Multi Family Investing For Professional Growth And Financial Freedom With Kent Ritter
Episode 501: Multi Family Investing For Professional Growth And Financial Freedom With Kent Ritter
The rapid change of the stock market causes investors and business entrepreneurs to take a step back and not take risks. However, most successful people know how to brave the unfamiliar. In this episode, Mitch Stephen discusses powerful insights on how we could raise our money, find the funds to close deals, and achieve financial freedom through multi-family investing with Kent Ritter. Kent is a former management consultant and start-up owner turned full-time real estate investor and operator. An amazing thing about real estate investing is that there is more than one strategy that could succeed. Kent talks about most of those strategies, the professional experiences he has gone through to get to where he is now, and the benefits of owning large apartment buildings.
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I’m here with Kent Ritter and he is into apartment syndication. That’s what we’re going to be talking about, but more importantly than that, how to raise the money and find the funds to do these deals, which can go from smaller to very big. It’s all about A) Finding the deal and B) Finding the money. With no further ado, how are you doing, Kent?
I’m doing great, Mitch. Thanks for having me.
You’re in Indianapolis. You’re doing apartment syndication. Give us a little background of what you were doing before real estate or how long you’ve been in real estate. Let’s get a handle on where you come from and then we’ll go forward.
I started my career as a management consultant. What that means is you fly around the country, helping companies solve big problems that they can’t solve themselves. I spent about twelve years in that career. In doing that, I got good at seeing hundreds of different businesses, how they operate, what works, what doesn’t work, and what levers you can pull there to impact and make companies profitable. That was a good base for, one, knowing how to run a company, but two, understanding investments. With everything, as you dumb it down, there are certain levers you can pull that move that needle and understanding that and putting that together. That’s my foundation.
Into that career, I left the company. I was working out with a few colleagues and we started our own management consulting firm. We had a boutique firm based in Chicago and grew that in over six years to 95 employees about $30 million in annual revenue. We decided to sell that at the end of 2015. That’s what kicked off my real estate career because I had the capital from selling the business. I knew I didn’t want to have all my money in the stock market, but I didn’t know where else to invest.
I started looking at alternatives and real estate spoke to me. It checked all the boxes for what I was looking for in an investment. I fell in love with it as I started learning more about it, the different aspects, different asset classes, and ways of doing it. I fell in love with multifamily. I felt like multifamily was the right place for me to be. It had the scalability and a lot of the things I like about real estate. The fact that everybody always needs a place to live and you make it really simple like that. You don’t need a place to work. We’ve proven that, but you need a place to live.
I got a few great mentors that helped me along the way and taught me about the syndication process. Once I learned about what syndication was, which is essentially pooling your money together with others to go buy something bigger and better than you could on your own, all of the light bulbs went off and I said, “This is exactly what I want to do.” I didn’t know much about it. I was new to real estate. I started out by passively investing with other people in their syndications to learn the process, understand how it works, and be able to ask all those questions about, “Why did you do this? Why did you do that? Why did you pick that debt? Why did you choose those countertops versus these?”
I spent from about the end of 2015 to 2019 passively investing with others, learning the process, going through some mentorship and education programs, listening to every podcast, and reading every book I could. In 2019, I felt like I was at the point where I understood this and I felt like I knew just as much as the syndicators that I was investing with. I set out and led my own syndication and deal. Since then, we’ve been rinsing and repeating with the syndication process, buying value-add multifamily, fixing it up, and giving the returns to the investors.
How many apartment complexes have you been involved in?
It’s six and I’m working on closing my seventh. We have 7 and 8.
How many of them were other people’s? How many of them are you the syndicator?
Six going to 7 and 8, I’m the syndicator. I’ve passively invested in over fifteen. I don’t know the exact number, but it’s quite a few. It’s probably close to twenty because that was how I started. In 2016 where I deployed most of my capital, I went out and invested in ten deals just that year. As some of that money has started to come back, I’ve started to reinvest. I’m probably North of twenty or around twenty.Deciding to enter the real estate industry is a learning process but is very worth it. Click To Tweet
This isn’t your first rodeo. You’ve been through a lot. Over how many years have you been doing it?
I started passively investing in 2015. I invested in two deals in 2015 and then ramped it up in 2016. It’s since then. I’ve been actively syndicating since 2019.
