[00:00:08]Mike: Hey everybody. Good afternoon. It’s Mike with Insider Secrets, and welcome to episode 50. And boy, am I excited today about our guest, Mark Allen Kenny. Hey Mark, would you tell our listeners exactly what they’re going to hear today?

[00:00:23] Mark: Yeah, absolutely. We’re going to talk about finding smaller multi-family properties, maybe in that 20 unit range, a really great asset to add value.

[00:00:31] And then we’re also going to talk about coaching and education, the importance of reaching out for mentorship self-educating yourself and just taking your business to the next level.

[00:00:41] Mike: Perfect. Those are the things that I always talk about. Remember, episode 50, listen in and we’ll see you inside.

[00:00:50]Kristen: Welcome to this week’s edition of Insider Secrets. The show that turns multifamily investing into reality. Each show we interview guests who are seasoned professionals, actively closing and managing real estate deals. Your host, Mike Morawski has more than 30 years of multifamily real estate investing and property management experience.

[00:01:12] Mike is the founder of My Core Intentions. And he’s been involved in over $285 million of transactions. Focuses on helping you create short term cashflow and long-term wealth. Here’s your host, Mike.

[00:01:29]Mike: Hey everybody, welcome back. It’s Mike, your host of Insider Secrets, and we’re brought to you by My Core Intentions. My commitment at my core intentions is to invest in you in my client’s future, through education, information, wisdom, and knowledge, right? Teaching you how to create short-term cashflow and long-term wealth, and help empower you to practice sound real estate investing principles that will grow your business, and help you to live a balanced lifestyle. And I know today, that my guest is going to be able to take us in a direction around that conversation as well.

[00:02:05] All right. Hey, I’m excited today about our guest. Our guest today is Mark Allen Kenny. Mark, could you say hi to our listeners?

[00:02:13] Hey everybody. Thanks for having me today.

[00:02:16] I’m glad you’re here, Mark, for sure. Hey, Mark is the founder and CEO of Stellar Investment Group.

[00:02:22] He started in 2015 by buying and selling undeveloped land in upstate New York. After half a decade of flips rehabs and managing multi-family rehab projects, Mark began acquiring 20 to 100 unit apartment buildings in the Midwest. Hey listeners, this is what I always talk about, small multifamily, right?

[00:02:45] Well look today, Mark focuses on growing generational wealth for his investors and partners. In addition to providing investor friendly deal structures, Stellar Investment Group focuses on capital preservation and predictable cashflow for generational wealth. So listen, this is about creating short-term cashflow and long-term wealth.

[00:03:08] I think today’s show is just going to be so important for everybody to listen to. Mark, thanks for being here. I really appreciate it. And one question that I always like to ask my guests is in one word, what best describes you personally and professionally?

[00:03:25] Mark: I would say driven.

[00:03:28] Mike: Driven.

[00:03:29] Mark: Yeah. I’ve always been very driven.

[00:03:31] I got into real estate in 2015, but before that whatever project or thing I was building at the time, I’m always driven by just creating things and seeing results. So I think that’s one of many words that would describe me, but that’s probably one of my favorites.

[00:03:49] Mike: That’s interesting. Before the show we were talking about our podcast, mine and yours, and how many episodes we were in to those podcasts. And, I think I mentioned I’m around 50 some episodes in, and I always ask that question and nobody’s ever said driven. And, it’s really funny about how many people always have a different word and nobody there’s never a couple people that have the same one. So I appreciate that. And that’s that hustle, right? Roll your sleeves up, dig in and go for it.

[00:04:19] Mark: Yeah.

[00:04:21] Mike: It’s interesting. I had a conversation and there’s a little sidetrack here, but I had a conversation with a coaching client this morning where I said to him, I said, listen, if you’re willing to go all in and do what it’s going to take in order to go be successful.

[00:04:38] Then do it. If you’re going to only go half speed, then you’re going to have to make other arrangements. But I think it becomes that driven piece. Go all in, and hustle, dig down and find it.

[00:04:52] Mark: Yeah.

[00:04:53] Mike: Hey, Mark, could you tell us your backstory? I know you haven’t always been real estate. What did you do before that?

[00:05:00] Mark: Yeah, for sure. So when I was really young, I started in the music industry. So I was playing in bands and stuff when I was growing up and then gravitated more towards the business side. And then my wife is also in the arts and we moved to New York city. I’m originally from Chicago and we moved to New York city in 2011.

