Working Capital The Real Estate Podcast
Real Estate Syndication and Asset Management with Kent Ritter|EP48
Apr 7, 2021
In This Episode
Kent is a 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 a startup owner. Now he applies that skillset to transform apartment buildings and create modern affordable housing for America’s workforce.
In this episode we discuss:
- How Kent kicked off his real estate career
- The role of the deal sponsor
- Geography’s impact on real estate
- Kents initial investments
- Preparation before Kent’s first deal syndication
- Investing out of state
- Real estate in the midwest
- Founding of Kent’s own company and its market niche
- Structure of deals
- Key principles of investment
- Current state of economy and safety cushion
Intro (0s): Welcome to the working capital Real Estate podcast. My name is Jesse Fragale. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you’re looking at your first investment or raising your first fund, join me and let’s build that portfolio one square foot at a time.
Jesse (23s): Ladies and gentlemen, working capital the real estate podcast. We have a special guest for you today as always Kent Ritter. Ken is managing director with burgeon held asset management and multifamily private equity firm with over 1.4 billion with a B in assets under management, Ken skillset as a multi-family operator draws from a successful career as a management consultant and startup owner. Now he applies that skillset to transform apartment buildings and create modern affordable housing for America’s workforce Kent. How the hell are you?
Kent (53s): I’m doing great, Jesse. Thanks for having me on today. Happy to be here.
Jesse (56s): Absolutely. My pleasure to have you on I’m I’m liking the vibe we have right now. I know we’re, we’re all the way North up in Toronto, but we got a nice warm sounds. It feels like spring’s happening. So, so I couldn’t be happier. You’re in Indianapolis, correct?
Kent (1m 11s): Yeah, that’s right. You know, it’s warming up here too, hoping to be able to get out to the golf course in a couple of days, things are starting to dry out.
Jesse (1m 19s): I was going to say, we’re putting the hockey sticks away and swinging the other sticks. There you go. Awesome
Kent (1m 24s): Adjustment. Right? You gotta go from like that, that wide grip factor, close hand,
Jesse (1m 30s): We go from the, the happy Gilmore putting to, to actually get winding up on it. But I think, I think there was a study or I pretty sure this is a fact that we in the world have a disproportionate amount of lefties just because of hockey. Pretty sure. Right. Yeah.
Kent (1m 47s): Hey, as a lefty, I’m, I’m glad to hear that. I think we are underrepresented. So I think I’m in the wrong country. I’ve got to come up and visit the good old North up there
Jesse (1m 58s): And you’d be more than welcome. Show us how it’s done a good group. Right? Absolutely. Well, thanks again for coming on a pleasure to have you here. I, you know, just going through your background, very interesting. It looks like you’ve kind of gone all kinds of different paths to get to where you’re at today. So what we always do is take a step back here and talk a little bit about, you know, where you started, whether that’s, you know, from school or your first, your first foray in the real estate space.
Kent (2m 29s): Yeah, absolutely. So, so I started out my career as a management consultant and I spent about over the, over the many different kind of roles in that world, but spent about 12 years in that industry. And really as management consultant, what you do is you help help companies solve big problems, right? They, they call you when, when they have something that they can’t solve themselves. So it was a great chance to just see a lot of different industries to see a lot of different companies, understand, you know, how business learn, how to frame and solve problems.
And, and a lot of that has served me very well as a real estate investor, because I mean, that’s how I look at what I do as an investor is I solve problems. And if you can solve problems in real estate, you can make money. So started out there, ended up actually leaving the firm I was working at with a few partners. We started our own firm in about 2011 and sold that in 2015. And that’s really what kicked off my real estate career. You know, I had this capital from selling the company and said, okay, what do I want to do now with it?
I don’t want all my eggs in one basket and the stock market, the stock market was all, I really knew at that point I was a pretty active investor, but knew that I just didn’t feel comfortable having all my money in one place. So I started looking into real estate, kind of went down the path that I think almost everyone does, who doesn’t really know all the different avenues of real estate and said, well, if you want to get into real estate, you know, you, you, you buy a single family, you become a landlord, right. And very quickly realized that wasn’t the path for me, that wasn’t a path of scale and found some good networking and some good mentors that learned about multi-family.
I learned about multifamily syndications and was just blown away because I thought I was a pretty experienced investor and it was something that I just had never heard of. And I was like, wow, you can go out and you can pool money together to go buy these big apartment buildings that I thought like large companies owned. Right. I didn’t never thought that individuals come together and do that. So really just blew my mind, kind of jumped in with two feet first as a passive investor, really deploying that capital that I had from selling the business into several deals with several different sponsors, really wanting to excuse me, using that as kind of a mechanism to just learn the game.