That’s a good track record and some good experience. I’m sure, coming from the background that you come from, you studied with some powerful people and got some great knowledge. When someone knows how to go to the source, learn, and get mentors, six years is like an eternity because you’re probably drinking from a fire hose a lot of the day.
With every step along the path, I looked at it as increasing my education. You start out at baseline. I started out with podcasts and books. That was how I got interested in all of this. I moved it up to some paid courses and went through those. I moved up to some actual mentoring things and one-on-one programs with some very high-level people. Luckily, or not so luckily, because I was out there actively looking for people. I found some unpaid mentors, too, some high-level people who are willing to give their time because they saw some potential in me. That has been an incredible accelerator for my career, having these people to be able to bounce ideas off of, learn from, and avoid their mistakes.
Another part I missed and glossed over was what I call my multifamily MBA. I went and worked for one of my mentors for a period of time for about fifteen months at his large private equity firm. All they do is multifamily. They got about 15,000 units. I was able to see from the inside how a high-level institution works. That was my MBA. I went out and am now able to be on my own and take all that knowledge with me. Every step has been regimented as far as increasing my education and finding new sources to learn from.
That’s interesting because what I want to talk about is the funding or how these things get funded, how you raise the capital, and how you find the people. It goes right into this next thing. Starting way back when you were a management consultant, were any of those people, mentors, or unpaid mentor players for you now?
Do you mean as far as, are they investing with me?
I have a lot of my ex-coworkers and some mentors. People have come along the way. What was interesting was the first deal that I was going to raise money for. I always tell this story because it’s a good lesson for people to learn from. I only raised about half the money that I thought I could on that first deal. It was a learning experience for me of like, “This is a lot harder than I thought it was going to be.” What I found was a lot of those people that were coworkers or even old friends liked me, but they didn’t see me as a real estate expert. They didn’t see me as somebody they wanted to get $50,000 or $100,000 to and trust that I was going to give them a good return.
They had this other box and this is a new venture like, “I don’t want to go into him on a new venture. Let’s wait until he is done with a bunch of these.”
The reason I wasn’t as successful is because I should have started six months earlier, talking with them about what I was doing, learning about all the real estate, and educating them about all that I was doing and learning. I wasn’t doing that as active. That’s why I tell people now, I’m like, “If you want to raise money six months from now, you need to start now. You need to start educating people on what you’re doing and bringing them along in that process.” It’s not when you call and say, “I’ve got a good investment.” They’re not like, “What are you talking about?” They’re like, “We’re ready for this because you’ve been educating us along the path.”
What I did see was that the first one was a little rough. We ultimately got there, but it was a lot harder than I thought it was going to be. It was probably deal 3 and 4 where all those people were sitting on the sidelines and started to say like, “What are you doing now? That’s working,” and then they all started. Those are the deals where I had a bunch of friends and family come in because they were like, “Maybe Kent is not just a guy I played football with or somebody I got beers with on Saturdays. Maybe he knows what he is talking about and this thing works.” I thought that was funny how I saw in those 3rd and 4th deals this influx come in from the friends and family as I’ve proven it out.
They wanted to make sure that you weren’t going through a phase. You were in it for good. Tell us about syndication. How much money have you had to raise? How do you go about raising it?
I’ve raised right around $9 million in earnest, probably eighteen months that I’ve been going hard at it and doing deals. It comes from all different places. I have my podcast, which is Ritter on Real Estate, which, Mitch, you’ve been on. Thanks for coming on. That’s a great source. It gives people a chance to get to know who I am and my personality. It gives me a chance to share some of my knowledge and expertise. Also, I go on a lot of other people’s podcasts. That’s another great source.
What I’ve chosen as my vehicle to get out in front of people are podcasts. There are a lot of ways you can do it. You can write blogs or books. If you’re going to raise capital, you have to have something that allows you to be out there in front of people. You can only have so many one-on-one conversations. It’s not scalable. You’ve got to create these one-to-many relationships where I could do a podcast and people can listen to that podcast for years to come. If you’re raising capital, that’s critical.
People ask me all the time like, “You’re so successful. Why are you doing podcasts?” I said, “For one, I get to talk to some smart people. You’re either growing or shrinking. There’s no neutral.” I stay engaged. The other thing is I get to talk to the masses. Some of those people out there in the world that I had never even met have an interest in what I’m doing. They’ll raise their hand and call me and we can get conversations. I’ve raised $26 million to buy and sell my little houses. Now, I’m buying and subdividing ranches and moved them to another level. It doesn’t happen overnight.