[00:05:18] So we’ve been there for about 10 years and It’s funny, how I got into real estate was accidental. So we were living in New York city, we love it there. It’s also very fast paced, tons of people around and being from the Midwest, sometimes I missed that kind of slower speed and more open spaces and things like that.

[00:05:37] So I was actually looking for a land upstate New York, just a place to get away to on the weekends and things like that. And what I discovered, was a really interesting system for buying raw parcels of land. And I saw an opportunity there. So I started buying raw land with my own capital and then flipping it.

[00:05:57] So I would buy before a tax sales, I would go in there, acquire the property, just take great pictures of it, marketed online and sell it for a profit. These are small deals, it was like, I would buy something for 10 grand, sell it for 15 or 20, ideally. It did that for a couple years and then just really became fascinated with real estate and learned as much as I could was reading tons of books and paying for coaching programs and everything I could to learn about real estate.

[00:06:24] And I realized that although I was making good money with flipping land, there was zero cashflow and I was very attracted to the idea of creating wealth that not only would create wealth for my family, but would also throw off monthly cashflow that we could use for living expenses and financial freedom.

[00:06:42] So from the land thing, I quickly pivoted into buying smaller multifamily projects. So being in New York city, the numbers really don’t make sense there. The legislation laws aren’t there, the cap rates are too low. There’s a lot of hurdles for getting into multifamily in New York city.

[00:07:01] So the best market that was close to us was Philadelphia. So it was around 2016 or 17, I started buying up smaller properties in Philadelphia, which was about a two hour drive from me still is, and we still have a portfolio there and a great team there. But we were buying up stuff, smaller things like a duplex, a couple four units, six unit even under 10 units.

[00:07:26] And we were just acquired these things. And honestly, I learned a ton from doing that and built up a track record and gained experience on the operation side, asset management side, learn how to run those books, run those properties, vet a property management company, all those things. And then when we felt comfortable with where we were at, we just scaled it from there.

[00:07:47] And each year we grow a little bit more and more. We did our first syndication in 2019. We just got into a new market, Indianapolis. We love that market. We just acquired a property there in November and another one in December. But we are targeting properties now that are between 20 and a hundred units.

[00:08:08] And our model is very simple. We like things that cashflow from day one, very stable properties and we’re very focused on preserving capital and cash flowing for investors.

[00:08:19]Mike: Boy, Mark, you and I must be because we’re both from Chicago, but we have the same logic and same thought process.

[00:08:30] So first, you talked about so many things in that little dialogue that we can circle back on, but first thing is wrong land, right? How do we say that? Hey, I was told early on in my real estate career. That God’s not making any more dirt to buy raw land. And, I learned very quickly that I wasn’t going to make money in land.

[00:08:56] I needed to have something that was income producing because that land piece tends to be an alligator. But, you seem to have figured out a way to capitalize that, and, go ahead.

[00:09:10] Mark: Yeah. I mean my whole job really is to find value and uncover value in arbitrage and just find opportunities. So as I was looking for land for myself, anyone could look online and see what land is selling in a specific area.

[00:09:26] And in the process of educating myself and hiring coaches and people who are also doing this sort of thing. What I learned is that any time a county’s going to foreclose on a property, they will list that in the newspaper. So there’s a period of time before they announce it, and before it gets foreclosed on. A lot of these land owners, they don’t care.

[00:09:46]It was a relatives piece of land that was passed down. They don’t want to pay the annual taxes on it. They don’t know what to do. They don’t think it’s worth the time to try and sell it. So they’re happy to just let it go. So once it’s published in that newspaper, if I send them a letter or reach out to them and say Hey, this is your tax bill, I can pay that off and give you additional cash for your land. A lot of people are interested in that, because they didn’t care anyway, they were looking to let it go. But now they get to sell it to me and get some cash from that. So I found the opportunity there and it wasn’t the type of thing where I was land banking and buying large parcels of land and holding it for 20 years.

[00:10:23] It was a very quick kind of flip like six months flip or something. So I would acquire the property, take beautiful pictures of it, posted online for what I knew it was worth. And then ideally we would sell it pretty quickly.