Right. And understand how things work and ask all those questions of the sponsors. Like why are they doing the things that they’re doing? Use that to see kind of the good, the bad, the ugly. And I did that for about three years before I went out and bought my own my first syndication and, and completed my first deal. So that was really part of my education right there. We were starting as a passive investor and then went into, to active investing. And now I’m working on my, my fourth syndication and just, just really enjoying it.
Jesse (5m 23s): Yeah, that’s awesome. And so it sounds like, you know, the route you took was basically kind of audit almost, you know, put some money in and see what others are doing and getting that from the vantage point of a limited partner, was that, that experience, you know, did you see the good, the bad and the ugly? What was that like?
Kent (5m 40s): Yeah. You know, I, I intentionally wanted to invest with, with, with several different sponsors, it’s going to get you, you know, see different styles. And, and there were some, I was able to kind of pick the things that I liked and also say like, wow, as an investor, I really don’t like when the sponsor does that. So not going to do that when I become a sponsor. Right. And I think the, one of the biggest things is just communication. Right. I think, you know, just in life in general communication really is everything, right? Yeah. I mean, w you know, whether it’s your relationship or your business or anything, it all comes down to communication.
So just learning that, you know, the sponsors that were transparent and proactively communicated, I mean, that always as an investor made me feel good, made me feel like I knew where my money was and what was happening. And so that was something that I wanted to model when I took over. And, and so, for example, we send out monthly, monthly updates on our deals, just kind of one-pagers. I mean, nobody wants to read novels, but one pagers to hit the highlights, you know, quarterly we’ll send out financials, but we just want to be very transparent with people. So I think that’s one example of a, of a takeaway I had.
Cause I had sponsors that I was invested we’re invested with and never heard from them, had no idea what was going on. You know, you reach out to them, you might get an email like a week or so later, they don’t send out any updates and it just didn’t make you feel good when you have a good chunk of change down somewhere that you feel like just kind of floating around.
Jesse (7m 4s): Yeah, absolutely. So those ones they’re like the nice thing about being a limited partner on deals is like, you know, whether whatever the minimum is, 50, 75, a hundred thousand dollars, you know, the asset could be any price you could be buying into a $25 million fund. You could be buying a, into a $4 million project, the ones that you initially invested in, what, what type of range of maybe deal size and also geography.
Kent (7m 30s): Yeah. So they were, they were all in the U S but all different places in the us. And I, I did that intentionally as well. I wanted to, you know, geogr be kind of geographically diverse in my investments. So, you know, Texas, some in the Midwest, where else, Colorado, Florida kind of, you know, a little bit scattering all over where some of those investments were South Carolina was another one. And then I did, you know, I invested mainly in multifamily, but I did do, I, I did make an investment in senior living and I did make an investment in an industrial portfolio in some warehouses.
So wanted to, again, kind of, you know, just diversify a little bit and, and understand some different, some different niches. And ultimately, you know, through that experience too, and just understanding the mechanics of the different deals. I mean, I really fell in love with, with multifamily and particularly like with workforce housing multifamily. So like our, our bread and butter now of, of what we’re actively syndicating are really like class B workforce housing deals.
Jesse (8m 34s): Yeah. And I think it’s even in, you know, we can talk about this later in terms of, you know, the, the lockdown and where we’re at, but it seems like class B is, has been the darling aside from other asset classes, you know, maybe industrial and a couple others, but, okay. So you’re, you’re doing the LP investments. You’re, you’re really streamlining what you’re, what you’re eventually going to do because I find so many, I talk to, it’s so hard to research from outside really what the syndication world is like, unless you’re in it. And unfortunately you can do it, but it takes a lot of whether it’s reading blog posts, forums.
So w what, what made you do, sorry, what made the decision for you to eventually switch into being an active GP? What, at what point did you think that you had the confidence to go in and syndicate your own deal?
Kent (9m 22s): Yeah, you know, it took me about, it took about three and a half years before I felt like I, I really had the confidence and one of the things that, that, that I really started to write. So during that time, I mean, PA like passive investing was one part of my education, but I also was, and I still do less with COVID, but when it was going to a ton of real estate conferences, you know, listening to as many podcasts as I could books, all this signed up for, for two different mentorship programs at, at two different times, but both were, were huge values for, for different reasons, kind of focused in different areas, but for the conferences.
