Insider Secrets Podcast Episode #69
Featuring Guest: Kent Ritter
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Kent is Managing Director with Birge & Held Asset Management, a multifamily private equity firm with over $1.4 billion in assets under management. Kent’s skillset as a multifamily operator draws from a successful career as a management consultant and startup owner. Now, he applies this skillset to transform apartment buildings and create modern, affordable housing for America’s workforce.
Kent’s career pivot was driven by a desire to free his time and focus on being a great husband and father to his three kids. Now, having found financial freedom through real estate investing, Kent wants to help others do the same. He serves as a thought leader and
educator through his podcast, Ritter on Real Estate; monthly networking event, Indianapolis Multifamily Investing Meetup; and his website, kentritter.com, which acts as an informational hub for other investors.
“My mantra for 2021 is to just be very intentional with my time and my decision making” – [Kent]
“I wanted to actively syndicate somewhere down the road, but I was self-aware enough to know there’s a lot that I didn’t know” – [Kent]
“There’s a lot of asset price inflation. We’re seeing cap rates coming down, but I think there’s still quite a bit of room to run”- [Kent]
“I think that we will see a lot of asset price inflation over the next few years.” – [Kent]
“Relatively speaking, interest rates have crept up a little bit but relatively speaking historically, they’re still very low” – [Kent]
“There’s a huge disparity in unemployment rates as you look at level of education and type of jobs” – [Kent]
“I think you get a lot out of people. And I think that it just really goes a long way” – [Kent]
- Kent describes himself in one word as “Intentional”.
- I’ve done that pretty well throughout my career. I think that’s why I’ve been able to take advantage of some of the opportunities.
- I started my career out of college as a management consultant.
- About seven years into that career, myself and several of my coworkers left to start our own firm.
- We started a boutique management consulting firm. We were based out of Chicago, grew that to about 95 employees and 30 million in annual revenue.
- In 2015, we decided to sell that business and that was really what kicked off my real estate career.
- I started looking at alternative assets to invest in and found real estate, fell in love with real estate.
- I joined Birge & Held, Birge & Held existed prior to me. One of my mentors is founder there.
- A primary market would be somewhere like New York or San Francisco.
- We just don’t have enough affordable housing in the US.
- You have negative yields there on bonds where you’re paying money to hold it.
- So in a low cap rate environment, you just have to adjust your strategy.
- The banks and Freddie and Fannie learned from 2008.
- I personally believe that taking old rundown properties and making them nice and clean and new again, still at an affordable price is in some ways a social service.
- We have under contract right now a 72 unit property that was built in 73.
- We have several community programs that we implement, especially in our more C class properties.
- And so I think property management first off is going to make or break. You gotta have a strong property manager.
- You got to make sure you don’t win the deal at the detriment to yourself.
[02:12] I’m really excited about my guest today, Kent Ritter.
[03:32] Kent describes himself as Intentional.
[04:35] Kent shares his backstory.
[05:31 He talks about Boutique management consulting firm.
[09:02] You’ve got your primary market, your secondary market and your tertiary market, which you mentioned. Can you just explain those?
[11:32] And then when you dive into commercial and the different buckets, what’s your biggest takeaway from the multifamily sector today?
[13:13] When you talk about a four cap, it’s like, where the heck can this market go, Kent?
[20:00] But what do you guys do either by property or as a company on a whole, for any type of social impact to the communities, to the surrounding state stakeholders?
[22:50] How do you feel that you manage from an ethical standpoint your business operations, the team you lead and everything you do on a daily basis?
[26:16] How do you make high-stake decisions for yourself?
[27:50] Kent talks about the best players around him.
[32:05] Kent tells what they are working right now.
[32:51] Tell me about your favorite tourist attraction?
[34:27] How about favorite restaurant?
[33:43] What’s the best book you ever read?
“Think and Grow Rich” by Napoleon Hill.
[23:30] How to contact Kent
Podcast: “Ritter on Real Estate”
[00:00:00] Mike: Hey everybody, welcome back. It’s Mike, your host of Insider Secrets. It’s tuesday, and I’m glad you’re here. My guest today is Kent Ritter. Kent, welcome to the show, would you please tell the listener a couple of things that we’re going to talk about on today’s episode?
Kent: Yeah, sure. Gosh, I think we covered a lot. But I think things that we went over just where, what investment strategies are working right now, where the market is going, where we expect it to go, what type of properties are going to be successful? What happens when the eviction moratorium runs out. And then we went a totally different way to start talking about ethics and integrity.
