‘Rod Khleif’s Predictions for Multi-Family Investing in 2022’

Our Feb. 3, 2022, podcast featured a very special guest, esteemed real estate entrepreneur and trainer Rod Khleif, who shared his “Predictions for Multi-Family Investing in 2022.”

Among the topics Rod discussed with host Kim Lisa Taylor:

• The biggest challenges facing multi-family investors this year
• The markets with the most promise — and those to avoid!
• What syndicators can do to minimize risk for your investors in these uncertain economic times
• What you should be doing now to grow your syndication business in 2022

It’s an hour you’ll find both educational and entertaining.

Scroll to read the transcript.

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Kim Lisa Taylor:

Hey, welcome, everybody, to Syndication Attorneys, PLLC’s free monthly podcast where we talk about topics of interest to real estate syndicators with the opportunity for live questions and answers at the end of the call. I am attorney Kim Lisa Taylor.

Before we get started, please note that all of our calls will be recorded and may be used for future promotion, posted on our website, or a broadcast in a podcast available to the public. If you don’t wish to have your voice recorded, please schedule a one-on-one consultation instead of asking questions during the live call.

Information discussed during this free podcast is of a general, educational nature and should not be construed as legal advice. When it gets to the podcast, it’s an audio-only presentation, but we will post the video on our website and also if you’re watching it live you are able see our faces as we’re talking today.

And today our topic is “Rod Khleif’s Predictions for Multi-Family Investing in 2022.” We are super excited to have Rod here. I’ve known him for a very long time. I’ve seen him rise in the real estate training space to where he’s become a force of nature, I would say.

And if you’ve never seen Rod speak before, he’s very inspirational. He will get you motivated and excited about what you’re doing. And I know he’s helped a lot of people who are getting started in the syndication space to go on and become very successful at it. So hopefully that’s what you are here for, to pick up some tips if you’re new and maybe refine your craft, learning from the expert if you’re a seasoned syndicator. So, Rod, thank you so much for joining us today.

Rod Khleif:

Let’s have some fun, Kim. So Kim didn’t say that she’s actually stayed at my home, my compound here in Florida. She actually helped me write the chapter of my book about syndication. I’ve got a best-selling book on Amazon and she helped me rewrite that chapter on syndication because there were mistakes in it and so she’s being very modest. But thanks for having me, Kim. It’s great to see you again. It’s been way too long.

Kim Lisa Taylor:

Yeah. It definitely has. All right. So, Rod, tell us a little bit about how you got interested in multifamily investing.

Rod Khleif:

Sure. So I’ve owned 2,000 houses that I’ve rented long-term. I’m now probably close to 3000 apartment units that I’ve owned, and in 2008 I got my butt handed to me. I lost $50 million. I had 800 houses and I had several apartment complexes. And what I saw was it was the houses that pulled me down and we’ve got a lot of stuff to cover today. So if you want to hear the detail on that, we can talk about that some other time, I suppose, but I realized that my multifamily did just fine through the crash. I had pulled back, but I could have easily held onto it if I hadn’t cross-collateralized those apartment complexes with packages of houses to save 50 basis points or half percent interest.

And so at that moment I realized I should have just been in multifamily. And so I’ll never buy another single-family house again (unless it’s for us to live in, but in a second or third home). But anyway, so I started my podcast about five years ago, four and a half years ago, just to tell my story about if you’re going to invest long-term. for God’s sakes, do multifamily, don’t do single-family just based on my experience of it.

And I used to say early on in my podcast “I’ll never sell you anything.” I just wanted to add value, and I’m a liar because I’ve got books, courses, coaching, the whole thing. In fact, I was just telling Kim before we started recording, I’ve got my coaching program — it’s my “Warriors” they’re called — and my mentorship students and they now own well over 50,000 units — could be even approaching 55,000 units — and I’ve only been teaching now right around four years.

So I’m super, super proud of that. But I’m a huge multifamily advocate. I love multifamily. I love everything about it for a lot of reasons. And so there you go. That’s why I’m heavily invested now. I don’t know, I’m in about, well, I’m in thousands of units right now. Let’s just say that over a couple thousand and buying whatever we can find. Of course, it’s a very hot market right now, which I think we’re going to talk about.

Kim Lisa Taylor:

Well, what inspired you? I mean, I can understand why you shifted from single-family to multifamily as far as your own investing, but what inspired you to teach other people?

Rod Khleif:

It’s interesting. My father and his brothers —  four uncles, they’re all PhDs —  they all taught and my dad always wanted me to teach. And I’m so sad that he did not get to see it. He died a few years ago and he didn’t get to see me actually start to teach. I had 800 people in Orlando a few weeks ago or a couple of months ago as you know, but I’ll tell you what, when I first started my podcast I started taking free phone calls from my listeners and I got so much love from them. I didn’t have anything to sell. In fact, I pushed people to other thought leaders.

If they had an interest in a particular asset class I would send them to people that trained in that asset class, but I got so many here. You can see behind my green screen, I got so many thank you notes. I have hundreds. The whole wall behind me now is covered with them, well, thank you notes from people whose lives were impacted just by those phone calls initially and now by my work. I mean, I literally, this is not ego, please know this, any of the things I share with you about what I’ve accomplished — that’s not ego.

I just want to hopefully inspire you, but I get love probably on average five to 10 times a day. I get an email, I get a DM, I get a card, I get a gift or something. And, I mean, when you get that much love, it becomes a little addicting and so that’s why. That’s what inspired me to keep doing this and I freaking love it. I mean, I work. Tiffy puts up with it because she knows how much I love it, but I work Sundays and Saturdays and … So absolutely love it.

Kim Lisa Taylor:

And you know what, I get that because our law firm is built a lot around education and I always feel like I can make the biggest impact through education because if I can teach people how to syndicate, I’m not only helping that person achieve their financial goals, I’m helping them help their investors achieve their financial goals. And so it’s really kind of paying it forward and it feels pretty good just to know that you’re able to help someone or all of a sudden they get that “aha moment” and they kind of start getting it. So I get the reason for wanting to teach. All right. What do you see as the biggest challenge for multifamily investors in 2022?