So I’m going to all of these conferences, right. And when I, my first conference, I spent the whole time, like in the room, listening to the speakers, right. Just absorbing everything and everything was new and it was great. And then, you know, you go to a few more conferences and maybe now we’ve fleshed fast forward, like a couple of years later. And I’m starting to hear this stuff in there. I’m like, okay, I know this, I know this right. I’ve heard that before. I’ve heard that before. And I started spending more and more time outside just networking and meeting people. Right. And it got to the point where, where everything in the room I had, I felt like I’d already heard, or I knew, or at least was familiar with.
And that’s what made me start to just realize like, wow, I really kind of know this stuff. And then I’d be talking with people and people would be asking me questions and I’d be able to answer their questions, you know? And it’s like, wow, this is like, I’m really starting to learn it. So, so I built up my confidence there. And then I think that that having, having mentors is extremely important, right. I look at that and I have, I have a couple of paid mentors, but I also have some really, really good unpaid mentors. And I think both are important. I think, you know, a paid mentor is great to, to hold you accountable, but those unpaid mentors and those kinds of organic relationships are extremely important as well.
But I looked at these mentors as really my, like my backstop, right? Like they, they were the folks behind me making sure that I didn’t didn’t make a huge mistake, you know, kind of stay within the lines. So I felt like with my knowledge base, kind of taking a prudent approach of just educating myself about three and a half years, and then having these folks looking over my shoulder, right. Helping me avoid those big mistakes and being able to leverage their lessons learned was it gave me the confidence to go out and do my own deal.
Jesse (11m 43s): So let’s talk about that the, well, first of all, I want to say, I couldn’t agree more with you, you know, you get your pay in the hallway and it’s all those, it’s all those conferences where you’re literally in the hallways talking to people and networking. Because I think just to that point, I think sometimes you can get too involved into just listening to podcasts, reading, and then at a certain point, you’re just, you’re not using that information. You’re just absorbing it. And, you know, action is, is a big thing as you know, in our industry, but why don’t you for the listeners? Let’s talk about that first deal. Let’s talk a little bit about the structure of it, how you approached it and, you know, maybe some of the, those lessons learned that you talked about how, you know, how that probably helped you on this, this first one.
Kent (12m 26s): Yeah. So, so the first deal that I did as a syndicator was a partnership with, with three other folks and all more experienced than me. So it was really a situation where I was able to come in and add some value. You know, I was able to help with some of the underwriting, you know, help with some research, some market research and things in the area. You know, I was able to help with some investor relations and things like that, but, but was still able, you know, still kind of very much in the sidecar, you know, on, on that first one, you know, the, the, a couple of partners were, were in the market.
The deal was in Atlanta. So they’re in the market, they found the deal, they had a broker relationship and, and I was able to come in and add some value, but, but, but still very much learning a learning experience for me being the first time that I was on the GP side and still very much, you know, so again, great learning experience, great opportunity I was given, but that deal was, it was 250 units. It was a, a two property portfolio. And just outside of, kind of Northeast Atlanta and yeah.
Kind of class B, just like we talked about, right. Very class B great markets. The deal has, has performed fantastically over the past several years. Yeah,
Jesse (13m 46s): Yeah. Right on. So it’s not, not exactly a tiny deal for the first, for the first GP deal. Now there’s 250
Kent (13m 52s): Units, but, you know, again, I like it. It’s all about having that support system in place, right? Like, like I, wasn’t the only one going out and trying to take down 250 units myself and raise all the money and do all the different tasks that needed to be done, but it gave me kind of that next step of again, having that mentorship, being able to be in the deal, being able to add value, but, but definitely not, you know, running the show at that point.
Jesse (14m 16s): Yeah. For sure. I mean the, I mean, you see it too, you get guys that are like, ah, 2000 units, 5,000, 10,000. You’re like, well, who, like, you know, what’s the structure of, of the deals you’re doing in terms of, so the, those, those properties there, that would be, I mean, for, it sounds like some of them are in States, some of them were out of state w for investing out of state, talk a little bit about maybe the, if you’ve had any challenges without a state versus in state, you know, and, and maybe a bit more of your philosophy on, on geography given 2021.
Kent (14m 49s): Sure. So, so yeah, so, so now, so the position I’m in, so that was kind of first deal. If we fast forward to where we are now with burgeon held, you know, I’m, I’m, co-leading line of business with my partner, Adam and we are, are really focused on buying. I call these diamond in the rough properties, right? Largely from mom and pop owners. They’re smaller to midsize to, to about about a hundred under 150 units, typically just cause that’s kind of the, kind of this no man’s land where it’s, it’s too big for a lot of the smaller operators.