And I think it has some really interesting conversations about how do you lead with both of those and what really matters as a leader. So a lot of good stuff. I was excited for the conversation, Mike.
Mike: Yeah, it’s pretty long, pretty intense. So it was good. So definitely looking forward to being [00:01:00] inside. And if you want to hear the rest, you’re going to have to jump inside. We’ll look forward to seeing everybody soon.
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.
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.
Mike: Good afternoon, this is Mike. Welcome back and I’m your host of Insider Secrets. And Insider Secrets is brought to you by My Core Intentions. And like I always ask, what are your intentions? Did you start today like getting up and right now, what you want to do accomplish today? What you [00:02:00] want to do accomplish this week?
Are you working on developing a good, strong, balanced lifestyle for yourself? I hope today that we bring some knowledge and some information for you that’s going to help you do that maybe a little bit. Hey, I’m really excited about my guest today, Kent Ritter. Hey Kent, would you say hi to our listeners real quick?
Kent: Absolutely. Hello everyone and thanks Mike, for having me on.
Mike: Yeah, I’m really excited about you being here today Kent. Hey, so let me give a little intro on you, but Kent is the managing director with Birge & Held Asset Management, a multifamily private equity firm with over 1.4 billion in assets under management.
Yep. That’s right you guys, 1.4 billion. Kent’s skillset as a multi-family operator draws from a successful career as a management consultant and startup owner. Now he applies that same skill set to transform apartment buildings to create modern, affordable housing for the [00:03:00] American workforce. Man, Kent, that’s pretty impressive.
I thought I owned a lot of real estate when I was syndicating deals. But a billion dollars in assets under management, I can’t wait to dive into that. But before we go there, the first thing that I always like to ask my listeners is, you know what, in one word, what do you think best describes you personally and professionally?
Kent: Man in one word? Gosh I would say that’s a difficult thing to answer. But if I had to, I think the thing that popped in my head is Intentional and the reason that popped into my head cause that’s kinda my word. My mantra for 2021 is to just be very intentional with my time and my decision making and what that means is saying no to more things.
So I can focus on the right things. And so I think I’ve done that pretty well, throughout my career, I think that’s why I’ve been able to take advantage of some of the opportunities. I’ve been able to take advantage of and [00:04:00] why I’ve been able to grow professionally so quickly. And yeah, just intentional.
Mike: Yeah, I like that. That’s good. And I just find it amazing, I’m probably 80 episodes in between a couple of podcasts I do. I ask that question and I’ve never had anybody say intentional. And the name of my company is My Core Intentions.
Kent: That’s true.
Mike: And it’s interesting, but so I love that. Good for you. So let’s start with your backstory. Tell us how you got in this crazy business. I know that you’ve got a great backstory and what you’re about that.
Kent: Sure. So I started my career out of college as a management consultant as it said in my bio. And really as management consultant, what you do is you help. At least I did help large companies solve big problems because nobody ever calls you when things are going well. So you basically just hop from problem to problem. And I had a mentor of mine say one time, being in the consulting field is like [00:05:00] getting four years of industry experience for every year that you’re in consulting.
Cause things are never just status quo and good things are always in flux and moving and always changing. And so I think that was a great baseline of just business experience of how do you run a business? What does it take? What does it take to do it well? But more than what does it take to do it?
Like when does it go wrong and why does it go wrong? Because that’s what a lot of the problems we were solving is how do you fix it once it’s gone wrong? And so that was a great baseline. And in about seven years into that career, myself and several of my coworkers left to start our own firm.
We started a boutique management consulting firm. We’re based out of Chicago. Grew that to about 95 employees and 30 million in annual revenue. And just had a great run, had a great run doing that. And again, not really, it was how do you start up a business. How do you grow that fairly rapidly.
And in 2015, we decided to sell that business. And that was really what kicked off my real estate career was saying, okay, I have this capital from this exit. What’s my next [00:06:00] adventure? And I knew I didn’t want to be invested in the stock market a hundred percent. I didn’t want all my eggs in one basket.
So I started looking at alternative assets to invest in and found real estate, fell in love with real estate. Through some really good mentors, found multifamily, was able to skip that hole, try to build up a single family portfolio and then moved to multifamily, went straight into multifamily and just fell in love with it and the rest is history.