I’ve been in the business for many years. I could have raised it a lot faster and gotten the terms I wanted a lot earlier, except for my limiting beliefs. Finally, after all these years in the business, I’ve broken through all the limiting beliefs. I know exactly that there’s someone out there for almost anything you want as long as you’re being reasonable and the deal holds water. The deal has got to be solid. You can’t sell shit if you don’t know how to do that.
If you’ve got real deals, you need to ask for the terms or preface it the way you want. If you can reach enough people, there are people out there looking for something to do with their money. They just don’t know you exist. They might not even know these angles or opportunities. We’re out here trying to educate people for a lot of different reasons.
I’ve borrowed money now from I don’t know how many people I’ve never met in person. I’ve talked to them on the phone. We’ve emailed back and forth. My office has sent them all kinds of data to substantiate my deal and all the stuff to help them. Finding a great deal, getting it under contract, and then finding the funds, that’s pretty much what real estate revolves around. If you want to boil it down to the two things you got to have, you got to have the deal and money.
You got to have both at the same time, which can be a difficult thing. You got the money because you just met some new investors. They’re hot and ready to go, but you don’t have a deal, or you got a deal and you haven’t kept your investors warm, which you constantly have to do. That’s another great tip. Somebody that you’ve talked to within the last month is exponentially more likely to invest with you than somebody you haven’t talked to in six months.
That has been my personal experience. If I let that relationship go and I don’t talk to that person, the next time they hear from me is, “I got an investment.” You’re starting that relationship over again in some ways, especially if it’s not somebody that you have a long history with. It’s important that you’re always in communication with your investors and keeping people warm.
I’ll send out a weekly newsletter, which is another way to stay in communication. It doesn’t always have to be a phone call, but you need to be staying in communication and keeping people abreast of what you’re doing. The longer the time period goes since the last time they heard from you, the less likely they are to invest with you.
That’s very interesting. You gave me the idea. There you go again, “Why do you have a podcast?” I have 59 investors. I used to take them all out to dinner about every third quarter, but then they got to be too many. I haven’t done a good job of keeping up with them, although I make monthly payments to these people for years. I have a 30-day check-in every time that check arrived on time. He is doing okay. My six checks for those six houses came in again.
That newsletter is an excellent idea. It’s a little chance to talk about what’s going on in the market, why you’re not afraid, or what you’re doing to hedge against some of the fears of COVID, the recession, interest rates, or inflation. Get real with them and be transparent. I know we don’t want to talk about any negativity, but you can’t be all sunshine because then everybody knows there’s nothing all sunshine. You got to have a problem somewhere.Keep the relationship with your customers warm. Even with sending newsletters weekly, you can stay in touch with them. Click To Tweet
You got to be balanced. If you haven’t had a bad deal or something go wrong in real estate, I’ve heard others say like, “You just haven’t been doing it long enough.” That’s true. Real estate is about solving problems. If you can solve problems, you can make money. You’re going to have things that come up. Being transparent about that is important and not trying to gloss over it.
We have 300 mortgages. Our foreclosure rate has not moved to one decimal point. However, the courthouses are closed because of COVID. We got 27 foreclosures out of the 300. They’re stacking up. I can’t terminate them because they can’t get to the courthouse. We’re making the payments. We’ve gone through. If we get all 27 of these houses back, we’re going to make an extra $1 million because these houses have gone up in value substantially. I was giving an example of what I might have said in a newsletter. It’s not all hunky-dory. COVID caused some problems, but we’re acknowledging them. We’re on top of them. There’s an upside to the whole thing. We got to push through instead of trying to tell them, “It’s all great.” It’s COVID. Everybody got affected somehow.
Luckily, from what I’m involved in, we were fairly insulated in workforce multifamily housing. We didn’t see a lot of people default, but we have seen people taking longer to pay. We’ve had to work with some people on payment plans. We do some different arrangements to help people stay caught up. We’ve had to work hard to connect people with other programs, government assistance, charities, and churches to help them pay their rent. It has been an extra wrinkle that we’ve had to work through. If you can solve problems, you can make money. We’ve been able to keep collections current through those other programs and working with people.