Rod Khleif:

Well, listen, I have to tell you, this feels a lot like 2006 and 2007 to me. The market in my opinion is frothing. Now, at some point we’re going to have a contraction. I don’t think it’s going to happen this year. I really don’t. For a lot of reasons that we could get into it if we’ve got enough time, but really there’s such a pent-up demand right now for housing. And unemployment is pretty low again. And I don’t think it’s going to happen this year, but I think in 2023 all bets are off. So let me just say that, number one.

Now, is that something to fear? No. It’s something to get excited about because if the market corrects, that will bring exponential opportunities. And that’s why personally I’m getting in a lot of cash right now because having cash or the access to cash will be the biggest way to capitalize on a correction. If I hadn’t been hiding under a rock in 2008 and 2009, and I would’ve capitalized on that, I’d be on the back of my yacht right now because there were such incredible opportunities.

In fact, if you listen to my podcast a lot of the men and women that have anywhere from 3,000 to 7,000 doors started in ’09, ’10 and ’11. We call that a clue. And then I always get the question, but should I buy now if I know that’s happening? Listen, there are deals out there. You have to hunt for them. I mean, we’re kissing a lot of frogs right now. In fact, we are systemizing that whole deal evaluation where we go step by step by step through a CRM system of deals so that we can track them and move them through our process as quickly as possible.

We have VAs entering them from the brokers’ offering memorandum, entering them into our spreadsheet for our analysis and so on and so forth. So we are doing all these things to systemize that because, again, we have to kiss a lot of frogs right now. And so I think the biggest challenge right now, and back to your question, is to temper your enthusiasm. To not be too aggressive in your underwriting and to just be cognizant, to make sure you’re stress-testing. I mean, I’m seeing some deals get into “best and final” for those of you don’t know what that means.

A broker will put something out there and they won’t have it priced and they’ll just say, make offers and then they’ll take the three or four offers or five offers they’d like the best and say, give us your best and final. And it’s like a bidding process, like an auction. And I’ve seen properties trade for, meaning sell for, prices that just blow my mind, frankly. It’s like, where did they get their cost of funds? It’s like they have no cost of funds or they’re very, very skinny deals.

And I would just tell you just to be careful with that. There are absolutely deals out there. Rents went crazy last year. I mean, Tampa, I think went up, I don’t know, 20%. Phoenix went up 20%. San Antonio, where we just bought a 30- unit asset a couple months, ago went up 18%. All in one year; this is all in one year. It’s crazy. But don’t show me your pro forma showing significant rent increases for the next five years because that is naive and unrealistic.

So the biggest challenge and answer to your question again is in my opinion to temper the enthusiasm. There’s a reason Fannie and Freddie have dropped their proceeds on loans and most people are going to bridge debt right now. And Fannie and Freddie have been around a long time. They’ve seen it all. So, again, just temper the enthusiasm.

Kim Lisa Taylor:

Are you seeing that Fannie and Freddie have dropped their loan to value ratios?

Rod Khleif:

Yes, that’s what I mean. Yes, we’re seeing that in a lot of markets.

Kim Lisa Taylor:

What are you seeing right now from them?

Rod Khleif:

Oh gosh, it’s a depends on the market. It’s very market-driven. But I mean, it can be as low as 65%, 60%, which guys, this is all based on returns. Your investors want to see reasonable cash on cash returns and reasonable internal rate of returns, the total return. And when you’ve got to raise that much money it becomes very challenging to get the returns that you need. I’m sorry I interrupted you, Kim.

Kim Lisa Taylor:

Oh, no. That’s totally fine. So we saw some of that in the great recession where they lowered their LTVs and then they started blacklisting certain market. And they had a no, what did they call them, redlining the …

Rod Khleif:

No, there’s a different word for it on the tip of my tongue. But it’s like that. It’s kind of redlining.

Kim Lisa Taylor:

“We’re no longer actually loaning on any multifamily properties in this particular city.” And we got caught in that. We actually were in the process of buying an apartment complex in Columbus, Ohio, and our plan was to get three apartment complexes. We had two under contract and we were looking at a third to try to get to our 100 units at the time in that market.

And we ended up having to go to 27 different lenders and then finally somebody lent to us and we were only able to get the 27 units. And then we had this orphan property out there that was really hard to manage from a long way away because we didn’t have enough units to be able to get our own property manager.

Rod Khleif:

Enough infrastructure.

Kim Lisa Taylor:

Yeah. So we held onto that property and I think we bought it in 2010, which was the worst possible time. We held that property for nine years and saw very little cash flow. We had friends in the deal with us. They were super patient and we finally sold it in 2019. We did okay. Everybody got their money back. Everybody got a modest return. I think we got 12% returns or something like that.

We were all just happy to have gotten through it. So yes, not all deals turn out perfectly, not all deals hit 20% annualized returns. And a lot of it is just about market timing, but I did see the other side of that is that my clients that bought in 2010, 2011 after the crash those people did very, very well.

Rod Khleif:

They killed it.

Kim Lisa Taylor:

Later they were selling stuff for two and three times what they paid for it. It was just insane. Well, kind of as a followup to that discussion, do you see some markets or are there some particular aspects of markets that people should be looking at that are kind of less risky than others?

Rod Khleif:

Well, let me circle. Let me go a little higher level on that question first. So let me give you some demographic information. Right now there are 10.4 million job openings and only 7.7 million people supposedly unemployed. So we’ve got 2.7 million more people than we have jobs. So in our business right now the real struggle is leasing people and maintenance people right now. Back to that rent growth for a minute, I mean, I just looked at my notes.

Phoenix went up 25% last year, the top six are 20% or more … Florida, Phoenix, Atlanta, Austin. I mean, these crazy markets, the national average was 11.2% rent growth in one year. And I will tell you it was asset class specific. Class B increased about 12%, Class A increased about 10%, but Class C only went up about 4%. Now here’s the other factor that’s huge. In 2020 there were 340,000 new units delivered. In 2021, 385,000 units were delivered. And so they’re introducing a lot more units, but vacancies continue to drop. And so that’s going to continue to create upward pressure on rent.