And then focused on, I started out as a passive investor, investing with others, spend a couple of years doing that. Use that to really help me learn the ropes and then moved into actively syndicating my own deals.
Mike: Yeah. It’s amazing. And, you’ve really scaled your portfolio.
Kent: Yeah, and it’s not just me, there’s a team and I joined Birge & Held. Birge & Held existed prior to me. One of my mentors is founder there. The company’s been going since 2008, so they’ve got a long track record. So I joined as a partner and I’m really running a line of business, doing my own deals on their [00:07:00] platform.
So leveraging their internal management, their internal construction, leveraging a lot of their relationships, their financing capabilities, and able to just grow exponentially in my own world because of the strong foundation that they built.
Mike: So that’s an interesting relationship. Are you the only one that they do that with or is that a company culture that they built.
Kent: No, I’m the only one that they’ve done it with. And it’s an interesting relationship because I started out as a passive investor with them. So when I mentioned back in 2016, I started investing really into 15, beginning of 16 investing passively and I intentionally, bringing back the intention to set.
I’m going to go out and I’m going to invest in 10 deals in 2016. And I’m going to use those 10 deals with different sponsors to really learn the ropes and learn different geographies. And how did people do different things? Always with the mindset that I wanted to be. I wanted to actively syndicate somewhere down the road, but I was self-aware enough to know there’s a lot that I didn’t [00:08:00] know.
And a lot that I didn’t even know, I didn’t know. So before jumping in head first, use that I was lucky that I had the capital coming as a passive investor, get behind the curtain and be able to see how those deals work. Well through three four years of doing that with Birge & Held across several deals, built great relationships with their whole team, but especially Taggart Birge has become a close mentor of mine.
And then in 2020, after having some success on my own as a syndicator, he asked me to come on board and build out a line of business. The strategy that we’re focusing on is really more tertiary markets. What I would call smaller to mid-size properties. So it’s 150 units of less because we’re finding just amazing opportunities in these markets that are overlooked by most of the large players and the folks that are chasing deals down in Florida and Texas and Arizona. All the hot markets you read about, or core in the Midwest.
Mike: I want you to back up for a minute because sometimes listeners don’t understand some of the language, right? I think language here in this space is a big [00:09:00] thing, but explain the market demographics, right? You’ve got your primary market, your secondary market and your tertiary market, which you mentioned.
Mike: Can you just explain those?
Kent: Sure. So a primary market would be somewhere like New York or San Francisco, right? It’s your gateway cities and your big cities that everybody knows about. Secondary city, it’d be somewhere like where I live, Indianapolis. It’s a great city, a lot of good things going on. We’ve got in the MSA, just over a million people, 1.3, 1.4, that’s a good secondary city.
And then a tertiary is you start to go outside of that. So you start to think about places like I always call like Dayton, Ohio. So we’ve got a property, couple properties actually in Dayton that are doing very well.
We’re looking, we actually just got a deal under contract in Milford, Ohio, which is a suburb of Cincinnati. Which a lot of people probably never heard of but it’s doing very well. So these pockets that because we’re local, because we’ve been in the market for so long, because we’re able to get comfortable with these smaller [00:10:00] markets, we’re able to still find tremendous value and tremendous opportunities that we’re able to bring out. Because a lot of these profiles we’re buying from mom and pop owners. Two of the deals we did last year, the owners had owned it for 20 plus years.
And so in that environment, you typically find a lot of meat on the bone and we’re able to come in and affect a lot of change from a management perspective, but also infuse capital to improve the properties and create a ton of value. So I think it’s a strategy it’s gonna serve us very well in this hyper competitive market.
Mike: One of the best deals I owned was in a tertiary market outside of BNB. It was in Connersville.
Kent: Oh, I know Connersville.
Mike: And it was a great deal. And just like your strategy, I bought it from a mom and pop owner. He was in the deal for 37 years. And here’s what I liked about that deal. They owned it, they built all these relationships with the tenants. And the rents were 200 bucks on average below market.
Mike: I [00:11:00] went in and re-engineered that deal. And it threw up more cashflow than was a lot more cashflow than beer money for Friday night.
Kent: That’s right. Yeah. That’s exactly what we’re seeing. We’re seeing these operators largely managed for occupancy, which is fine. They’re a hundred percent occupied, but yeah, larger, they’re 150, $200 below the market.
