Latest / Real Investor Radio Podcast / Ep 66 | Multifamily Market Trends, Property Management, Financial Literacy with Andrew Kuhn

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Ep 66 | Multifamily Market Trends, Property Management, Financial Literacy with Andrew Kuhn · Real Investor Radio Podcast

• Craig Fuhr (00:12) Hey, welcome back to Real Investor Radio. I'm Craig Feuer joined by Jack Bevere. Jack, good to see you again today. Jack BeVier (00:19) Absolutely. Good morning, sir. Craig Fuhr (00:21) Looking forward to introducing our guest, Jack, but we are coming off a wild and wooly time with the five-year bond. You and I have discussed this on previous podcasts, the Fed rate cut that happened on September 18th. So many investors were eagerly awaiting, hoping that they would see a commensurate cut in DSCR rates, but you and I have been talking a long time about this, Jack, that those cuts were probably already baked in. And now we're seeing the five-year up almost 50, 60 bips over that time since September 18th. I just wanted to get your quick thoughts on that and maybe on the wild and wooly upcoming election that I think that everybody's kind of stalled and waiting for, Jack. Jack BeVier (01:04) He had a couple of different things going on there, right? So the, anticipation of the Fed rate cut happening, mortgage rates dropped. So, like you said, all of a sudden, DSCR pricing was, became really strong. So it was residential consumer lending pricing, right? Mortgage rates were down. But that didn't really spur the market that much in terms of showing activity. So it's been a really, in my opinion, pretty depressing past 60 days to be a flipper. And if your backup plan, my flat backup plan is to keep a lot of properties as rentals if they don't sell where I want them to. Refinancing with the DSCR loan is a great option for that. And as you mentioned, the five-year treasury rate had come down in anticipation of the Fed cutting rates. so DSCR rates were getting really attractive. Then we had some, paradoxically, I feel like I'm rooting for bad news because we had a good jobs report and then an inflation report, which was coming down, but not as much as the market had hoped or expected for. And we saw the five year shoot right back up another 50 basis points. So folks who were like, no, this is the trend rates are going to keep coming down, have been disappointed by that. And you know, didn't work out in their favor. So right now it feels like, you know, DSCR rates are back up a little bit, which they're still good, right? Like they're still, there's there's still they still work. for building a rental portfolio. In my opinion, it's not like it was a year ago where this was like definitely not a creative financing. but they're not as, but it's not cheap either. and then the, the flipping market is just slower right now. yes, great product in quality, very, high quality locations is still moving, but I feel like the edges of the market, the low end of the market, the high end of the market, the, you know, parts that are a little bit less liquid, they're really starting to think it's I think see some softening in nominal pricing too. lots of, you know, a difficult time to navigate right now. Craig Fuhr (03:05) Yep. Just feels like, you know, talking to investors every day, Jack, I know you mentioned on a call recently with the company that you're actually finding deals for the first time in a few years on the MLS. And so maybe the buying opportunities are coming for those folks who are just kind of looking for the needles in the haystacks right now. What are your thoughts there? Jack BeVier (03:32) Yes, we've like, you know, stuff that we bought at the courthouse in Maryland, which takes a long time to ratify. So I don't get the property right away. That hasn't worked out because I'm seeing that as is pricing is coming down. So like something I bought for 130 grand, you know, four months ago at the courthouse with the intention of selling it for, you know, 10, 15 grand up as a wholesale fee. I'm now like trying to get out of that property and like, so as is pricing to me feels like it has come down. Andrew Kuhn (03:33) Thanks Jack BeVier (04:01) which, and as you mentioned, like, you know, which is great for deal finding, showing the activity being slow means that you might find some, you know, some, some, some sellers that are ready to toss in the towel. And we've actually found a couple on the MLS and I don't think I bought an MLS deal in five years. So that was like, you know, a canary, you know, I I'm wondering if it becomes a trend. so yeah, I think that the, as is market is coming down too. So if you're still buying off of the same, you know, your as pricing is the same as it was nine months ago. I think you're not adjusting. think I think I think it's valid to be expecting to be buying it cheaper numbers today than you were six, nine months ago. Craig Fuhr (04:46) surprised to talk to an investor yesterday here in Maryland, Jack, who, you know, I think we're seeing a slowdown in buying activity, showing activity, offers all around the country right now. But he was talking about a few projects that he and some other investors here in town, different projects had just completed. And I think, Jack, that my take is that well done, beautifully rehabbed are still selling quickly. If you go in and try to put lipstick on a pig or you're selling grandmom's house that was rehabbed back