Now here’s the big thing. Moody’s said this year that they expect household growth to be increased by 1.4 million households. Where are these people going to live? See, this is why I don’t think we’re going to see a contraction this year, barring some crazy catalyst. And, of course, single-family is a lot higher right now. And most of these units that are being built, of course, are A Class because that’s the only way they can make the numbers work.

Another factor is you’ve got the millennial generation right now peaking at about 30 years old and that’s when they start to expand their families, they start making money and spending money. They’re buying cars, they’re buying houses, they’re having babies and they’ve been driving that urban growth trend, but they’re now moving to the suburbs as well. So a larger percentage of people, which is kind of interesting and unusual, are actually staying single and not getting married.

Again, those are households, single households. But in the last 12 months alone we’ve seen a 14% increase in single home values, which again is enormous. So all these things play a role in determining what’s going to happen. But even Fannie and Freddie, they raised their minimum — I’m sorry, maximum — loan amount to a million dollars. I mean, I remember when it was $300,000. And they’ve raised it to a million because the property values have gone up so much and so…

Kim Lisa Taylor:

They’re not doing small balance loans anymore.

Rod Khleif:

Who’s not doing small balance loans?

Kim Lisa Taylor:

Freddie and Fannie, are they?

Rod Khleif:

Oh no, they’re still doing them. No, they’re still doing them. But right now according to the National Association of Realtors, the country is experiencing a housing shortage of 6.8 million units again. So, again, I don’t think that we’re going to have a contraction this year, but one thing we are going to have is inflation. It’s already started. And I get asked the question, how do you hedge against inflation? By real estate. Because besides everything else going up, rents go up. And so there’s no greater hedge for inflation than real estate. And so I guess the bottom line, guys, is you’re in the right place.

So back to your question about what markets show the most promise. Me, I’m staying out of blue states. I just am. It’s not a political statement. It is just a business decision. They’re highly regulated, they have rent controls, they have rent caps, they have extended eviction moratoriums … screw that. I don’t need that brain damage. So I’m in red states. So that’s number one. And, again, that’s not a political statement. I could be, we won’t go down that rabbit hole, but don’t get me started. But the point is … so that’s number one.

Second barometer is 80 million people are getting old and getting cold. And the baby boomers … so I like the Southern states. We have assets … I’m looking at my map here, in Florida, Georgia, South Carolina, North Carolina. We just sold our one in Kentucky. We’ve got four in Texas. And I do have two in Ohio. I love Ohio too, but for the most part we try to stay south. So an answer to your question, I like southern states.

Now, when we look at a market ,we look for several things to be growing: Population, income and jobs. What’s the most important? Jobs.

And so when I look at a market and even a sub-market, I want to look for employment diversity, employer sector diversity. And I will tell you, this asset we just bought in San Antonio I literally looked where every single resident worked and I looked at them from the framework of recession resistance, their jobs. When we bought during COVID, I looked where every … like a Cincinnati asset we bought, I looked where every single tenant worked and I looked for COVID recession resistance on their jobs.

There were some with Delta that we knew that were going to get creamed — hospitality jobs. And so I never did that before, but when you lose $50 million, you hit me once, shame on you, hit me twice, it’s my own fault. But listen, and again in answer to your question, you want to look at markets that are growing. And believe it or not, there are markets with populations that are decreasing like Detroit and there are some like that. So anyway, long answer to your question.

Kim Lisa Taylor:

Okay. And then I’ve heard in the past that there’s some cities that are kind of recession-proof where there’s a capital, the state capital — the government isn’t getting any smaller, it doesn’t seem to be — and places with educational institutions.

Rod Khleif:

Oh, I would be careful about that one. One of the doom and gloom economists, Harry Dent, I’ve had him on my show, he bases his demographic information a lot on population growth and he’s convinced that there will be a hit on student housing related assets and towns because of population demographic information and the number of college students. So just be careful with that one, just based on what I heard from Harry. In fact, to give Harry a shout-out, I saw him speak 22 years ago in Vancouver and if I had listened to him, he totally called the 2008 crash. He was off by about two years, but totally called it and I would’ve not lost everything if I had listened.

But then what was the second piece? Oh, you said close to a capital. I don’t know the answer to that. I would think that, what is it, Tallahassee here in Florida, I bet they saw some price reductions at the whole state. I mean, my inventory just so you know, I was at a 30% loan to value in 2007. I actually went upside down. My values dropped more than 70% in my portfolio by late 2009.

So, I mean, it was a staggering drop. Let me give you another interesting example about market corrections. I had 500 houses in Denver at one time. So I had bought this house in Denver on 30th Avenue in Federal, if you know Denver, anyway, and it was a two-story Victorian. I bought it for $56,000, flipped it, made $76,000. I think I put some work into it, but I sold it for $76,000.

Market crashed, I bought it back for $18,000, same house. Bought it for $56,000, sold it for $76,000, bought it back for $18,000, ultimately sold it for $160,000. Now you want to hear something really painful is the area gentrified and it’s now worth about a million. So, I mean, that tells you what can happen in a market with values. Anyway, I digress…

Kim Lisa Taylor:

Yeah. And that’s tough. Well, I mean, so how could someone hedge against that, though? If they bought all cash they could rent it out.

Rod Khleif:

Well, listen, here’s the thing. I have a book — I should have had it up to brag about it and show it to you. You’re in it, obviously, as you know, but it’s called “How to Create Lifetime Cash Flow through Multifamily Properties.” But the subtitle is “The New Rules of Real Estate Investing,” i.e., the new rules are: forget value, focus on cash flow. Period. Don’t tell me what somebody else paid for it 10 years ago and what you can pay for it now. Tell me how the returns look with cash flow. That’s how they hedge against it. This business is empirical. It’s primarily numbers.

You get the numbers right and you don’t overdo it and be too aggressive with your assessments and try to cut your expenses on your pro forma just to try to make numbers work … you don’t do that. Be realistic about it. It’s pretty hard to make a mistake. It really is. Because people need a place to live. Through COVID the retailers didn’t get much assistance. The office sector didn’t get much assistance, self-storage didn’t get much assistance, but people had to have a place to live.