You know, the single operators is too small for a lot of the institutional players to look at. So there’s this nice, nice, no man’s land that we’re able to play in. And it,
Jesse (15m 36s): If I might just ask there for, you know, cause everybody’s in a different geographer geography, the 150 units, is there kind of a price range bandwidth that you’re looking at because obviously every, you know, every state, every place is going to have a different price.
Kent (15m 51s): Yeah. It, you know, it depends, it really depends. Right. Everybody was different. I would say, you know, we’re, we’re anywhere from, or the, the cheapest that we purchased was 36,000 a unit and the, you know, the most expensive that we’ve purchased so far would be just North of 80,000. You got it. Okay. And those, those are in markets like Louisville, Kentucky, Lexington, Kentucky, Dayton, Ohio. So, so very much kind of core Midwestern markets and, and from a geography standpoint.
So I’m in Indianapolis, those are all three, two to three ish hours away from, from Indianapolis. And, and those are the most, the three most recent properties that we have purchased. And, and just, you asked about geographies. So, so burgeon held being based in Indianapolis, we primarily focused on the Midwest. I mean, we really have been kind of core Midwest for a long time. And just in the past few years have really started to expand to the Southeast and then out West into Colorado.
But we, we like the Midwest because the Midwest is still a great value play. You can get higher cap rates with which, you know, translates to better cash flow. You don’t have the, you don’t have the cyclical nature of other markets. It’s very steady. Eddie. You see that you see consistent growth, we’ve benefited from a lot of the logistics, boom, that’s going on with, with things like Amazon, right? Because a lot of the major logistics hubs have headquarters in Kentucky and Indiana.
And so, you know, we’re, we really liked those markets and that’s where we’re, we’re continuing to invest in. And again, we’re, we’re really not following the crowds. Right. I mean, we could go down to Texas and start investing in Dallas or, you know, or Florida or somewhere, but, you know, we just don’t see the need to, again, we’re kind of going against the grain. I mean, staying in the Midwest, focusing at least on my strategy on, on smaller properties, we’re, we’re, we’re doing all these things to limit competition, to be able to, to buy it better values and create strong cashflow up front and create a better return profiles than, than what we’re seeing in markets that are more competitive, where people are paying higher prices.
Jesse (18m 10s): Yeah, for sure. I mean, a hundred percent agree on the cashflow end. We’ve got some pretty expensive property era areas out there that people are gravitating towards. I want you to talk a little bit about the company you’re at right now, cause you’re like a bit of a hybrid model. Right? You did some stuff on, in your personal capacity and now you’re, you’re working with the company as far as I know, it’s, it’s only been a year or two that you’ve been with the company that you’re a partner. Yeah.
Kent (18m 35s): It’s been about a year. So it’s kind of a, just an interesting way that we came together. So I actually started, I mentioned investing with those sponsors back in 2016. Right? Well, Virgin held was one of those sponsors I invested with and through that was really how I developed a relationship with, with a lot of the key folks at the firm. You know, they were, they were very gracious and transparent as far as allowing me to come in and meet with their, their top executives and ask those questions that I talked about earlier.
Right. And, and frankly, the performance I’ve invested in, I had invested before I joined them in three deals with them and those three deals just have all killed it honestly. And so when I looked at when agriculture yeah. Technical term, you know, and, but, but for all those reasons, you know, I was just like, wow, these guys are just operating on a different level than the other, the other groups that I invested with, or that I even knew just from a scale standpoint, a technology standpoint, sophistication.
And so I developed a great relationship with, with one of the main principles tag, Burj, the Burj in Burj unhealed. And he became a mentor of mine. One of those unpaid mentors that I talked about, and he helped me through, through my first deal, going to look over my shoulder, giving me access to resources, like, like, like his own underwriting team. Yeah. It was huge. And we continue to, you know, to, to get lunch at things. And as I started having my own success, he approached me and said, you know, why don’t you come on to Virgin held, you know, and, and pursue, pursue a strategy under our umbrella and build your business off our platform.
And I felt like that was, that was a fantastic opportunity because, you know, I’m, I’m just, self-aware enough to know that I’ve been investing in real estate for about five years. And there’s, there’s still a lot that I don’t know. Right. And so being able to partner with, with guys that have been in the markets and doing these deals for 30 years, there’s just a ton to be ton that I can still learn and do. And so it’s been a great run. I mean, like I said, we’ve, we’ve closed on three deals in the last six months and we’re just continuing to scale up from there.