in 1976, probably going to be sitting for a while, especially if you're trying to get top of the market. I was really shocked to hear multiple offers on some of these better rehabbed properties in a couple of days rather than having to take the price cuts that we're hearing guys around the country. But when I look at some of the stock that's out there from rehabbers, my My advice is do do a better job. You know, be better, make your product better. You know, and so I think that's always been a mantra at Dominion Jack. And, you know, maybe you want to just chat on that for a second. Jack BeVier (05:57) Yeah, no, I think that that's definitely the case, right? There's a flight to quality and down markets. and so we're, we're definitely seeing that, the properties that we've gotten off of the MLS were exactly that category that you're just talking about where it was like, it was sitting out there. It wasn't gorgeous, you know, had never really been updated, but it was totally livable. But, know, but there was nothing about it to fall in love. Right. And that's, know, and home buying process is an emotional one. And so If you know when buyers have lots of options and they walk through your house and they don't fall in love, you may have 20 people walk through and not fall in love. And it turns out that the unemotional buyer is your buyer and that's an investor. And so I think, you know, there's going to be a reversion down to that investor pricing for those properties that just don't inspire that emotional, that is emotional hit that you're talking about. Craig Fuhr (06:50) Jack, we have an awesome guest today that we want to bring in. Andrew, thank you for coming on the show. We've got Andrew Kuhn with us today. is straight from his LinkedIn page. He's a husband, a front road to add a CEO. He's a longtime real estate investor now in the multi-family space. Andrew, thank you so much for taking the time. We really appreciate it. Andrew Kuhn (07:10) Yeah, thank you guys. It's pleasure to be here. Craig Fuhr (07:14) Man, let's just jump in, Jack. I know we have a lot to talk about, but we were talking for a few minutes prior to hitting the record button. I always love to hear the backstory, man, the trajectory. You were talking about how you had a full-time job for a very long time as you were getting into real estate. So, love to hear about how you went from being a guy with a W-2 job to being a full-blown entrepreneur. Andrew Kuhn (07:41) Yeah, sure. So thanks, Greg. Great question. and I want to share this background story because I, just like I started out by listening to podcasts, going events, that type of thing. I want people to know that, you know, it is a successful path to follow. and yes, it takes a lot of hard work and dedication, but you know, it is possible. my story really actually starts back in college. I was a pre-med and a finance dual major. I thought it was going to be physician. Craig Fuhr (08:09) real slacker. Andrew Kuhn (08:10) Yeah, I know. I thought I was going to be a smart doctor that was good at business because, you know, people traditionally know that doctors aren't good at business, right? And I was lucky enough to play college sports, not because I was any good, but because I was able to outwork most people, right? You'd be surprised what being a grinder and disciplined and hard work will get you in the absence of talent in life. anyways, seriously, you know, but that being said, I had a friend in college. Craig Fuhr (08:34) Yeah. Andrew Kuhn (08:39) And, know, I bless him every day, but he had just recently read Rich Dad Poor Dad and listens to some, well, back that time cassettes, this was the early 2000s, you know, 2002, 2003 of Jim Rohn, the personal development speaker, right? And so for those of you unfamiliar with Jim Rohn, he was kind of like the mentor that got Tony Robbins started, right? And so he was one of the greats with Dale Carnegie and Zig Ziglar and Napoleon and all those guys. anyways, this is like my junior year. And two things happened. was, I I wouldn't call myself smart enough, maybe just dumb luck, but I wanted to actually shadow our team surgeon and see what it was like to live a day or a week in his shoes. Right. And at the end of that experience, I knew real quick, I didn't want to be a doctor. Like God bless them. I give them credit. Their whole life is devoted to their profession and they do amazing things at the expense of, you know, some other areas often. But I also realized that. that time point that I wanted to be a real estate investor, right? And so everybody who's read Race Dad Poor Dad, it's usually one of the first beginner books that kind of get them in the business. And, you know, as a young, you know, 20 something that didn't know any better, you know, I talked to my parents, was like, Mom, Dad, I'm not going to medical school. I'm moving to Michigan, right? I'm moving to Detroit, and I'm going to become a real estate investor. And they're like, what the, like, what are you talking about, right? Like, and so, You know, was interesting because as all people who tend to read that book, they think they're just going to like drop everything and you're going to get rich really quick at real estate. You're going to be a multimillionaire flipping houses, you know, your first year out. Right. And so I was 21, just graduated, you know, no job, no contacts, no resources, that type of thing. And I did it kind of looked around and