Mike: Yeah. It’s interesting. What is your biggest takeaway today from the multifamily sector? You could look at real estate, you could look at commercial real estate versus residential. And then when you dive into commercial and the different buckets, what’s your biggest takeaway from the multifamily sector today?
Kent: I think it’s a competitive market right now. There’s a lot of asset price inflation. We’re seeing cap rates coming down, but I think there’s still quite a bit of room to run. I think we’ve got a long runway ahead of us. I think if you just look at the supply and demand dynamics, which is largely, I think an easy way to simplify things for people.
[00:12:00] We just don’t have enough affordable housing in the US. We don’t have enough housing in general, but even if we continue to build at the clip we’ve been building, there’s just not enough houses for people as the population continues to grow. So in that environment where you have supply trailing demand, when that happens, what happens is prices increase.
So asset prices increase, rent increases. So while I don’t believe that we’re going to see a lot of wage inflation or income inflation. I think that we will see a lot of asset price inflation over the next few years. And so I think anybody that’s invested in multi-family now is going to do very well in the next couple of years.
Mike: So this is an interesting conversation, right? Because I didn’t study economics and I’m not an economist, but I love the conversation, the supply and demand. And you’ve mentioned something before we started the call, which was cap rates at 4%. My gosh, cap rates at 4 percent. I wrote a book and in my book, I talk about a deal I did a number of years [00:13:00] ago and I had a guy call me one day and say, did you really buy this deal at a 13 cap?
Mike: I said, yeah I did. And he goes, holy cow. I said, yeah, but it’s probably trading at a five and a half today.
Kent: Sure, it is.
Mike: And when you talk about a four cap, it’s like, where the heck can this market go, Kent?
Kent: Yeah. I think it goes down. I think you got to start looking internationally at countries that have had historically lower interest rates than the US for long periods of time. If you look at markets like Japan, if you look at markets like Germany. So in Germany, a three cap is very common because interest rates have been so low for so long.
You have negative yields there on bonds where, you’re paying money to hold it. And these institutions have to for certain reasons. But if you look at markets like that, a three cap is very common. And I think the other thing about Germany is the percentage of renters is a lot higher.
And so you’re seeing that trend in the US, you’re seeing the trend of renters increase. So you’re seeing demand go up because of that. [00:14:00] But because interest rates are so low and what the fed has told us is they’re going to let interest rates stay low for longer, even if inflation goes up, which is something they’ve never said before.
And so the forecast is lower interest rates. Relatively speaking, interest rates have crept up a little bit but relatively speaking historically, they’re still very low. So I think you could sit to see asset prices drive down because of inflation or because of demand. And also because of the low interest rates.
But you said, so a four cap. Like one thing that I just like to debunk is like cap rates, a low cap rate is not good or bad. It just is what it is. A lot of people say, oh no, the cap rate is too low, I can’t buy there. Low cap rate environments present a ton of opportunity because for every dollar that you increase NOI, you’re increasing the value of the property that much more.
If you have a 10, that’s just easy numbers, a 10 cap, right? So for every dollar you increase NOI, you’re increasing the value of the property by $10. If you have a five cap property for every dollar you increase [00:15:00] in NOI in income, right? You’re increasing the value of that property $20.
So in a low cap rate environment, you just have to adjust your strategy. But the money that you put in theoretically, the money you’re putting in, you’re able to increase NOI. You should be able to drive more value in the property. So low cap rate markets are not good or bad. They’re just good for people that are more worried about building wealth than they are about current cashflow.
And higher cap rate markets are the opposite of good for people that want cashflow right now. Lot of our investors that are investing in some of our higher yield deals where we’re giving off seven, 8% returns in year one and trending over double digits for cash on cash are people that are looking to supplement a fixed income portfolio because you can’t get anything in a bond yield.
So they’re trying to supplement that kind of fixed income strategy to have that income coming in. But you can just match the person with the environment and the market, but cap rates aren’t good or bad. They just are what they are.
Mike: [00:16:00] Yeah, I like that. That’s an interesting perspective. And I’ve been in this space a long time too, and I don’t know that I’ve really ever heard anybody articulate it that way. So that was really good. So with all that said, and your thought around that, what happens when they release the eviction moratoriums and the foreclosure moratoriums, now what happen?