That’s great. So like to geek
Jesse (20m 48s): Out a little bit on kind of the structure of how different people do their deals, you know, whether it’s a fund to funds, you know, how you, how you’re compensated, but you know, just curious, so Virgin, how would you call the company and investment management company, a private, real estate, private equity company, w you know, we’re w what space do you plan? Yeah, so,
Kent (21m 8s): So we define ourselves as, as a multifamily private equity firm. Okay. But I mean, really what we are are, are multi-family operators, which are, are vertically integrated. So there’s a, there’s a construction company in house, you know, so we GC all of our own deals. There’s a property management firm in house. So we, we manage everything internally. There’s an asset management wing that oversees all the deals. And then there, there’s several kind of deal teams as you would call it. And those deal teams are implementing different strategies.
So there’s a, there’s a ground up right there. There’s tax credit deals. There’s kind of a large value add team, which is looking at at big institutional deals, right? Like institutions selling to institution, you know, typically 200, 250 units plus, and then there’s my team, which we call private select, which is really focusing on more of those. Like I said, diamond in the rough type deals. Right. Which is kind of the under 150 units, mom and pop owners, mismanagement, you know, under capitalized undervalued is what I call them.
Jesse (22m 13s): Yeah. Those are, those are the ones we look for. So in terms of that, let’s, let’s talk a little bit about, about the structure of these deals. So you’re looking for properties, maybe talk a bit about, you know, are these single entity funds that you create or is it committed capital that you have the ability to deploy? Why don’t we get into a little bit of the nerdy aspects of the, of the structure?
Kent (22m 34s): So all the, all of the deals that we do are, are just single asset deals versus funds, right? So, you know, I, there, there’s definitely pros and cons in both ways, funds are really nice because you have the money there to, to go and be able to deploy it. You know, you know, some people say you can act more quickly, right. Jump on deals. I personally, as an investor, because I, I try to look at things as an investor first because I was, and I tried to put my shoes in the people that we’re serving, or my feet in the shoes of the people that were serving as an investor.
I like to be able to touch and feel exactly what I’m investing in. And in a fund, you, you just kind of lose that, right? You, you, you know, generally the strategy, but you, you can’t vet each deal. So it really like that single deal approach.
Jesse (23m 26s): Yeah. That’s great. I’m not sure if you’re, you’re familiar with Brian Burke, I bring him up on the show a lot just because we’ve had him on. And, and he, I remember he gave a, an analogy and it was something about, you know, you have, you, you fly from Vancouver to Miami and a plane. You don’t not look for the pilot’s credentials. You don’t call for information about him. You trust the pilot because of a track record or an airline. And he talked about funds being that way, as opposed to single entity assets. I mean, you have to obviously trust the operators, even with a single entity, but much more with a fund, because like you said, you lose the visibility, you know, you get, you understand the philosophy of the investment philosophy, but you definitely lose the visibility.
You can’t go to the property and, you know, knock on the bricks. Right. So I’m curious the deals that you do from a general partner perspective, how do you invest in your own deals or do you invest in your role?
Kent (24m 20s): Yeah, I mean, I think that’s critical. I mean, I, I just, I personally, just going back to, again, I personally wouldn’t invest in something that somebody is telling me to put my money in, but they’re not putting their own money into, right. For sure. So, no, we always, we always invest, you know, myself and my partners and either other, even others within the firm invest in each of our own deals. I can tell you in the past three deals that we’ve done, we’ve brought anywhere from about 12 to 35% of the equity from within the company.
So it’s kind of always North of 10% is what we shoot for. And then, and then depends just, I mean, depends how big the deal is and how many people people want in. So I see,
Jesse (25m 3s): And this would be, you know, deal specific, but you guys will use a, a hurdle and then, and then promote based on the amount that you are putting in to begin with, you know, does that look like, you know, once you hit a certain hurdle, are you guys splitting the deals 50, 50, or is it all assets
Kent (25m 20s): Specific? No, I mean, I mean, it’s, I would say it’s asset specific, but we follow some key principles. I mean, one, we just try to keep waterfalls and deal structures as simple as possible. I mean, again, just going back to, you know, I keep saying this, but like being, being an investor myself, I like, I hate being in a position where I can’t easily calculate on my own, like what I’m supposed to be getting paid out of a deal. And when, when the waterfalls get too complex, you know, if I need some like advanced spreadsheet to figure it out, then it’s just too complicated.
So, so we typically stick with a structure that’s a preferred return and then a split above the preferred return. And that’s about it. I like it
Jesse (26m 0s): Just simple. I’m in total agreement with that. All right. Just, I want to talk a little bit, I want to be mindful of your time here, and I want to get to the website a little bit and, and your podcasts, but before we do, you know, we can’t really have a podcast without talking about the current state of the economy right now. And you know, what the thoughts are, you know, for the next 12 months. So yeah. Generally speaking thoughts on, on where we’re at right now, the lockdown, how that is, if it has affected the underwriting and yeah. Maybe you could chat a little bit.