So renters got assistance. We got hundreds of thousands of dollars from tenants for rental assistance that were impacted by COVID. See, that doesn’t happen in these other asset classes. And so multifamily is a phenomenal asset class, resilient. In fact, within three years of the great depression rents had exceeded pre-crash levels in multifamily. That’s how fast it bounced back.

Kim Lisa Taylor:

Okay. Well I think that those are all really valid points and I know I’m taking notes like mad and I hope you guys are. Rod is a fountain of knowledge and…

Rod Khleif:

Oh, thank you.

Kim Lisa Taylor:

… we’re so happy that you’re here. So what do you think? Is there a preferred property size range, price range, number of units? What do you see?

Rod Khleif:

That’s a good question. I will tell you, it’s based on your courage muscle. We all have this courage muscle — what we’ll do — and most people will start with a house or a duplex and then they’ll go to a 10-unit, and a 50-unit, and then they’re in the 100s. And I see it all the time with my students, too. And that first deal is always the hardest, oh my God. It’s the most stressful. It takes the longest. I mean, I see my students and, again, my students are now somewhere in the, I think, 51,000- to 52,000-unit range, which again, I’m bragging, but I’m super proud of that.

It’s one of my greatest accomplishments next to my kids, but I see it with them. They’ll be complaining, “It’s been six months; I don’t have a deal. It’s been eight months…” then they get a deal. And then I look at them three months later and they’ve got six deals. So here’s the thing. If you listen to my podcast you will regularly see me ask this question of my guests, the ones that have thousands of units. And I’ll say, “If you could tell your 18-year-old self something, what would you do differently?” Because I know what the answer is going to be. And it’s always going to be “go bigger, faster.”

And so I do that by design to hopefully inspire you too if you’re going to do a duplex for God’s sake, go do a 10-unit. It’s the same amount of work. It’s actually easier in my opinion to do a 10-, 20-, 30-unit commercial than it is to do a residential because with the residential they’re going to base the loan on your ability. But you can bring a team in to do a commercial property  — commercial meaning five units or more — and they’ll look at the team’s ability to take down that property. And they’re going to look at the property’s ability to service the debt, not your ability personally.

And so really it’s based on your courage. Now, I like value-add properties. I don’t like yield place. By value-add, I mean where I can take a property and raise the rents and improve the net income. It’s called the net operating income, the NOI. And I improve that net operating income because any improvement to that is an exponential improvement to the value. It’s about 17 to 20 to one. And so, for example, we had a 101-unit asset in Beavercreek, Ohio. It got destroyed by a tornado, crazy story, three months after we bought it and all 101 families had to move.

Thank God nobody died. A few people got pretty seriously injured, but they are okay now. But no kids got hurt, thank God. But we were able to rebuild that thing and our rent increases are in the $500 to $600 range. And to give you an idea what that means, that’s a $10 millio to $12 million actually instant increase in value based on that net operating income once we filled it up. And so that’s what’s possible in this business. And that’s why we love this business, because you can go buy an asset, you can reposition it, build up that net income, get your money back.

You can do the strategy like they do in single-family or just refinance, get their investors the money back, and then you’ll hold onto it. That’s our model; we buy, we refinance, get our investors their money back and then we hold onto it and keep an eye on the market. If the market starts to turn, then we’re out. But otherwise … there’s a reason my podcast is called “Lifetime Cash Flow,” because that’s my game plan.

In fact, Albert Barris, that billionaire I was talking about that I interviewed in my first interview, he told me and I love this line, he’s said “I’m a real estate buyer, not a seller” and I love that. In fact, let me just digress for one second and tell you a funny story. I have my Mastermind. I have the Multifamily Boardroom Mastermind. I think it’s the largest mastermind for multifamily really on earth. It’s about $14 billion in assets in there and I invited Albert to come down and speak.

And my assistant Camille, my assistant talked to his assistant, Nina, and Camille said “we’re going to fly Albert down first class. We’re going to put him up at the Ritz Carlton” where we were having the event. And Nina is like, “no, he’ll fly his own jet down and see you there.” And anyway, sorry I digress there for a minute.

Kim Lisa Taylor:

That’s okay. But I want to follow up on what you said about your strategy because I think there’s a lot of people on the call that really want to hear a little bit more about that. So your strategy is buy, and then refinance, get the investors…

Rod Khleif:

No. You missed a step. Buy, do what we have to do to get the rents up to market level based on our efforts. Like the San Antonio asset, we looked at the competition, we looked at what we’re competing with. What do we have to do to exceed the competition? So we’re putting in plank flooring, blinds, fixtures, doing some exterior work, we’re put putting in parking lots. We’re going to raise rents by charging for parking spaces. There’s our premium that we’re going to put covered parking in.

We’re going to put some self-storage in and we’re doing things to raise the bottom line, pet rent, things like that. But with our efforts we’re going to be able to raise that NOI, that net income, to a point where we’re going to massively increase the value. And then again at that point we can refinance, get our investors their money back, and then we just hold on and our investors stay in our deals after that.

Kim Lisa Taylor:

That was the next question because I get a whole of people that say, “oh, well I want to cash out investors and keep the deal” and we never advise that you do that. Your investors don’t like it. They put up the money, they took the risk and now you’re going to get the windfall. They’re not going to like that. But if you…

Rod Khleif:

I know some operators that do it and they do it successfully. Very successful operator, you know him too, I won’t name names here, but they’re able to do it because they’ve had successful turns in the past, full-cycle deals in the past and they’ve made their investors a lot of money and then they cap them at say 12% on the next deal. So you’re guaranteed 8% preferred return. I’m going to cap you at 12%. Anything over 12% is a return of capital. And that’s like debt. And this woman that I’m thinking of, she just told me about her nine-figure money that she made last year because of selling a bunch of assets anyway. But no, most people keep their investors in the deals.

Kim Lisa Taylor:

Yeah. And that’s what we advise too, because your investors are along for the ride and you want them to invest with you over and over and over again. I mean, our most successful clients have the same investors coming back again and again, and then bringing new friends and that’s how they increased their database of investors from 20 to 700 or something. And they can raise $10 million in three or four days. But when you keep your investors in the deal, do they stay in it the same level they were in before?

Rod Khleif:

Yeah, same equity split. Same level.