tried to figure out I'm from Ohio. went to college in Ohio. and realize that Michigan was, Detroit was where all the cheap houses were, right? And so that was very prevalent in early 2000s. And if you guys remember like, five, so I graduated college in five, five, six, we were really in the boom of all the, what I'd call the information marketers, the real estate educators that were selling programs and. You know, you know, you're in a, in a bubble when every hotel room is full of real estate investors or your Applebee's waitress comes and tells you like she started a second job flipping houses. Right. And so like, right. So 20 something get caught up in it. quit my first job. I was amended by sales rep thought I was going to be rich in a year flipping houses and completely got mass handed to me. And so, you know, bought my first house, did everything wrong. This is like, six, bought it on. I actually used the Ninja loan. You guys probably remember those back in the day 21 years old no job, right? Didn't have to document any income. No nothing. Bought a house off of MLS that a couple were selling and I can't even call it a rehab because it wasn't even a rehab. It was like a cleanup job, right? And put it back on the market and in 2006 it was one of those times where pricing was going up and you know, I made a couple dollars on a sale maybe five, ten thousand dollars I feed Neto, everything. Craig Fuhr (11:26) Yes. Andrew Kuhn (11:51) And at least I didn't lose my butt on my first one, but I did everything wrong, right? Like credit cards and Ninja loans, 30 year loan for something I was only intended to hold six months. you know, and so, but that was the start, right? Like I start. And so over the next couple of years, I, you know, I had started to buy houses, not all of them, kind of like Jack was talking earlier, would sell in the flipping space or the wholesaling space. And so I started to build a rental portfolio. but during that time, I also realized that when starting out in your early twenties with no resources, I, you know, my dad worked at GM for 30 years. My mom was a high or boys, right? Like very middle class blue collar, upraising upbringing and realized that I had to have income, right? So you have to have income to survive. And so the rental, the rental portfolio, I'd buy a house and buy a couple of houses, that type of thing. Craig Fuhr (12:30) Mine too, mine too. Andrew Kuhn (12:47) back when, when Fannie would give you 10 up to 10 mortgages and your personal name, right? We all remember that period. And so, but I realized I needed to go back and get a job and there was a, there was an author loved to read. I truly believe that, you know, life is a continual educational journey and you should always be learning. Mark Ford, Michael Mastron was pen name, wrote a book and he talks about the chicken entrepreneur strategy. And after being broke in my, you know, 22, 23, 24 years old, I went back and got a sales job because a field sales job, because it gave me steady income and I could keep my day job. I found out lenders really liked people with W-2s and high incomes, But you still had flexibility. know, that was kind of the, that was kind of a field-based sales rep was kind of the work from home before the work from home was cool. Right? So you had autonomy as long as you were hitting your sales goals, you could do other things. So like, Jack BeVier (13:28) me too. Craig Fuhr (13:29) Drain, bleed, morph, yeah. Jack BeVier (13:39) Yes. Andrew Kuhn (13:46) And I got into medical device sales. So kind of got, you know, my, my fulfillment from still being some related to medicine. And so I'd go in and I'd work in a hospital in the morning, covering a couple of cases. The afternoons I'd be walking open houses or negotiating things. And instead of, you know, nights and weekends in my 20s going out and partying, you know, I'd go to seminars and I would get educated. Right. And so I joined groups early on. I was lucky enough to join the RIR mastermind. Jack BeVier (13:53) Mm-hmm. Andrew Kuhn (14:15) you know, which is great, that you guys know very much about obviously with Jack helping co-found it and everything. And shameless, shameless. But, but the point is, is I got around people who were better than me doing great things that were inspiring and kind of pushed me to do more. Right. And so, you know, by, by, like I said, hard work, kind of keeping my nose to the grindstone was able to kind of build that up, build a portfolio of first single families. Craig Fuhr (14:22) Shameless dog, shameless, shameless. Andrew Kuhn (14:44) you know, we were over 100, almost 150 at our highest point. I brought on a partner who was a professional property manager. So like I could handle financing and acquisitions and that type of thing. And he was really the operations guy in the single family space. And then in 2015, 2016, I started pivoting to multifamily because I got involved. I started doing service in other organizations. and I started meeting some apartment operators in my market, some larger operators that had three, five, 10, 30,000 plus units. And these guys were running really, really big businesses. Right. And that, that to me was part of figuring out my mission of being able to deliver value and help other change other people's lives at scale. was by building a larger organization. so, and that's really kind of what made the evolution of multifamily for me, right? Was to build a bigger