Kent: Yeah, I think that I definitely don’t have a crystal ball, but I think it depends on asset class. So first you gotta think about what’s the asset class and because asset class largely drives what’s the demographic of the property and what is the mix of types of jobs that people have and level of education and job.
And I think that where we sit in B class, I feel pretty good about where we’re sitting. I think some of C class properties are more going to struggle because those people have disproportionately struggled more. Their unemployment rate is still at 14% where if you look at it overall, especially people with a college degree, it’s come down to [00:17:00] 5%.
So there’s a huge disparity in unemployment rates as you look at level of education and type of jobs. So I think that those are the properties that are going to be hurt more by this. What it’s going to mean for properties is people are going to have to realize a lot of bad debt that has been sitting on their books as delinquency, right?
So they haven’t realized that yet it hasn’t flown through to their income statement and effected their operating budgets. But when you start evicting people, the bad debts all gonna flow through, it’s going to be a tsunami in certain environments.
And so I think that’s going to put people at risk with their lenders probably first of all just hitting debt coverage ratios. So I think that’s what people need to be careful of. I think right now a lot of properties are being buoyed by rental assistance. Ours definitely are. So not to say that ours aren’t, we’re definitely taking advantage and helping our residents get as much rental assistance as they can.
And that’s helped quite a bit. I think when that runs out, that’s when there’s going to be like more of a reckoning on what’s going to happen. But overall [00:18:00] our portfolio has done very well. Our occupancies are all time highs. Again, just because I think there’s so much demand for housing. And we luckily have not had major delinquencies. Our collections have still stayed right about 95%, but I think other properties could struggle.
Mike: Isn’t it interesting Kent, that everybody thought when this pandemic thing really kicked in couple three months down the road, that there was going to be a lot of issues.
Kent: Yeah. A hundred percent.
Mike: The operator is surprised today because their collections are probably the strongest they’ve ever been. Occupancies are as strong as they’ve ever been. It’s just interesting how this all kind of happened, right?
Kent: Yeah. I think it’s important to understand how much of those collections are being supplemented by subsidies. And when those go away, what does that do? But yes, what I will tell you overall is, we were in the same boat. In March of 2020, we were battening down the hatches. We stopped increasing rents on renewals. We stopped renovating. And we just said, we just got to hoard [00:19:00] cash because we don’t know what the next few months are going to hold.
By August, we were full steam ahead, moving forward, renovations full steam ahead, getting back to normal rent bumps, and even accelerated rent bumps. And so there was a period of fear. And it was this environment where we were constantly waiting for the other shoe to drop. And it just never did because I think of the amount of stimulus that has been pumped in. And the biggest factor that’s different from what happened in 2020 versus what happened in 2008 is credit didn’t freeze.
The banks and Freddie and Fannie learned from 2008. Man, maybe we shouldn’t just call these people’s loans do. Maybe we should actually try to work with these people and try to come up with strategies, but keep the credit flowing. And because of that, we’ve been able to move, I think fairly seamlessly through and ended up where we are now, which is like you said, performing pretty well.
Mike: Interesting. Boy, I’ll tell you what, this can get really intense, this conversation. Let’s come to [00:20:00] a different place. But what do you guys do either by property or as a company on a whole, for any type of social impact to the communities, to the surrounding state stakeholders?
Kent: Yeah. Great. So from a social impact standpoint, there’s several things we do. To start off, I personally believe that taking old rundown properties and making them nice and clean and new again, still at an affordable price is in some ways a social service. So I take pride that there is value that we’re providing for these folks.
Mike: Can you do that with a CBL? See your older deal or?
Kent: We have under contract right now a 72 unit property that was built in 73. So it’s an older property. But we’re going to take it, and it was a situation where the previous owner just didn’t have the capital to keep it up as mom and pop style. And so we’re going to infuse capital into that and we’re going to be able to realize the returns that we need for our investors, but we’re also going to make that property look brand new.
And [00:21:00] so yeah, you absolutely can. You’ve gotta be able to buy at the right value because you have to be willing to infuse capital into it. But I think that’s why the markets are so important and the purchase price is so important because you got to still be able to put a certain amount into that. But yeah, you definitely can.
Mike: Yeah, I think there’s a big niche in the marketplace for being able to do that. And if you’re good at it, you can make a ton of money. So that’s why I really pushed that issue with you because I really believe that you can do that.