Kim Lisa Taylor:

Okay. That’s an interesting model and then you just keep them forever, right?

Rod Khleif:

Yeah, until we sell. But at that point, once they have their money back, the returns are infinity, right?  They have no investment. I mean, it’s a beautiful thing.

Kim Lisa Taylor:

Yeah. All right. So are there any other asset classes that our clients should be thinking about?

Rod Khleif:

I like mobile home parks, but they are a very unique asset class. I know a lot about them. I was going to get into them. In fact, I spent, I don’t know, about $100,000 preparing to get into them. I created lists of them all across the country. I had 10, no, I’m sorry, eight virtual assistants working on this for a whole year. Then I decided just to go multifamily … straight apartment … multifamily. But I love the asset class. There are a lot of pitfalls specifically around the utilities, but I like mobile home parks. I love them. Another one is self-storage. I think self-storage is also fantastic.

Right now I would not do retail or office. But I will say this, warehouse space — because of the Amazon dynamic, particularly large warehouses — are getting snapped up because there’s so much drop-shipping happening and people buying online. So I don’t know that much about that asset class, full disclosure, but I do like the thought of it and the possibilities there. Again, my wheelhouse is residential multifamily like we’re talking about. So that’s my main wheelhouse. But I do know a lot about mobile home parks, a lot, because I spent a lot of time studying it and getting ready.

Kim Lisa Taylor:

We have several clients that do mobile home parks and have done it very, very successfully. But it is definitely a different animal. You have to understand that model. It’s different than just putting tenants into an already existing apartment. You’ve got to kind of put the park model in there and then get people in it. And there’s some different angles. What about development? How do you feel about multifamily development projects?

Rod Khleif:

Well, I actually think it’s a great business model because I think, again, the demand is there. I mean, I just saw in the news yesterday that BlackRock is buying 17,000 homes from another single-family homeowner for $6 billion. I mean these large institutions are buying single-family homes, again, to drive demand. You’ve also got a lot of build-to-rent going on with homes, believe it or not, Kim, I mean, where somebody will build 50 to 100 single-family homes just to rent, not to sell. And so, I mean, there’s the hurdle of the increase in building material costs.

But I will tell you the interest rates are so fantastic right now. I mean, I met with three loan brokers yesterday for a project I’m doing and they were all sub-three interest rate they were quoting me on bridge debt. I mean, we’re talking two point something interest rate. I mean, guys, I’ve been in this business since I was 18. So we’re talking 44 years. I remember when we did back flips when it went to 7%. And so, I mean, two point something percent, it’s just unbelievable. So building to rent is absolutely an option. I’ve got students doing hotel conversions as well right now. I know people that are doing office to multifamily conversions. So I know somebody in Cleveland doing that, an ex-partner.

Kim Lisa Taylor:

That can be a great business model in the inner cities.

Rod Khleif:

Yeah, for sure. Again, not my wheelhouse. I’ve never developed. I built some homes. I did some homes at one time, but not anything larger than that. But no, I think it’s an absolute opportunity. If you can lock up the land, there’s some great strategy around involving the landowner in the deal. He or she puts the land in the deal as part of the equity, so that you’re not really coming out of pocket with too much for your construction loan. So there’s some really cool strategies around that. Again, not my wheelhouse, but I do believe in it.

Kim Lisa Taylor:

That’s great. And we have some clients that are very seasoned that are still building. We’ve got people building self-storage, we’ve got people that are building multifamily. And despite the delays and all the increases in construction costs and all of that, they’re still able to make it work. It’s not something that you want to do the first time by yourself. You really should do it with somebody who’s done it before.

Rod Khleif:

None of this is. Don’t go buy a 100-unit by yourself. This is a team sport, guys, period. This business — unless you’re going to buy duplexes and triplexes and stuff like that — it is absolutely a team sport. And there’s so many places you can fit into that team. You could be the person finding the deals. You could be the person underwriting the deals. If you’re analytical, you could be the asset manager. Maybe you’ve got some project management or other management experience, you could manage the asset after it’s purchased. There’s just so many places.

You could be the voice of it like I am in my partnership. My partner has done $6 billion in acquisitions and he’s very analytical. You can throw him in a room with a spreadsheet and throw raw meat in from time to time and he’s happy. Me, I’m the communicator. I never thought I was, but I really am the communicator. And so there’s so many places. I build the relationships. I build investor relationships. He does that too, but broker relationships because there’s so many places you can fit into a team, which is why my warriors, my coaching students, are so successful.

Most of the 50-plus-thousand deals are units done between my students because they find people that shore up their weaknesses. And when you’re playing to your strengths, first of all, you’re happy, number one, because you’re enjoying what you’re doing. Number two, you’re passionate. So you have the ability to influence people because the influence you have, have to have passion, and then you align with somebody that’s strong where you’re weak. I mean, success is inevitable.

Kim Lisa Taylor:

That’s right. Although I do have a limit on that, and I tell people this all the time, I think more than five people in the management of a syndicate is a disaster waiting to happen.

Rod Khleif:

Well, I agree. And actually Fannie is starting to look at that. They don’t like it. So I’ve heard some rumblings about that.

Kim Lisa Taylor:

I’ve just seen that fail too many … There’s two things that I’ve seen that have been the biggest failures for newer syndicators. One is putting too many people on their team and there’s just not enough jobs. You’ve got about five jobs you can delegate and that’s about how many people that can get together and make a decision. And then the other one is looking for a single check-writer investor, or I call them “whales” because those people very often leave you at the altar and hanging with a deal that you can’t close, because you haven’t spent the time developing relationships with $50,000 and $100,000 investors.

Rod Khleif:

Oh yeah, very dangerous to do that.

Kim Lisa Taylor:

Very dangerous. And I’ve got people that have done it for a long time and all of a sudden they have a deal and it’s like, “oh, well my guy backed out.” Now what? They don’t have a backup plan. So it’s like, now what do you do? So the advice is to go out and build as many relationships as you can with $50,000 and $100,000 investors. Don’t worry about anybody who says they can write the whole check.