organization and affect more lives, both residents that stay in all our properties, as well as the employees in our company. And so made that pivot in 2015, 2016. At the time I had a company that was named after me, it was called the Coon Investment Group, which is really funny. And then, you know, in talking with some council and stuff, realized that I needed to work on my ego and do the inner work, right? And so rebranded the company away from me. didn't need to be a company. Yeah, right, right. And so because another thing I've also learned is that, you know, there are a lot of people out there and, know, they want to seek fame and that type of thing. But really I had a mentor early on. was like, Andrew, it's not bad being the richest guy you've never heard of. Craig Fuhr (16:11) rip the signs off the building and Andrew Kuhn (16:31) And I sat with that and I was like, you know, you've got a good point there. And so if we've rebranded and you know, we've continued to scale in the multifamily space, still own a lot of single family. But at the end of the day, residential was always the asset class that resonated with me. And the reason it resonated with me was twofold. Number one, I read some early business books that talked about people who got incredibly wealthy and successful doing the most boring of businesses, Like waste management and all these other like boring businesses. The other reason was because, you know, back in high school, we had this, my business thesis was, you know, back in high school, we all took psychology class and they all talk about Maslow's hierarchy of need. And it was a triangle. And at the very base of this triangle was like talking about the basic human needs to live, right? It was like air and water and food and shelter. And so, you know, people always need a place to live. We're in a country that doesn't have enough supply relative to the actual need of housing, right? And so supply demand curves haven't crossed and won't cross for probably the next 20, 30 years, if that ever. And so it seemed like a pretty sound fundamental basis, despite the fact that when you get into the operations of dealing with people, is definitely the roll up your sleeves and... do the dirty work type of job in regards to being a successful operator, right guys? Like I don't have one commercial triple net tenant. You know, I don't have an industrial building that has, you know, a 10 year lease with, you know, five year renewals. We deal with people in where they live. And so there's a lot of emotion in that. There's a lot of volume and a lot of interesting situations we'll call it, come up in managing, owning and operating, you know, residential housing. Craig Fuhr (18:15) So I'm hoping that my son who just started at WVU and is a finance major with a real estate back will listen to this podcast in particular. I don't know that he's listened to any of them, Jack, but this one in particular, because I love the trajectory and the backstory and we'll get into what you're doing now, but I have to ask. So he'll listen. How much has your finance degree helped and sort of aided in what you do today? Andrew Kuhn (18:44) Another great question. So the finance degree or having kind of a finance mind, I feel has been incredibly helpful because the entire business, the entire success that you will have in the real estate industry has a lot to do with your ability to understand numbers. Every day we're looking at P &Ls, we're trying to manage operating expenses, especially as we get into an environment now where just like any business, right? The goal is to have more revenue and income than there is expenses. But you need to be financially literate to understand the levers that you can pull in your business. And you get that information by understanding the financials. And so of the degrees, that are out there in the undergraduate space right now. feel like finance is one of the more helpful ones. You know, I sometimes question like entrepreneurship didn't used to be a track or a degree somehow now an undergraduate like in a, and it's kind of funny because when you think about it, it's like, wait a minute. education in this whole system that we have built, which is a business in and of itself is trying to teach kids or sell kids really on entrepreneurship, which really is kind of like the antithesis. of the traditional, you know, secondary and professional. Yeah, exactly. It truly is right from a historical perspective. so, but Craig, like I said, please have him listen. I'm more than happy to talk to him one-on-one as well. One of the things is I've had enough nice people that have poured into me and given me advice at certain times that I always make sure that I bring values to others and, you know, pay it forward. So it's just a fundamental belief of Jack BeVier (20:01) Yeah, university is the workforce development tool. Yeah. Craig Fuhr (20:24) I appreciate that. Jack BeVier (20:25) My, my, my favorite class in college, like I was, you know, I went there thinking, I thought I was going to be an engineer coming out of high school. And then I got into a business school that was a better business school than the engineering school I got into. And so I went with a better school just purely cause I was 17 and had, didn't really have a very strong opinion as to what I was going to do. but then some in business school taking all the, like the one-on-one classes. And then we get to my, my, it