Kent: Yeah. And then just like more like straightforward services, we have several community programs that we implement, especially in our more C class properties. We have a community garden program where we create this community garden and actually the residents tended and they’re able to get fruits and vegetables out of it. It’s a cool thing, especially in areas that are like food deserts, where you don’t have access to a lot of these fresh foods.
So I think that’s really cool. It creates a pride of ownership. We’ve got like a BH kids program where we will give kids loaded backpacks with [00:22:00] school supplies just to get them started on the right foot as they go back into school. We have language assistance programs for people that speak English as a second language.
We have financial literacy programs that we’ll offer and all these things while altruistic and are driven by a sense of wanting to do good. All add value back into the properties intrinsically by creating a sense of community, putting our residents in a better position to get better jobs, or to budget more effectively and understand what budgeting is. And I mean that just creates a better environment and creates a tenant that’ll stay with you longer because you’re adding additional value. And I think it just helps everybody all the way around.
Mike: Yeah, for sure, great concept. One thing I always like to talk about in my show is ethics, integrity. How do you feel, what are your thoughts around those couple of words and how do you feel that you manage from an ethical standpoint your business operations, the team you lead and everything you do on a daily basis?[00:23:00]
Kent: Yeah. I think ethics and integrity are just like the most important things. I think if you think about just being, not even being a business person, it just being a person like just living in this world and contributing, I think having solid ethics and good integrity is just the most important thing.
If you think about it from a syndicator standpoint or someone who wants to make an investment. It’s the most important thing, it’s more important than the knowledge the person has. Are they an ethical person? Do they have integrity because you’re trusting this person with your money, your hard earned money, right?
So is this person going to do the right things by you or are they going to cut and run when things get rough? And I had a situation like that with, I passive invested with a sponsor. It didn’t vet the sponsor and the sponsor went out and committed fraud and defaulted on his loans and everybody in the deal lost their money, it wasn’t a good situation.
So I think it starts with integrity. How I manage, with [00:24:00] ethics and integrity is, it’s not hard, it’s just trying to do the right thing. It’s just treating people how you want to be treated, giving people respect. I think a lot of it is taking the time to just give people respect. When you’re dealing with vendors, when you’re dealing with contractors, when you’re dealing with your peers, I think making sure that you just give people a level of respect. And I think in doing that, you get a lot out of people.
I think you get a lot out of people. And I think that it just really goes a long way. And then I think like practically speaking, I’m co-investing in every deal with our investors, so I’ve got skin in the game. So I’m incentivized to operate in the best interest of all of us.
Now I feel personally that I have a lot of integrity and I would do the right thing anyway, but it never hurts to have a sponsor who’s investing their own money to make sure that things are really aligned. Yeah, I think it’s just the most critical thing to just be a good person and act in the right way.
Mike: Yeah. It makes things a lot easier for everybody involved [00:25:00] when you act ethically and you have integrity in your life. And I don’t care if you’re a sponsor, if you’re an investor, if you’re a contractor, it makes no difference. Everybody should be that way. I love random acts of kindness.
Mike: It makes a difference in the world, right?
Kent: It definitely does. And I think that whether that’s just recognizing someone and giving them, if it’s a spot bonus because somebody has done, they’ve gone above and beyond. I think those things really do go far. I think they really are appreciated by people and just recognizing people. We’ve started like an internal employee newsletter and we spotlight people that have done things and tell their story. And I think that’s how the stuff goes a long way too, of just recognizing people. That’s how you get the most out of them.
Mike: Yeah. So how do you make high stake decisions? So we had this conversation at the beginning of the show, I’m in the coaching business, I’m in the consulting business. And I think that people in our position that are dealing with pressures of the world, [00:26:00] pressures of business, worrying about how people are going to pay rent. I think from an owner operator standpoint, you have a lot of pressure on your shoulders with thinking about your tenants, thinking about the people that work for you, your own family, all the things that go along with that. How do you make high-stake decisions for yourself?
Kent: Yeah, that’s a good question. One is just, you’re never going to have perfect information. So you’re never going to have all the information you wish you had to be able to make the decision. We’re always working off of partial information.
So I think one is, you’re just never going to be at a point where you’re like, okay, now I know everything and now I can make that right decision. You’re never going to know it’s the right decision at the time. Oftentimes it’s more important just to make the decision and move forward with conviction.
And typically you can adjust along the way and you can move to the right path as you continue to adjust, you’ll find your way. But I think where people get jammed up is just indecision and not being able to make a decision and [00:27:00] things continue to move around them and get worse versus just acting and beginning to move forward. So I think that’s one piece of it.