Just tell them, “That’s great. I’ll let you know when the docs are done. As soon as your money is in the bank, you’re an investor. Until then we’re having a conversation.” And in the meantime you’re raising money from other people. The worst-case scenario last year is I saw somebody actually after raising several million dollars lost a deal because they were waiting for one $400,000 investor that didn’t come through that day of closing.

Rod Khleif:

I’ve seen it happen. We’ve taken over assets. We bought an asset, a 268-unit in Dallas, it’s called the Millennium now, that we bought for that very reason. Last minute they couldn’t raise the money. We were able to get an extension and put additional earnest money up and we got a phenomenal deal. It’s been 100% occupied for the last three years.

Kim Lisa Taylor:

I want to let everybody know that in just a couple minutes, we’re going to go to live Q&A. So if you have questions, go ahead and put it in the Q&A or in the chat. I’ll monitor both of those when we get to that point. So just be ready and think about what you might want to ask Rod because he’s a fountain of information and I know he’s not easy to reach because he’s just too busy.

So we’ve mentioned bridge loans a couple of times. What are the pitfalls of bridge loans? I’ve got some thoughts on that, but I’d like to hear your thoughts.

Rod Khleif:

Well, I will tell you there are quite a few. One of them is control. Very often they exude some control and they have some onerous reporting requirements more so even than Fannie or Freddie. So there’s a couple right there. Another one is, it’s the Wild Wild West. When you talk about bridge debt, it’s really the equivalent of hard money loans in the single-family space. You translate into commercial real estate. Now, there are some big institutions that are reputable, but there are a lot of fly-by-nights.

I’ll give you an example. One of my students, Ed, had a deal that he had commitment for a loan from a bridge lender and the lender backed out a couple days before closing. And guess he ended up buying that asset, the bridge lender. And they litigated and he got taken care of, but the point is you really need to know who you’re working with. And so we’ve got a short list of people that we recommend in that vein. And the other thing is, very often the fuse is shorter.

So bridge debt, the reason it’s called bridge loans is to bridge you from your purchase to long-term debt like Fannie or Freddie. Now, you can get non-recourse bridge debt as well, but typically it’s three-year term with two one-year extensions. That’s the most common thing we see in bridge debt.

Again, let me tell you the definition of a bad day. I don’t like fiv- year debt. I’m going to tell you right now. I’m going to probably do one or two, but I don’t like it. Here’s why. Here’s the definition of a bad day: The market corrects. And you’ve got cap rates that aren’t going to get you the value you need on an asset that’s cash flowing and doing fine, but you can’t refinance it because you don’t have enough value because the market is in a correction. That’s a bad day. So I like longer-term debt. I prefer seven- to 10-year debt wherever possible.

Kim Lisa Taylor:

I agree with that and a whole lot of people that really lost out in the great recession were people that had three- to five-year terms on their loans, and then the market corrected, they were in the down cycle and they couldn’t refinance.

Rod Khleif:

Exactly right.

Kim Lisa Taylor:

And they ended up giving their properties back to the bank. And then the next people in line to buy that property they made out mad. So be careful of that three- to five-year debt. Also be very, very careful about personal guarantees because the people that actually declared bankruptcy during that time were the people that had whole lot of personal guarantees out there.

Rod Khleif:

Ask me how I know. I have a T-shirt that says “#ask me how I know” that a student got me because in my coaching, my courses and my boot camps, I’ll very often say, “Don’t do this. Ask me how I know.”

Kim Lisa Taylor:

Well, I’m thinking about this too, when you’re setting up a bridge loan, you want to make sure that you’re setting it up in the beginning the same way that it’s going to have to be set up in order to get agency debt on a refinance because you don’t want to reconfigure your corporate structure especially if you have invested in them.

Rod Khleif:

That’s right. It’s very important. You need to have the right players involved. All of that. You need to be thinking about your exit before you even get in. Very good point.

Kim Lisa Taylor:

That’s right. So just be careful of that. And one of the ways that you can do that is to keep your loan to value ratios low. You might tell investors that “Look, our internal policies, we don’t do more than 65% LTV debt regardless of what’s offered because we know then we can weather a storm and still make out okay.”

Rod Khleif:

That’s what we did on this last asset in San Antonio. Actually we can break even at 58% occupied and the debt… Actually, no. We did 68% debt. But again, we could break even a 58% occupied. We’re talking about stress testing. That’s a stress test. What’s your break-even point?

Kim Lisa Taylor:

Yeah. And it might give your investors a slightly lower return, but the timing is a little uncertain. You want to make sure that they’re taken care of in the end more than worrying about a couple points worth of cash flow for the first couple years of operations.

Rod Khleif:

Let me add something, if you don’t mind. I know you were going to ask me this later, but I see a couple people dropping off and let me just say something, guys, because the timing couldn’t be better that we have this today. I have a virtual boot camp coming up, March 12th and 15. It’s two days. It’s online. I don’t sell anything there. It’s 16, 18 hours of training, nothing being sold. And right now the price for the early bird is $97. So if you want to come, the price goes up tonight at midnight.

So this is not this pitch that I planned for you guys. It’s just this is when it goes up. It goes up tonight. It only doubles. It’s only $197. It’s still a screaming deal. But if you want to come text… Actually I’ll put the link in the thing here, but you can text Rod to 72345, or you can go to this website that I’m putting in the chat right now. Can they see the chat?

Kim Lisa Taylor:

Yeah.

Rod Khleif:

Okay. It’s multifamilyvirtualbootcamp.com. But again, I don’t sell anything there. It’s 16 to 18 hours training for $97. It’s kind of a “duh.” Seriously, if you have any interest in this business… I’ve had thousands of people come … I had to go virtual because of COVID. I had thousands of people come and I’ve never had a complaint other than the breaks are too short because it’s 15-minute breaks every few hours because I’m packing in so much stuff and it is drinking through a fire hose. I’m going to tell you. I mean, just to show you something here.

I think I’ve got it right here. I do. Here’s the manual for the event. I don’t know if you can see that, but it’s not some teaser thing where I tell you a couple things hoping you’ll buy more from me. You’re going to get it all. So anyway, I wanted to say that before some of you dropped off because if you have an interest in this business, come. You’ll be very, very glad. I promise you, in fact, if you don’t love it, DM me, I’ll give you all your whopping $97 back. It’s never happened, but there’s always a first. I don’t mean “like it.” I mean, “love it.” So I hope to see some of you there.