Kent (26m 33s): Yeah. Yeah. And, and there’s a lot to unpack there. Right. But I think starting with maybe how it’s affected underwriting is kind of a good place to start. So, you know, we’ve the way it’s affected our underwriting is it’s made us be more conservative, but, but we’re definitely not sitting on the sidelines. You know, like I said, we we’ve taken, we’ve acquired three deals just in the last six months. So we’re sitting in March right now. And the last six months we’ve, we’ve acquired three deals. Things did slow down at, you know, kind of at the beginning and, and during the beginning of the pandemic and the shutdown and things, but, but things have really started to open up from an underwriting perspective.
The way that we’ve gotten more conservative is we’re putting about double the cash reserves in deals that, that we would have pre COVID and that’s anywhere from, you know, working capital to contingencies related to, to construction and rehab two, just, just adding in, you know, an additional kind of COVID Carey to make sure that we’ve got some additional cushion, just because you never know what’s going to go on. I mean, I think back last March where we were sitting there looking at the portfolio and kind of saying, Oh man, like w what’s going to happen.
Like we need to Batten down the hatches. We need to hoard cash. You know, who knows if people are going to pay rent, right. If people are going to be able to, well, the good news is we really didn’t see much of an impact, you know? I mean, and we kind of waited all last year for the other shoe to drop and it never really did. I mean, our portfolio is still across 15,000 units at about 95% collections, which is just a little bit above about a percentage point above what you see nationally from like the multi-family national multi-family housing council metrics.
So overall the industry has done very well. Right. But that being said, we, we want to remain conservative, you know, and we want to make sure that we’ve got the cash in place in case something were to go wrong. And my thought is, if the deal still works in that way, then you just know it’s a really good deal. Right. So, yeah,
Jesse (28m 39s): I can, I can imagine too. I mean, that is probably a function, undoubtedly, a function of the fact that you’re, you’re in B assets as opposed to C or worse. Cause I know that’s where your sensitivity to income starts to, you know, be a little bit more overexposed. So it sounds like, yeah. Right. Space. Yeah.
Kent (28m 57s): It’s definitely related to the asset class. It’s also related to the overall affordability of our portfolio. I mean, our average rent is, is just South of $800. Okay. So if you think about, if you think about that and, and the way that we really look at this is a rent to income ratio perspective, right? So, so HUD housing and urban development in the us, right. They say that you are rent burdened. If your income, if your rent is 30% or more of your income.
Right. And so we, we really watch that closely, you know, w when we make acquisitions, that’s one of the main metrics we look at is how affordable is the rent for the people that are living there. Right. Cause that’s really the cushion. And so our, our portfolio is at about 20, about 21% overall. So we’re, we like to stay in the high teens, low twenties from an affordability standpoint, from rental income. And that’s how we know that there’s plenty of cushion for people to be able to afford the rent.
And I think that has kept our collections high right on.
Jesse (30m 1s): So before we move on, just on the point of acquisition and 20, 21 and beyond, I’d love to get your take on how you go about, you know, finding these diamond in the roughs broker relationships, a direct two to a two owners. Maybe we could talk a little bit about that and then move on to, to the site in, in the podcast.
Kent (30m 21s): Yeah, for sure. So the, excuse me. So the way that we find these deals, it’s kind of all of the above broker relationships. Absolutely. Especially more local and regional brokers, right? So you have your big firms, your, your Cushman’s, your CBRS who operate nationally. And, and they’re awesome too. I mean, we, we, we definitely buy deals from them. We bought our deal in Dayton from CVRE, but there’s a lot of, a lot of brokers out there that are more local or regional that have those local and regional relationships that, that get a lot of these smaller deals because maybe, maybe they don’t want to deal with the big firm, you know, or, or there’s a, just a, a longstanding relationship there.
So we’ve been really digging into to getting more localized, you know, and meeting new brokers that, that we, we wouldn’t have known if we were only looking for 200 plus units, right. It’s kind of a whole new world for us and we’re building those relationships and, and those are really starting to pay off. I think, frankly, our reputation burgeon Hill’s reputation goes a long way. And, you know, and we get a lot of questions of why are you guys trying to buy, buy these deals, right?
Jesse (31m 37s): Yeah. And honestly, it’s,
Kent (31m 39s): And people ask that because it’s, you know, it’s just as hard to buy a 30 unit as it is a 300 unit. It takes out, it takes just as much work. And the hardest thing about a 30 unit is running. It is managing, managing it efficiently and cost effectively, but it’s a little bit counterintuitive. And then I think it actually takes a large firm to be able to buy small properties because people say, well, how do you get economies of scale? And I say, well, I’m not worried about the economies of scale at the individual property level. Because as, as a firm, we have economies of scale, right?