Mike: I like that. I remember years ago, my dad was teaching me to drive and he said, look, when you make a commitment to do something, pull out and go, don’t hesitate. And that’s one of those things that’s always stuck with me and I think you’re right, you can’t be indecisive as a leader, as an owner operator, you got to make a decision and go with it.
Kent: Yeah. I think the other thing is just you’ve got to have a great team around you. I think it’s really difficult to have that conviction you need to have, if you don’t believe in your own team and you don’t believe that your team is going to be able to figure it out. So I think that’s really important.
Mike: Talk about that for real quick, for a minute, if you would Kent. Best players around you, that are most supportive of you. What is their job function?
Kent: I think if you’re talking multifamily, I think the most important role that’s going to make or break your deal, your property is the property manager. The people that are interacting day to day and are [00:28:00] ultimately the boots on the ground, driving your strategy forward, they’re critical. They’ve gotta be on board. Where I see people get in trouble is a misalignment between what the person, the syndicator, right? The person who’s buying the property and doing the underwriting had in their head to the understanding of the property management to execute that vision.
If you and your head are saying, man, this property, we should be able to get 5% rate increases on renewals. But the property manager is doing 1% rent increases, there’s just a disconnect there. And so I think property management first off is going to make or break. You gotta have a strong property manager. Then I think as you scale, I think asset management becomes extremely important because as an individual, when you’re small, you can asset manage, which is essentially like looking at the budget and making sure that you’re holding property management accountable.
But as you acquire more properties, you can’t do that. And you have to have somebody that can fill in that place. Not the day to day, but they’re the week to week, month to month. That’s your liaison to property [00:29:00] management is how I look at them. So I think those two things are critical.
Mike: Yeah. Communication is such a big thing too. I think with everybody involved around it.
Kent: Everything. You could probably point to almost any issue that’s ever happened, like in the history of the world and a lot of them are communication breakdowns.
Mike: So what do you see as the biggest challenge out there today?
Kent: Biggest challenge today? Just as far as our business, I think it’s making sure that you are being realistic in your underwriting and in these deals. Just that you talked about how there’s so much competition and there’s so much that competition just drives things. When you’re in the moment where like you’ve got your first bid in, for a property and there’s people you’re competing with and the broker is trying to drive things higher and you’re going through different levels of best and finals and other things, it’s very easy to get emotionally attached and just our competitive nature to like, to want to win the deal.
[00:30:00] And you got to make sure you don’t win the deal at the detriment to yourself. So you got to stick. I think you’ve got to have a healthy dose of reality in your underwriting and in your buying decisions, because it’s true. You make your money when you buy a property, if you buy, if you pay too much, you’re going to be trying to catch up the entire time. And you’re going to just be hoping at the end that the market goes up and you can sell it to somebody else for even more.
Mike: So that’s funny you say that because, I wrote a book called “Exit Plan”, and part of my premise behind it is that we make money when we buy the real estate deal. But we don’t realize it till we exit the property. And, you’ve got to plan for that.
Mike: And I think it’s a planning business and you’re so right about not being emotionally attached or married to a deal because it can be an ugly relationship to try and get out of if you get married to it.
Kent: Yeah. That’s where if you really have a keen eye and really understand underwriting and cause I still passive invest, I get tons of people’s deals and probably one of the biggest [00:31:00] things that causes me pause is when you dig into, what do they have to sell the property for? To be able to make the return that they’re highlighting.
Cause you can make an Excel spreadsheet, say whatever you want. But in reality, can they sell the property for what they need to sell it for? It’s usually easiest to understand like a per unit basis to realize that return and you got to look at historics and you got to say, okay, if they need to sell this property on a per unit basis for 60 or 70 grand more than anything in that market is ever sold for before.
Like what’s the likelihood in three to five years that you’re going to be able to do that. That’s where I see like the disconnect from reality, I think come in the most when people are just expecting to be able to sell for these monumental prices.
I think certain prices are just out of reach for certain markets. And so we very intentionally will just come in and say, okay, the spreadsheet says this, but we’re just going to hack it off here because we know that this is a realistic price that we could sell at. And I don’t think that necessarily everybody’s doing that.
Mike: Yeah. You [00:32:00] have to be objective. So I like that. Hey, what are you guys working on right now?