Kim Lisa Taylor:

Okay. All right. So let’s kind of go with our last question.

Rod Khleif:

Let me answer Dejon’s question. It absolutely is beneficial for passive investors as he’s asking, “is it beneficial?” Here’s why. Why would you give your hard-earned money to something that you don’t at least have some basic understanding of? And so many people, they’ll put their money in the stock market with a broker who’s trained on sales, not trained on stock picking and stock selection. They’re trained on sales. And same thing with real estate.

There are operators out there. I don’t know if you heard me earlier, Dejon, talk about deals that I’m scratching my head that they’re doing right now because they’re way too aggressive. And so this will help you make sure you don’t make a mistake with your hard-earned money. Okay, Dejon? So hopefully that … and thank you, Heather Lee has been to one. Fantastic. Thank you, sweetie. Appreciate that.

Kim Lisa Taylor:

Is there an email address that you want to give people if they want to connect with you?

Rod Khleif:

Oh, I just threw… Oh, I didn’t, I sent it to you. If you need email, I give up my email. Nobody abuses it. It’s rod@rodkhleif.com. You can throw it up there.  Nobody abuses it.

Kim Lisa Taylor:

All right. So let’s go to a couple questions here. Julie asks, “I’m in a $26 million in multi…”

Rod Khleif:

Oh, she just wants a recording.

Kim Lisa Taylor:

Okay. We will be posting this on our website and also it’ll be coming up on our podcast. So you can get it then. Let’s see.

Rod Khleif:

And I’m going to convince her to put it on YouTube, guys. So just trust me. After this is over, I’m going to have a heart-to-heart with old Kim here.

Kim Lisa Taylor:

Okay. Good. In your opinion, is the Tampa market overpriced right now?

Rod Khleif:

No, absolutely not. And here’s why. I believe rents increased 20% last year. And I promise you, maybe not in the 100-plus-unit assets, but in the zero or in the 5- to 50-, 60-unit assets. I promise you that there are assets that have not raised their rents proportionately to these increases. I have a friend, lives here in Sarasota, which is still considered the Tampa MSA.

They just raised her rent on a two-bedroom, $1,200 from one month to the next. She went from $1,800 to $3,000. That’s what’s happening here. And so, no, James, I do not believe… Now, sure, there’s properties that are overpriced, of course, but I think there’s opportunity. In fact, I am aggressively looking there, James, because I live in Sarasota.

Kim Lisa Taylor:

Okay. Well that’s good bit. Here Magziak asks …

Rod Khleif:

Charles says the links doesn’t work. It’s multifamilyvirtualbootcamp.com, Charles, multifamilyvirtualbootcamp.com. Anyway. Sorry, what were you saying? Ridiculous question. “When underwriting expenses for a pro forma, is it wise to use 7% to 8% inflation rates for your expenses?” No, I don’t think you’re going to see that consistently rise like that. Please, God, not let that happen. We use 3% to 5%. 3% might be aggressive, 5% is probably realistic. 7% to 8%, that would be horrific if it continues to go like that.

And same with the rents though. Don’t go crazy with your rents either. And don’t be putting 5% a year on your rents. It’s unrealistic. So there is that balancing act between expenses and income that you’re going to have to contend with and of course, there’s no crystal ball to any of this. But good question, actually. Painful question to try to answer because who knows? I just pray to God it’s not that bad.

Kim Lisa Taylor:

Okay. So here’s, let’s see.

Rod Khleif:

Jason has got one here on the chat. “What separates a good versus great property management company when picking your team?” I’ve got a free asset for you, Jason, hang on one second. It’s a book. I write books that all my students get, but I’ll give it to you guys here in one second. “How to Hire a Third-Party Property Management Company.” It’s got every possible question I can think of. If you text the word management to 72345, you’ll get the book and it’s really good. It’s got every possible question I can think of in there. But you’ve got to do your due diligence. And it talks about all that. So rather than trying to deliver that answer, Jason, that’ll give you everything you need, brother.

Kim Lisa Taylor:

Okay. I’m putting this in the chat for you too.

Rod Khleif:

Yeah. Text management to 72345. And for some reason we just changed text. If for some reason that doesn’t work DM me on any social channel. I’m very, very responsive or email me at rod@rodkhleif.com and I’ll hook you up, make sure you get it. Dejon said, “Would you use your personal home’s equity to invest?” Well, obviously, there’s a risk with that. And so, I mean, there are a lot of operators that are promising 8% to 10% returns. You borrow it at two and a half percent, there’s a spread there. But I’m going to tell you if and when the market contracts, if they aren’t able to get those returns, I mean, I think you’re probably okay to do that, but it’s a very personal decision, very, very personal.

Kim Lisa Taylor:

And I would do that more to buy your own stuff than go invest in somebody else’s deal where you’re relying on…

Rod Khleif:

Yeah, then you’ve got control. I don’t disagree with that at all.

Kim Lisa Taylor:

You’re relying on someone else to pay your mortgages is never a good idea.

Rod Khleif:

Vtom loves my podcast. Thank you so much. I don’t know your name, but thank you so much.

Kim Lisa Taylor:

And then your podcast is?

Rod Khleif:

My podcast is “Lifetime Cash Flow Through Real Estate Investing.” I’m blessed to say it’s the largest commercial real estate podcast really in the world. We just broke 12 million downloads.

Kim Lisa Taylor:

Wow.

Rod Khleif:

Yeah. And I’m really blown away by that too, honestly. But I do these clips every week called “Own Your Power “about just that: owning your power. I’m a big proponent of mindset and psychology, I really believe. And that’s why my students are so successful. I believe 80% to 90% of your success in anything is between your ears, that your mindsets, your ability to take action and push through fear and push through any limiting beliefs that you have to actually go do what I teach you.

And so, by the way, you come to my bootcamp, you’re going to get some of that, just so you know. I don’t want you to go there and just get the education and not do anything with it. So I spend time on mindset. Just know that coming in, and you’ll love it, I promise you. High energy. You’ll absolutely love the event if you can make it.