Because we’re buying, for example, we buy flooring, we’re buying flooring directly from the manufacturer in China. We’re bringing it over on a shipping crate and we’re storing it in a warehouse and we’re able to deploy that to the property as we need it. So that’s how we create economies of scale that can come down now to the 30 unit property. And, and in that way, we’re able to, we’re able to create efficiencies. And that’s, that’s where the real value comes in when you’re buying in an inefficient market with less competition at a higher cap rate, very able to take like these institutional level things and bring them in that creates the value there, where we’re still able to create great returns that, that you can’t, you know, on the, on the, on a 200 unit in the same market, because you’re, you have to pay such a price for it.
Jesse (32m 53s): Yeah, for sure. All right. Let’s, let’s flip over here. I want to talk a little bit about both the podcast and let listeners know about it, correct me if I’m wrong here. It is a Ritter on real estate, which is just fantastic. Yeah. Talk a little bit about the podcast and, and what you guys talk about and yeah,
Kent (33m 12s): Yeah, no, I appreciate that. So Ritter on real estate is, yeah, like I said, my podcast, you could find it on, on really any platform and the focus, the tagline is, is passively investing like a pro. And that’s really what the show is about. It’s me interviewing the pros to learn the tips, to help folks be better investors. And it really came out of just the fact that, you know, when I first started there wasn’t really like a go-to resource. There were some podcasts, but even five years ago, the podcast landscape was very different.
You know, there were a few podcasts out there, but there wasn’t really one that was focused on like for the investor. Right. And you know, there’s a lot of podcasts even still today that focus on, you know, this, the sponsors and kind of, you know, how people came up and things. And so I wanted to focus more on the investor. How do you make good investing decisions? You know, how are the pros analyzing markets? What questions are they asking? Right. So we bring in, you know, investors bring in passive investors, we bring in lawyers, Cindy, you know, syndication attorneys, tax attorneys, accountants, you know, all different hosts of people to try to help people just be better investors
Jesse (34m 22s): Right on. That’s cool, man. So in terms of, in terms of the, the podcast, is it a weekly, monthly, what’s the frequency you guys have? It’s weekly. It comes out every Tuesday. Perfect. Awesome. So if you’re listening, make sure run over there and listen to that episode, if you like, what you hear or give a five star review for hours as well.
Kent (34m 43s): Yeah. I mean, you know, I was just going to say, you know, as a podcaster, you know, I can really appreciate that. So I appreciate you mentioning that. And those five star reviews really, really do make all the difference in the world as, as people and guests look at the podcast. Right. So, yeah. So it, so it really does matter. And, and I appreciate you all going out and yeah,
Jesse (35m 3s): For sure. And not to mention, just to just generally speaking, it’s nice to nice to have a review. And a lot of times people are doing podcasts. I would say that the majority guys like us, we do them because we liked them. You’re not making $200,000 a year doing a podcast unless you’re massive.
Kent (35m 18s): Nope. I would. I would say I’m not making anything, doing a podcast. <inaudible> is a labor of love.
Jesse (35m 25s): Perfect. So we, we asked four questions to every guest before we end the show and we’ll serve some up right now and then maybe we could end off with, with the website and, and call it a share. Yeah. All right, we’ll start. Yeah. Let’s kick it off. So what’s something that, you know, now that you wish you knew at the beginning of your investing career.
Kent (35m 47s): Oh man. There so much, the thing that immediately popped him in my mind is just, you know, done is better than perfect. And, and you should, you should improve through iteration, not seek perfection at the beginning. Right. And like the, my podcast is like such an example of that where you just, the only way you get better is by doing something, whether it’s, whether it’s underwriting a deal, whether it’s, you know, speaking to a broker, whether it’s speaking to an investor, it doesn’t matter.
You get, you get better through trial and error. I think you said something earlier, Jesse, like, you know, you can just listen to podcasts and read and do all this, but like, until you really start applying it, you’re, you’re not really gonna, it’s not really going to seek in and you’re not really going to hit that next level. So, so my advice is just get out and start doing. Yeah,
Jesse (36m 44s): For sure. We talked about this actually, almost every episode we talked about this before the question comes, but I like to ask it anyways, mentors, your thoughts and your suggestions to, you know, guys starting out gal starting out that are trying to reach out and have mentors that might not be within their immediate circle.