My point was, that’s how you talk in your newsletter. Get real with them because everyone recognizes transparency when it happens. Everyone recognizes bullshit when it happens, too. Don’t blow smoke because these people wouldn’t have money to give you if they were dumb-asses. Treat them with the respect they deserve. In my experience, people always like to start small and then they start to up their ante. Is it the same thing in the syndication department?
Yes. It seems like a lot of people in syndication just try to go big right away. A lot of the courses teach people to be 100-plus units or even 200-plus units. You got to go big. I’ve found a nice niche that I call a sub-150-unit space, where you’re avoiding a lot of the competition. You’re able to go much more efficiently to direct-to-seller or get real off-market deals because anything over 100 units is almost always going to be marketed by a broker. We found a nice, little niche in that pocket working under, where a lot of other people are trying to fish. Now, we’re fishing in a different pond. It’s a little less crowded.
Even with that, there’s a lot of truth to the fact that it’s, in some ways, more difficult to buy a 5-unit property than it is to buy a 200-unit property. If the loan is above $1 million, that opens up a lot of doors. It opens up the opportunity to have non-recourse lenders versus recourse lenders. You can hire professional management and good management. There are things to be said about going big. That’s why a lot of people say go big, but the margins are slim. They’re slimmer because the things are higher-priced. They’re more efficiently priced than being able to find maybe a seller who has owned it for fifteen years and hasn’t raised the rent. We can come in and know that we can bump the rent to $200 overnight because they’ve fallen behind the market. It’s different strategies.
With scale does come efficiencies. What I realized, though, is scale doesn’t have to be in one investment. What I saw work at the private equity firm I was at was they could buy properties of any size because, at the company level, they had scale. They could buy a 30-unit, but their purchasing power was related to all of the units they owned, not just that one 30-unit. You can build scale in other ways. It doesn’t have to be just buying a 200-unit property. You could buy a bunch of 50-unit properties and get to the same goal.
That’s how I started my storage business because I was small-minded. I didn’t know what I didn’t know. I had limiting beliefs. I was buying 20-unit mom-and-pops, but then they started to mount up in the monthly cashflow. I was able to buy some 50, 80, and 100-unit places. By the time I finished adding on, improving, increasing the rents, and adding different sizes to places that had rooms to expand, I looked up and I have 1,300 doors. I had sold all my small places and I had mostly big places. That original question I asked you, though, I was talking about, do the investors usually start small and then start to invest bigger with you?
I’ve seen that, especially as deals close. We’ve given people their money back. Most people say, “I don’t want it back. I want to put it into the next one. I want to keep this rolling and I’m going to compound this.” They take not only their principal, but they take their gains and roll that all forward. We start to see those amounts well.
They’re confident and they put in some more. That’s one thing I love about my private lenders. I don’t like my houses to pay off early. I don’t like to pay my people off early, but it’s always a good thing when you meet a new investor that they get the return of their capital sooner than later because it opens up the door wider for the next thing. It’s true. When I deal with this guy, the money does come back. You do it once.
That’s the proof in the pudding. It gives people a lot of confidence when they see that, what you said you were going to deliver, came back.
If you’re into some passive investments and you want to talk to Kent, you’re going to go to 1000Houses.com/KRitter. I’m pretty sure the man is not going to put out a syndication proposal if it’s not a smoking deal. He has been around the block a few times. It will be suicide to put out a bad one and everybody knows that.
You’re only as good as your latest deal. That’s the truth.
In my case, I wrote a book called My Life & 1,000 Houses. It’s the art of private lending. It deals with private people that loan their money to private people and how you can do that effectively, how you can do it without getting taken advantage of, what kind of deals you need to offer people, and how to stay out of trouble in that department and proliferate on your own money. There are a lot of different ways, but I believe investing in real estate is my vehicle of choice because there’s a tangible asset somewhere at the bottom of that pile.
The chances of these things zeroing out are not very good. We’ve all heard of a million stocks that zeroed out or went under, but the chances of a piece of real estate turning in to be worth zero, there has got to be a pretty astounding chance. I like real estate because of that reason. I didn’t notice you as a big educator in this. Are you teaching people how to do this?
I don’t have a formal coaching program or anything like that. I’m trying to focus on being good at finding good properties and being a good operator. Maybe at some point, I’ll get into the coaching game. I’ve had a few people ask me. The way that I educate is in a couple of ways. One is through my podcast. Two is through my blog, which is on my website, KentRitter.com. The last one is I hold a monthly networking event where I either speak or we bring in speakers. In those ways, I’m trying to give back and educate people. That was the reason I started my podcast.