Kim Lisa Taylor:

Oh, absolutely. I’ve been to Rod’s events. People are just super-charged-up to be there. Everybody is excited, Rod is excited, the speakers are motivated. It’s just a really positive environment. Here’s a question, Rod. “What positions are the team members you require and what do they do?”

Rod Khleif:

Okay. So you’ve got somebody finding deals maybe. That could be through broker relationships, that could be through an off-market campaign. Let’s see here. So those are the two ways, through brokers or off market. So finding deals, investor relations, contacting people and getting them to invest in the deal. That’s another one. Underwriting. If you’re analytical, that’s a huge need and we just brought somebody else on to our team for that. So underwriting the deals, because this business is primarily empirical.

You ask all the right questions and you get the numbers right, it’s pretty hard to make a significant mistake. So underwriting. Then if you’ve got any property management experience or a project management experience, I mean, project management experience, period. You could be involved in the asset management, because you’re not just going to give it to a third-party property manager and be done.

You’re going to be talking to that property manager at least once a week minimum. If you’re doing a CapEx project and you’re repositioning it even more than that, and so you’re going to be managing the asset, and that includes the property management company. And so that’s another piece. Am I missing anything?

Kim Lisa Taylor:

I’ve got loan guarantors. You got to have…

Rod Khleif:

Oh yeah, of course. Or you could put up the at-risk capital on a deal and be involved that way. You could guarantee the loan for sure. Be a KP on the deal. So if you’ve got a significant balance sheet and net worth and liquidity, some of these deals are tens of millions of dollars and we have to combine net worths. Even me, I’ve got to go and combine with people for a … That was a $40 million deal we did in San Antonio approximately. And so you got to have the net worth equal to the loan amount. It was a $20 million loan. Actually let me be more specific. It was a $37 million purchase price. It was a $19 million-and-change loan.

And so sometimes you’ll combine net worth and liquidity, and you have to have liquidity equal to about 10% of the loan amount to do one of these deals. So net worth equal to loan amount or exceeding loan amount, liquidity equal to approximately 10% of the loan amount. But it’s not you personally, it’s the team. That’s what’s so beautiful about this business is you can pull … You find one high net worth person like a doctor or something, you bring them on your team and you go out there and find the deals and raise the money.

Kim Lisa Taylor:

Well, I do want to talk about a couple of offers that we have. One, if you can see the book behind me, that’s the number one Amazon best-selling book that I wrote called “How to Legally Raise Private Money.” It kind of breaks down step by step the process of becoming a syndicator and kind of the “why” that you do it. I wrote it in plain English. It’s gotten a lot of really positive reviews. I think it’s helped a lot of people. You can get a free digital copy of that our website at syndicationattorneys.com or you can buy it on Amazon. Even if you’re a passive investor, the last chapter of that book is for passive investors.

And the reason I think that’s important is the same thing that Rod said, you got to learn what these people should be doing, to know if they’re doing it and to know if they’re doing it correctly, because if they’re not, then you want to steer clear. And also in his forums, you get a chance to interact and network and meet people that you can develop relationships with and decide whether you want to invest with them. So I think that’s hugely important. I would add one other person to your team members, people who know people with money.

Rod Khleif:

Yeah. Good point.

Kim Lisa Taylor:

People who know people with money, people who have money, people who know people with money, people who can guarantee loans or people who have deals. Those are all kind of people that you want to want to bring in. But the underwriting and the investor relations is also key. But again, try to keep your management team to five or less; with anything more than five, it kind of ends badly in most cases.

Rod Khleif:

Kathy asked, “What’s the smallest amount of money you can use to invest?” Well, first of all, if investing is going to burden you financially, then wait until it doesn’t, number one, because it’s at risk. That money is at risk any way you shake it. I mean you can actually go to a crowdfunding site and do as little as $500 or $1,000. I’m not going to say that’s a great idea.

We’ve seen crowdfunding sites collapse. I just interviewed somebody yesterday on my podcast that they had a seminar, I call them failure seminars. They had a seminar and they lost all their investment because with a crowdfunding operator there, somebody they invested with through crowdfunding, they lost all their money. So, again, don’t invest anything you can afford to invest, Kathy. That’s probably the best way to answer that question.

Kim Lisa Taylor:

And most syndicates that we write are $50,000 minimums but there are some exceptions.

Rod Khleif:

Yeah, same here.

Kim Lisa Taylor:

But if you go to a crowdfunding platform where they’re actually posting people’s deals, you might see them as low as $25,000. So I think we are about ready to wrap up.

Rod Khleif:

Yeah, I have a hard stop in three minutes.

Kim Lisa Taylor:

Our website is syndicationattorneys.com. If you want to go there, we also have a companion website called investormarketingmaterials.com. So if you don’t have deals right now but you’re wanting to approach investors and you want to have some professional marketing materials to share with them, that is something that we can help you with.

We have professional editors and graphic designers that can create those materials for you and make sure that they’re compliant with securities laws. So you’re not setting yourself up for trouble in the long term. So, Rod, thank you so much. All of the attendees, thank you so much for taking your time out of your day.

Rod Khleif:

I just put my website up there too, Real Estate with Rod. Get you tons of free materials if you’re interested too. Thank you.

Kim Lisa Taylor:

Yeah. And we have a huge library at our website with a bunch of one or two-page articles. All of our past podcasts are there. And all of our frequently asked questions. So there’s just a lot of educational material there. And we do have a way for you to become a client for a nominal fee where you can get invited to our weekly masterminds that I host every Friday at noon Eastern time, unless I’m traveling. So that’s an option for you. If you’re interested in knowing more about that, go ahead and click the link at syndicationattorneys.com to schedule a free appointment and we’ll get you hooked up. So, Rod, thanks a lot.

Rod Khleif:

Oh, it was great to see you, Kim, and start putting these on YouTube. Trust me. Ask me how I know. My YouTube videos got watched for 40,000 hours last year, 40,000 hours. You need to put them there and you’ll be glad you did. See you, guys. Take care. Appreciate you.

Kim Lisa Taylor:

Bye-bye.

Rod Khleif:

Bye-bye.