Kent (37m 4s): Yeah. I mean, I mean, first of all, just, just be brave enough to reach out and yeah, I think that’s where it starts. I mean, I can tell you that, you know, I, I had like, so my experience with, with, with tag Birge right. W who I talked about earlier with w w which led to me being in the position I’m in now ultimately was a cold, cold outreach, you know, kind of an ask for, well, it was, I guess I was like looking at them for investing and also, but, but you know, it was kind of a, Hey, could we grab lunch type thing?
And the guys got, you know, a couple of businesses, multiple billion dollars. And he said, you know, to my surprise, Hey, yeah, let’s get lunch tomorrow. Right. And I was like, Oh my gosh, I can’t believe, I can’t believe that. And from that, that started a great relationship that has blossomed into so many things. And so I like just, you know, one just don’t be afraid to reach out, I think, but, but to make sure that you’re doing it in a respectful way. Right. And that you’re, you know, like I get a lot of this on LinkedIn now. It’s like, Hey, man, I just love to like, pick your brain.
And like, and that’s fine to a certain extent, but yeah, but you also can’t field hundreds of those. Right. So I think just like when you reach out show that your show that you’ve done your homework, like I try to let that come through in the communication, I would say, and that you’re not just expecting them to like, lay it out for you on a silver platter, because I think where go sideways with mentors is they expect just by getting a mentor, they expect that the work’s going to be done for them. And that’s not true.
The mentor is there to guide you in the right direction. But at the end of the day, you still got to do the work.
Jesse (38m 47s): Sure. Yeah. I think I couldn’t agree with that. More you try to find, you know, it seems like you can’t add any value to them, but be creative and even the attempt,
Kent (38m 58s): Sorry I interrupted, but I forgot about this. So what I actually did in that instance with tag was so yeah, like how can I add any value to this guy? Right. But he just spent an hour with me. I know he’s super busy. So I, I went out and bought the book principles by Ray Dalio and, and I, and I shipped it to him and put it, put it like a nice card in there. And he, he got, he called me up and he was so happy to have received it. Like he, you know, and so it clearly kind of made his day and, and in a small way, I added some value to him.
Jesse (39m 29s): For sure. And it’s definitely, you know, even we’re, we’re slowly getting to the point where nobody does anything with a physical book anymore. So getting it to somebody in the old school is probably like, you know what, nice touch. I like this. Yeah. Right on. Okay. So speaking of books, resources or books, it doesn’t matter that, you know, you’re coming across either now or something that you really think listeners would benefit from.
Kent (39m 54s): Yeah. That’s, that’s, that’s a good one. Let’s see. A couple, as far as folks that are like wanting to get started and wanting to be active investors or syndicators. I mean, there’s, there’s a couple of really good books out there. One is Joe Fairless, his book, which is a best thing. It’s called the Bible. Yeah. It’s like best ever real estate syndication. It’s the best ever brand. It’s, it’s something like that. If you look up Joe Fairless on, on Amazon, you’ll see it. The other one that I really like is raising capital in real estate, by Hunter Thompson.
Yeah. I think both of them are just, they’re very detailed and have a lot of like practical tips and tactics that you can start implementing. And so I think, I think they’re a huge value. It’s kind of a masterclass rolled up into these books. Yeah.
Jesse (40m 45s): What’s great with that. I mean, those are there’s few books that if I buy the audio book, I don’t buy the regular book. I just find it’s redundant. But with Hunter, it was just great to actually have a lot of, I mean, Joe’s would be the same way. Right? There’s a lot of stuff you want to go back and physically see because it’s kind of a roadmap. Totally agree with you there. All right. Last one. Nothing to do with real estate. Just, just my favorite question. First car, make and model.
Kent (41m 10s): It was a 1997 Chevy blazer. It was a nice blue and gray accents. It was, it was
Jesse (41m 22s): Beautiful car. It was a beauty. God got me through high school college right on man. Okay. So they could get you on the website, if you could just obviously a Google search for, for everybody that’s living in 2021. But to reach out to the podcast, you just let the listeners know again where they can find that.
Kent (41m 40s): Yeah. So the website is Kent Ritter.com and you can also, you can get the podcast there as far as well as everything else that I have. And if you’re interested in investing, that’s a good place to start as well. The, the podcast is writ around real estate and I mean, you can find it anywhere that you listen to podcasts.
Jesse (41m 59s): My guest today has been Kent Ritter, Kent. Thanks for joining working capital.
Kent (42m 4s): Thanks Jesse. I had a blast, man. I appreciate you having me on,
Jesse (42m 16s): Thank you so much for listening to working capital the real estate podcast. I’m your host, Jesse Fragale. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse Fragale, have a good one. Take care.