[00:10:34] Mike: That’s interesting. So, here’s really what I want my listeners to zone in on today.

[00:10:39] And a couple other topics that you talked about, education, small multifamily, and how to zero in on those deals. But education, you mentioned you went and educated yourself and listened to seminars and books and tapes, and you know what? This is what I always talk to people about being a sponge.

[00:10:59] You have to be a sponge, take in as much as you can take in. And start to execute. And that’s really what I see that you’ve done. Can you talk some more about that?

[00:11:10] Mark: Yeah, absolutely. You never know what you don’t know. And I think as far as I used to have a pretty fixed mindset where I wasn’t open to new information, or I was uncomfortable with the idea that I was wrong, or it was difficult for me to ask advice from somebody who was doing the thing that I wanted to do. And in the process of being so driven and goal oriented, I realized that all those things were liabilities and I needed to change and I needed to seek advice and to reach out to mentors and reach out to people that had that experience and that track record and could teach me something and can teach me what I wanted to do and how to get there.

[00:11:52] And I wasn’t afraid to spend money too. So a lot of these coaches, you have to pay to play. And there’s a lot of people reaching out to them and I’ve had wonderful friendships and relationships with mentors who has been informal, no exchange of money, but then I’ve also paid into coaching programs.

[00:12:10] And I’m a big believer in that and self-education, and it’s an investment. And I think I forget what the quote is, but someone once said that the best investment that you can make is in yourself, and spending money to improve yourself, and improve your knowledge and improve your resources. And I’m a firm believer in that.

[00:12:28] So before I even got any sort of traction in my businesses, I was investing in myself and trying to become the person that I needed to be, to become successful.

[00:12:39] Mike: Yeah. If we want anything in our life to change, we have to change. That’s that whole philosophy behind that. So here’s what I know you have a coach.

[00:12:49] I’m not that coach and that’s okay. I’m all right with that. So here’s what I’d like you to do is I would like you to tell the listeners why you have a coach, what you get out of your coach and why that’s important?

[00:13:02] Mark: Sure. Honestly, I have a few different coaches and mentors and I’ve had even more over the years. There’s the kind of the spiritual self-improvement mindset side of things, which is its own thing. And then there’s the tactical business side of things of going out there and executing in the world. So I think one example is a coach of mine, Julie Lamb, who I reached out to about a year ago or at some point last year. And as we were scaling and knew that we had the expertise and operational experience to do larger and larger deals, we were missing a little bit of the equity component.

[00:13:39] And I knew that I had to get better at raising money. And she was great at it. She’s raised money for Joe Fairless and all these other groups. That’s their expertise is really that marketing side and connecting with investors and really getting on the same page with people who want to invest passively in syndications and just scaling a syndication business.

[00:13:58] So that’s a great example of an area where I needed some guidance with and reached out to Julie and she’s helped me quite a bit with getting a better website up, and communicating with investors and just building that investor base to scale.

[00:14:15] Mike: Yeah. Interesting. And so sometimes it’s good to get a coach that is specific in an area that you’re working on. Let’s talk about multifamily, and it seems like you like that small multifamily space. And, I’ve been saying for the last few months, and I think we’re going to see this for the next period of time.

[00:14:38] That there’s big opportunity in small multi-family. And, I talk about from the two units to the 1520 unit deals, I think for the fix and flipper in that space in and out 15, 18 months that there’s some really huge opportunity done. Talk about that, talking about we’ll buy and hold. Where are you at in that strategy? Make sense for you?

[00:15:06] Mark: Yeah, for sure. So my podcast is called “How to buy Giant Apartment Buildings”. I’m going to say that again. And the reason for that is because we would love to do those larger deals. If we could go out and acquire 200, 250 units every quarter, we would love to do that.

[00:15:23] But we can’t, because there’s way too much competition there. You’re competing with institutional shops, you’re competing with people who are getting debt that’s much much lower than the average investor can get. So they’re able to pay much higher prices. So like I said earlier, my job is to uncover value and find opportunities.

[00:15:42] And I agree a hundred percent with you that those opportunities are in the smaller multi-family. So when you’ve got these smaller kind of 20 unit buildings, or within that range, a lot of times that’s a single owner. And a single owner they could have a divorce or be getting older in age and don’t want to run the property anymore.