Kent: We’ve got a strategy that we know works. We’re seeing a ton of value in it, and we’re rinse and repeating at this point. We’re finding properties and we’re bringing in investors and we’re just rinse and repeating this structure that I’ve outlined. And it’s exciting because we’re starting to see the returns come in, where we’re paying out all of our distributions in the first quarter, because we have these higher yield properties and the investors are really liking it. So I’m excited to see what the next year brings.
Mike: Nice. Yeah. It’s that old bird strategy that everybody’s talking about.
Kent: Yeah, it’s just finding the right properties and building the relationships with brokers to be able to find those and then just rinse and repeating.
Mike: Yeah. So let’s lighten it up a little bit. Man, I can’t believe how much time has passed here. We really got into some conversation this morning. Hey, tell me about your favorite tourist attraction?
Kent: My favorite tourist attraction. Man, I don’t [00:33:00] know if this counts, but I love Walt Disney world. We’ve taken the kids down there a couple of times, I got young kids and they absolutely love it. And you go there and everything’s just. If you look at any of the story behind that and how meticulous they are with how they maintain the property and the quality there. I think as someone who owns properties, like I can really appreciate that and the level that takes to maintain that the level that they do. So I really enjoy it and the kids love it. And so I don’t know if that’s a tourist attraction, but that was what popped into my head.
Mike: Yeah. You’re right though about you can learn a lot from there. When I would travel, I’d stay in a Marriott and wrote a book and it was always in the rooms. And if you ever read, I can’t remember what the name of the book was. Anyhow, that brings me to the next question. What’s the best book you ever read?
Kent: “Think and Grow Rich”. It was the start of all this personal development, right? I think once I read that book, it just really opened my eyes to the ideas and the power of your thought and that thoughts are things and that [00:34:00] everything that’s ever happened started as an idea. And it’s about then executing on that idea. I thought it was extremely powerful. And then I always love just going back to the start and you don’t understand the history.
And so when you hear guys like Tony Robbins or other people, you know what they’re saying, and then you go back and you read, “Think and Grow Rich”, which is written in the twenties. You see where all that started and all those same concepts still carry forward to today.
Mike: Yeah, for sure. Okay last one. How about favorite restaurant?
Kent: Favorite restaurant, man. It’s very Indianapolis of me, but we’ve got a local steakhouse here called St. Elmo’s. And it’s been around since the early 19 hundreds. It’s just an awesome place to go for the decor. Cause it’s just old school. It’s just an old school steak house and they’ve got great food and it’s local. It’s not a franchise. So I’ll say St. Elmo’s steakhouse.
Mike: I’ve been to St. Elmo. I owned a ton of real estate in between Cincinnati. So yeah.
Kent: There you go.
Mike: Yeah, pretty interesting. Hey Kent, [00:35:00] thanks for being here today. This has been great. You’re a wealth of knowledge and boy for me, the conversation was very stimulating. So I hope for my listeners, it wasn’t too far over their heads, but I hope that they gain some knowledge, because this is what it’s about. And that’s why multifamily is such a great space because there’s so much to learn and you can keep growing. You never know at all.
Mike: How do people get ahold of you if they want to pick your brain, talk to you, see what you’re doing?
Kent: Yeah. You can start with my website, which is kentritter.com. So just my name. It’s very easy to remember. There’s not a lot of Kent Ritters out there. And the second best way is to listen to my podcast.
It’s called “Ritter on Real Estate” and it’s really focusing on helping investors make good investing decisions. So understanding the different things that factor into that, and trying to educate people to just be more informed investors so that they can avoid some of the mistakes that I and others have [00:36:00] made.
Mike: Yeah. And your show is really good. I like some of the guests you’ve had and some of the information, so that’s good. Hey, I want to thank everybody for being here today for listening in. Remember, we’re here every Tuesday and Kent is been gracious enough to part with a ton of wisdom and knowledge.
So make sure you follow him on social media as well as please follow me on social media and follow us on social media. Like us, love us, help our ratings. And if you have any questions, always remember, you can go to Alexa and just say, Hey, Alexa, play Insider Secrets. And you’re going to get the most current version.
So thanks for being here and we will see everybody next Tuesday. Thanks Kent.
Kent: Thanks Mike.
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 [00:37:00] all things, multifamily investing and property management.
We’re looking forward to having you back again next week for more Insider Secrets.