I wasn’t teaching people doing things for many years that I was in the business, but I did it. I was just bored of the other stuff. I didn’t care. I still needed to be viable and have something to do. I started coaching. I’m not a millhouse. I keep it pretty close to the best. I only take people I can help. If I don’t think I can help you all.
You may not believe it, but it got to be a higher reason to do things. You can drink so much. At least, that’s how I feel about it. 1000Houses.com/KRitter, get over there. You can see his blog, podcast, and website. You can get in contact if you’re interested in looking at the syndications that he is getting involved in and trying to raise capital for. Anything else you would like to say to the audience before we part ways here?
You’ve already said how to get a hold of me. Real estate investing, particularly multifamily for me, has been my vehicle of choice. It has changed my life. It allowed me to leave my W-2 and create a new career and passion. A lot of people don’t know about it. I didn’t know about it before 2015. It was incredible when I found out about it. I hear from a lot of people the first time I talked to them is, “Those returns are too good to be true.” I say, “They’re not. You’re just not used to it. You’re only used to what you hear from the big brokerages and stock market returns. There’s a whole different world out there. You have to educate yourself.”
If I passed on deals or I saw that I was going to make a 100% rate of return on my money, I had to pass on a lot of deals because I was thinking, “That’s too good to be true.” We’re in the business of too good to be true. It doesn’t happen every day and every month. I don’t even slow down for anything if it’s not making 15%, 16%, or 17%. I start buying things when the numbers are popping up and showing that I’m making 25%, 30%, or 40%. I stay in those arenas and keep searching. Every now and then, even a blind dog can find a bone. I’ll find a deal that makes 50%, 60%, 80%, or 100% rate of return. It just comes across the path and lays down there. It caused it.
It’s possible. It happens all the time. If you have a good process in place, you’ll find those kinds of deals. A lot of the education for me when I talk to new investors is not about me convincing them that they need to do this. I feel like if I educate them in the right way, the light bulbs are going to go off just like they did for me.
A lot of what I do is help people to become comfortable making that decision because it is new and unfamiliar. Part of it is about you as an individual, getting past your limiting beliefs and being able to be comfortable making that first investment and getting started. I find once people do and start to see those checks coming in, that’s when people start to understand the power of it. You start to have your first deal sale and you get those returns back. That’s when people are addicted.
You got a real track record. You can show some real ROI. This isn’t hypothetical. This happened. These are the people that revolved. That’s exactly what this book is about. It’s how to get comfortable loaning your money. In your case, it would be how to get comfortable investing in syndication, “What are they about? How does it work? What are the expectations?” I appreciate you taking the time to be on.
I like to tell everybody I was at the ranch. The ranch had a storm and it knocked out all my Wi-Fi. I had to run to this town so I could get some access. This is why I’m doing my show in the back of my truck. This is how I feel about that. It doesn’t matter how you get this information, whether I’m sitting in the Empire State Building or in the back of my truck. It’s all about the information. My job is to make sure that I got it delivered, so I did what I had to do to get the information delivered. Welcome
to my truck, everybody.
I would like to thank everybody for stopping by to get you some Kent Ritter. If you have a chance, check out LiveComm.com and find out why I’m averaging four days on the market in the last 200 houses I sold. I haven’t personally seen the last 500 houses I bought. I haven’t seen the last 500 people that bought my houses. I have a great team, but we’re using some technology. LiveComm is a big part of it and I can show you exactly how it works. Watch the videos on the home screen and I’ll give you a taste of why I’m being successful with LiveComm.com. I would like to thank you, Kent. I hope you have a good rest of 2021. Best of luck to you.
Thanks, Mitch. I appreciate you having me on.
I’ll talk to you soon.
About Kent Ritter
Kent is on a mission to create modern, affordable housing for America’s workforce while empowering others to take control of their financial future through real estate investing. Since 2019, Kent has led the acquisition of 621 units and deployed over $9M of investor capital into cash-flowing real estate through his firm Hudson Investing.
Kent serves as a real estate thought leader and educator through:
- his podcast – Ritter on Real Estate
- his networking event – Indianapolis Multifamily Investing meetup
his website – kentritter.com