[00:16:03] It’s a lot of these are mom and pop owners where they’re still recovering from issues with COVID. They’re not sure how to handle it. They’re not giant corporations that you’re trying to compete with. They are people with real life problems that you can relate to. Sometimes it’s not all about price, so we just close the deal.

[00:16:20] And last year where the seller, for whatever reason he needed to sell by the end of the year, that was very important to him. And we were able to do it, we closed in 23 days. That’s just not something that happens with these larger 200 unit properties. It’s just not, that’s just not the case.

[00:16:37] You’ve got teams of people running them. You’ve got large corporations as owners. So it’s hard to be competitive in that space and it really does come down to price. So the only people that can offer the best price are the ones who have large teams with in-house management. They’ve got these debt relationships where they can afford to hold that property for 30 years or so with 30 year mortgage and very low interest rates.

[00:17:02] So the deals that those larger shops are able to do just doesn’t make sense for the average investor. So if you’re trying to run your own business or even get started, I think that smaller multifamily, there’s a lot of more opportunities to get in there. Find value, you can make improvements that increase the value of the property, like you said, and then sell it or refi it and just pull that cash back out.

[00:17:28] Mike: And so what, do you like best? Do you like the the flip business or do you like buying and holding in that space?

[00:17:36] Mark: Our model is to buy and hold. So when we underwrite deals, we typically underwrite to a five-year hold period. We just had two exits that ended up being about three years.

[00:17:46] If it’s a great asset and a great location, newer vintage something that we want to hold long-term, we might underwrite it to 10 years. But we tend to stay away from the the fix and flip stuff where I’ve done bridge loans and heavy lift value as in the past. But our model has really shifted to be more stable assets with high occupancy.

[00:18:09] We’ll do value ads that are more cosmetic floors, new kitchens, things like that, but nothing really down to the studs or anything like major construction wise.

[00:18:21] Mike: What makes you determine whether or not you’re going to hold a deal for five years, 10 years, and then all of a sudden sell it at three.

[00:18:29] What happens along the way to make those determining factors for you?

[00:18:35] Mark: Sure, I think there’s two assets or facets to that, one is what the market’s doing. So how lower interest rates, how higher prices we like to see that two X equity multiple. So if we can double investor’s return, then we’ll consider a sale.

[00:18:53] So depending on what the market’s doing right now is a great time to sell because cap rates are compressed. You can get really good price for your property if you bought it right. The other part of that is what’s going on in our business. So like I mentioned, I started with land then pivoted into smaller duplexes, four units, that type of thing.

[00:19:12] So we’re doing those larger projects now that are between 20 to a hundred units. I think a couple years from now, we’ll probably want to shed off some of those smaller properties just because they take a similar amount of work to run a smaller properties as does a larger one. So as we scale up and get into the bigger projects, we’ll probably sell off some of the smaller ones.

[00:19:33] Mike: Do you see a vision in your own life and your business for 200, 300 unique deals. Are you going to stay in that small space?

[00:19:40] Mark: That’s a great question. And like I said, if we could find deals that are like 300 units, we would do those for sure. Just the ability to add value and hit our target returns is the number one focus.

[00:19:53] So wherever that takes me is where I’ll go. I imagine it will be some sort of combination where we’ll do larger projects when they’re available, but then stick with our bread and butter of doing these smaller things and just acquiring as many units as we can.

[00:20:07] Mike: Okay. Great. So a question that I like to ask people is because as a business owner, as an entrepreneurial, we’re all faced with choices and decision.

[00:20:18] And especially when you’re doing business and you do business, like you do, like I do like we all do. But how do you make high stake decisions in your life?

[00:20:31] Mark: Yeah, that’s a great question. I think Ray Daleo comes to mind. I don’t know if you’ve read his book “Principles”, but he talks about just the order of consequences. So there’s first order consequences, second and third. And a good example may be here if you like cigarettes, so you can smoke a cigarette. It makes you feel good or whatever, but the second, third order consequences are really bad. You could lose your breath.

[00:21:00] You’re coughing, that’s the second order consequence, third order consequences be shorten your life spans, spend time in the hospital, just really horrible things. That’s a very simple example of how I consider different decisions. And there’s this short-term loss for long-term gain where as soon as we acquire a property, it’s a ton of work.