was actually corporate finance 100. And like the second week of corporate finance, I like, just fell in love with it. I was just like, my God, it's like, it's like the physics of money. this, like this explains how like why business works the way it does. Like to me, it was like the engineering, like I loved my fit, like my physics courses. That's why thought I was going to be an engineer. I was like, this is the physics of money. Like this is how money flows around the world. Like this is so cool. Like, and all of a sudden I understood or, know, I understood a lot more about like how you know, why certain businesses got to certain levels and why the public companies dominated certain sectors and private companies were in other sectors. And I just thought it was the, the coolest thing. And that was a huge eye opener for me, that class specifically. Craig Fuhr (21:38) Jack, I don't know if you actually coined the phrase the physics of money, but I've often given you credit for it. Jack BeVier (21:43) Yeah, I got to trademark that shit. Andrew Kuhn (21:45) I was gonna say you've got to, because I really love that man. I'm not gonna lie, I will give you, by the way, this is a whole other thing. I always make sure to give accreditation to whoever says stuff and you are being tagged for the physics of money. Yep, yep, there we go. Jack BeVier (21:59) First one, sweet. Craig Fuhr (22:01) We're on T-Shirt Jack for the finance nerds. Jack BeVier (22:05) I also fell in love with Andrew. You were mentioned. I also fell in love with residential for similar reasons. Like I worked in commercial real estate for a couple of years out of school. I worked at an office read up in New York and it was a finance job, you know, coming to, you know, wear a suit every day to sit there and like read leases and plug them into an Argus model and do discounted cash flows. And, but then we'd be like, Hey, we should bid $200 million to this building. And I thought that was cool. Right. Cause I was 23. was 22 and like, bidding $200 million on anything just sounded really cool. But there was this saying in commercial Brown, the office, the commercial real estate that the commercial real estate guys sleep on nicer pillows, but the office or but the resi eyes sleep better. And then and then 2007 happened and like that just marked both markets got absolutely murdered. But yeah, I've always taken voice thought that like, you know, residential is a very, very large asset class, like you can Andrew Kuhn (22:33) big numbers. Jack BeVier (23:03) you know, a billion dollars in residential real estate is nothing like compared to the, you know, the, the total assets in that asset class. But like you said, but it's a fundamental thing that we all need. So it's both like a place where you can, if you want to scale, like you can, you absolutely can. but the fundamental operations of the real estate, if you get that right, it's really not that it's more work than it is risk, you know, Andrew Kuhn (23:27) Yes. Jack BeVier (23:27) And I was never like you, was never afraid of work. So I always, I was just like, this is the fit for me. Like this is, this is where I should spend my energy. Andrew Kuhn (23:34) That's awesome. Craig Fuhr (23:35) So Andrew, talk about how this blue collar kid with a father who worked at General Motors like mine did here in Baltimore for 35 years. How do you go from that, which I find immensely inspiring because I think that there's so many people that listen to this podcast who can identify with that exact upbringing and sort of where they were from where they are now. But tell us where you are today, and give us a sense of what's exciting in your company. Andrew Kuhn (24:06) Yeah, absolutely. again, we, I think too many people in this country, speaking to your US based listeners, take the fact that they literally won the lottery by living in the United States of America at this time in history, right? Like if you've ever read the book, Sapiens, great book talking about the history of our civilization. If you look at, or if you just travel internationally, like we're big in our family. Craig Fuhr (24:06) sure. Andrew Kuhn (24:32) about traveling and getting our daughters, have two daughters, seven and four, exposure and understanding the world's a big place and not everybody has the opportunities that you do in this country, right? Like you literally won the lottery ticket. There's 7 billion people in the world. There's 300 million that we're lucky enough to either be born here or come here and be citizens of the United States, right? So that in its pretense, I'm always grateful for. And so, I let people know that that despite the craziness that's going on and you know, all, and especially we're in the height of the political rhetoric right now and all this craziness. and there's some very real concerns, right? But like when you start to learn about where we are in civilization, the type of structure our society has, I was very lucky. So I start with that basis to let everybody know that you can still come here and do anything. And the interesting thing is, is like, I live in Metro Detroit now. It's a very culturally diverse, area, right? Yeah. tons of first and second gen immigrants. We have people who come here because they believe they can do something. like from from changing classes, changing your life, really directing the control of your life, you can do that. Right. So that's the basis and core