to find out that we teach people how to do what we do. Or if you don't want to do it, you can invest passively. What matters is we're trying to help you create wealth of real estate. So just go to KRIPartners.com and our team will make sure they take good care of you.

Aviva (20:58)
That's KRIPartners.com. Ken Gee, thank you so much for being on the show today and for everybody listening. We'll see you next week.