[00:21:22] And sometimes that payoff doesn’t come until year five or year six. So we’re working really hard and working 12 hour days to reposition an asset to add value, to get done what needs to be done to get that thing stable and renting at market rents, where it needs to be. And we’re not getting paid in real time to do that.

[00:21:44] So I think a big part of my decision-making and what I’ve learned from being in the business and just being as old as I am, is that long-term view of okay, this is a challenge today. This is not fun today. It’s just like getting up early and going to the gym. It’s not always fun.

[00:22:03] You don’t always want to do it, but you understand the long-term consequences. And I think those long-term consequences, you have to think like that if you’re an investor. So I think that’s what drives most of us and probably a lot of people listening to this now is that final outcome. And that plays a huge part on how I make decisions.

[00:22:22] Mike: What’s interesting as you alluded to the fact of the cap ex repairs and the re-engineering of a property and that over a five or six year period. Do you plan all that up front? So are those plans all in place before you ever even get to closing, and how you’re going to execute and talk about that a little bit.

[00:22:43] Mark: Yeah, absolutely. Yeah, you never want to be surprised by a cap ex expense. So our due diligence is very thorough, we’re bringing contractors, we’re bringing in inspectors, third-party inspectors. I’ll have plumbers out, roofers out a whole team. So when I do my unit walkthroughs, we’ll go into every unit and someone will be there to look at the floor.

[00:23:05] Someone will be there to look at the HVAC system. Someone will be there to see how old the appliances are, do all the burners work. What are the expenses? So you want to know about all that stuff and have a pretty good idea of your carrying costs for your hold period. So if we’re projecting out five years, we know that the roofs are fine today.

[00:23:25] There’s no leaks, there’s no problems with them, but in year three we might need to replace them. So that’s in the back of our mind and we might raise that money. We might ask our lender to include that they’ve been nice enough to include that as a line of credit if we needed it for those types of repairs in the future.

[00:23:45] But we always have a plan for that stuff, especially really large items like a roof or any kind of structural thing. We’ll have a plan for cap X absolutely. And we always plan, how are we going to capitalize it? So you never want to pay for those things out of cashflow.

[00:24:03] It sounds like a good idea sometimes. And it’s tempting because it does improve investor returns. But if one little thing goes wrong where COVID happens or something happens in the market where people are struggling to pay their rent. Now, all of a sudden you don’t have enough cashflow coming in and you’ve got a plumbing problem that needs to be fixed immediately, and you’ve got no money in the bank.

[00:24:24] So we try to raise those cash reserves and have a plan for the entire whole period.

[00:24:30] Mike: I hope everybody’s listening to this. And if they missed any of that, they need to rewind this recording and go back and listen to it again. Because remember, Mark’s only been in business for five years, and did his first deal five years ago and already has a wealth of knowledge and experience.

[00:24:50] And that first deal five years ago, wasn’t even a multifamily deal. And so here we are talking about things that it takes some operators a long time to get a handle on it. And he got a handle on it in a short period of time. So what that goes to tell me is success leaves clues, and you pick clues up from somewhere else.

[00:25:10] And obviously people could go along and pick these clues up too. And I really want to focus in, you said something about raising the extra money for that expense. And I think that a lot of times, and I know in my past, I was always afraid to overraise money. Because then I’m stuck with this capital and how do we pay it back?

[00:25:32] And what do we paid for interest on the over raise and things like that. But I think today that you need to overraise, I’ll give you a perfect example. And correct me if I’m wrong in this ,In 2008, we hit a wall, right? The markets went sideways and people moved out of apartments and vacancies drop.

[00:25:54]When you run your due diligence on a property figure, 10%, 12% physical and economic vacancy factor. And then all of a sudden you can operate in that range. So if you operate at 85% occupancy and the numbers are good, what happens when you hit a wall and you can lose another 20%?

[00:26:16] Okay. Where’s that money come from? So I think people need to oveer raise for situations like that, over raise per cap ex, put it in the bank, let it sit in an escrow account. Hey if the market ever hit a situation like it did back in 2008 again, and was cause for pause in the marketplace and you have that extra money in the bank, you’re going to sit fine nursing that property through that tough time. So I really think there was a big message in that little comment that you made that people really need to take keen to.

[00:26:54] Mark: Yeah.

[00:26:54] Mike: Hey Mark, this show is called Insider Secrets. If you could only offer one tip or strategy, one insider secret, what would that be?

[00:27:04]Mark: About anything or business or what?

[00:27:06] Mike: Yeah, either business or multifamily or whatever.

[00:27:10] Mark: Yeah. I think my tip would be marketing is everything. And I say that because one thing I’ve learned over the years is that, and when I say marketing, I apply that to any kind of communication. So if you’re having a conversation with an investor, it’s marketing, and if you’re sending a financial report what does it look like?

[00:27:31] Is it handwritten, scanned with your phone or is it a beautiful P and L statement with your logo on the front that’s easy for investors to understand all that stuff matters. Because if they get an email from you, and it doesn’t look as good as your competitors. That’s a problem, that’s going to hurt your business.

[00:27:48] So the marketing is very important and it’s something that I inherently always understood. So if you’re sending direct mail, like when I was starting out and was sending letters to landowners, I know those were really well-written sometimes they were handwritten. And I understand the marketing behind that rather than just a flimsy postcard that says I’ll buy your land for cheap or something like that.

[00:28:11] It’s all those little nuance things. It’s how we communicate as people, and real estate is such a relationship business and a people business that if you’re not good at marketing that you should either hire someone who is or go seek out a coach or someone who can help you with your marketing and help you with your blog posts and your website and all these things. Cause they really are important.

[00:28:33] Mike: Yeah, absolutely. And I always say that you need to be a marketing company first. Wrapped in a syndication blanket, a multifamily blanket or property management blanket, a real estate sales blanket, whatever space you’re in, you need to be a marketing company first.

[00:28:51] That was a great, tip. Best technology or software advice you could give today?

[00:29:00] Mark: We’ve really been using “Air Table” lately. And then also we just tried out monday.com. So these are like project management systems that help us keep track of daily tasks, weekly tasks.

[00:29:14] And I really like it. It’s a nicer, cleaner looking version of an Excel spreadsheet or something. But it gives you options to run a team and to run a project. And anything from keeping track of unit turnovers to what employees might be working on. I like both those sites.

[00:29:32] So one is called air table and the other is called monday.com.

[00:29:36] Mike: Nice. Interesting. And a couple of fun questions I always like to ask people when we’re getting towards the end is, favorite tourist attraction?

[00:29:46] Mark: Favorite tourist attracion, I would say New York city. So we live in New York, but I highly recommend people come visit and see all there is to see in New York.

[00:29:54] It’s a really cool city. And there isn’t one tourist attraction in New York, just spend a couple days and go look around and you’ll see some pretty cool stuff.

[00:30:03] Mike: Cool. Best book you’ve ever read?

[00:30:05]Mark: I’m actually a big believer in Buddhism, and one book that’s always stuck with me is Zen mind beginner’s mind?

[00:30:12]I will probably mispronounce the author so I’m not even gonna try, but that’s a great book.

[00:30:18] Mike: Awesome. Thanks for that. And Mark, if people want to get ahold of you, how do they reach out to you? You want to talk about your podcast for a minute? How how do people get in touch with you?

[00:30:28]Mark:  Podcast is called “How To Buy Giant Apartment Buildings”. And it’s an interview format just like yourself. So every week I interview another investor or operator in the business and we talk about their deal flow and what they’re up to. And then to reach out to me, my email is just mark@stellarinvestmentgroup.com

[00:30:50] Mike: And we’ll have that information in the show notes too, by the way so.

[00:30:54]Mark: Awesome.

[00:30:54] Mike: Mark, I want to thank you for being here today. You’re a wealth of knowledge and really I had no idea when we planned this, that the synergy was going to be so close between where I teach in and where you’re at.

[00:31:06]Mark: That’s awesome.

[00:31:07] Mike: And I really appreciate it. I know my listeners really appreciate it too, but thanks for being here.

[00:31:12] Hey everybody, remember we’re here every Tuesday. Go like us on YouTube and subscribe to us on Apple and Spotify, follow us on social media and we will see you next week.

[00:31:25]Kristen: Thank you, Mike, and thank you for joining us for another great episode of Insider Secrets. As always, insider secrets is brought to you by My Core Intentions. Join us on social media and visit mycoreintentions.com where you can get expert coaching on all things, multifamily investing and property management.

[00:31:44] We’re looking forward to having you back again next week for more insider secrets.