fundamental belief that I have. Not easy always, but it's possible. And the way that I know it's possible is because I've read books of other people who done it. I've seen other people who have done it. Right. And so they proved it's possible. so I start with that basis on everything for people who are like, how am I going to get started? Right? And I think the answer is just start because the other thing is, people, and we talked about this earlier, when it comes to learning, the doing of the thing will give you a way better education than any book, any seminar, any, anything ever will and at a faster pace. Right. And so in my confirmation of that was my, my real world validation is I started, as I started to offer and do, service and organizations, as I mentioned, Craig, I'm currently sitting in the president role of the Apartment Owners Association for the state of Michigan. Our ownership group manages about owns and operates about 250,000 apartments across the state of Michigan, even more nationally, because we have a lot of multi-state operators here that are locally based. And these guys have never heard of a seminar. They've never read Rich Dad Poor Dad. They don't know what a real estate guru is or an information marketing program, right? But they... got into this industry, they started some are first gen, some are second gen, some are even third gens. And they built unbelievably large organizations, right? With hard work, good values, trying to bring value to their residents and just being astute business people who go out and take action. And so like that is the background and kind of the validation for that. Where we are today. So my company, as I mentioned, Sunrise Communities, I'm an owner operator based in Metro Detroit. We currently have about 17 employees and growing. And we are a, we're highly focused specifically on Midwest Bay. So Ohio, Indiana, Michigan currently are our target markets. Cash flowing, Multifamily residential, BC class properties that usually have what we call the right problems. So usually operations problems. They can be structural problems that we can reposition. afraid again, like I mentioned earlier, you'll kind of hear a common theme of not being afraid to roll up my sleeves and do the hard work. And a lot of value can be forced and created in that. So we look for opportunistic acquisitions that we can, you know, buy and reposition and create value in our communities. Right. And so it is a, it's a fun time to be in it. will say market demographic wise or, you know, numbers wise, the last couple of years, we haven't found many deals that have penciled. I have a full-time acquisitions analyst. We underwrote over 200 deals last year and we didn't close a single deal, right? So there's a lot of work in this space. It's highly competitive. One of the benefits actually of single-family residential that multifamily doesn't have is every single time when I'm either buying and or selling, although I'm not a big seller, real estate is a... Jack BeVier (28:16) Mm-hmm. Andrew Kuhn (28:41) an amazing vehicle for getting wealthy slowly. It's a horrible get rich quick business. As you guys know, right? And so, but what I tell people is that like every time in a commercial or the multifamily residential space, I'm always dealing with other sophisticated professional investors, right? So you really got to be careful. Whereas there's some arbitrage that can happen in the single family space. It's really nice, right? Like you can buy from retail investors. You can have an exit strategy to retail investors, the mom and pop that wants to buy a house. and you can buy wholesale or, you know, that type of thing. So there's some really cool triage in the single family space. We still own, I don't know, right now, maybe 50 or so houses that I have a partner that actually manages outside our organization. I still love single family, you know, in residential in general. And then outside of that, as I mentioned, I serve on our apartment association board. So I do a lot of state level legislative work, meaning working with state representatives and our senators and the governor's office on Housing Policy for the State of Michigan, both as an advocacy group for protecting ownership rights, which are under fire in a lot of states in the United States right now. You hear talk of national rent control laws and all this other stuff, as well as the other organization that's added a lot of value to my life that I've been a member of is EO or Entrepreneurship Organization for about seven years now, which is a agnostic business owners group, global nonprofit about 16,000 members. which has been another, it's like therapy for business owners, quite honestly. And it's industry agnostic, which is nice. So you actually get to learn speaking back to finance. You realize not all business owners understand finance as well as most real estate people do, right? Especially good operators that look at financial statements all the time. And it's interesting because like some people are wildly successful. And then you see other business owners out there like, holy crap, they're a dumpster fire. And there's a reason that, 90 % of businesses aren't in business five years from now, know, in the statistics like that, that you hear. I guess finance numbers are everything. So I know it's kind of like a winding answer, but I really wanted to cover a couple of things for your listener. Craig Fuhr (30:49) We got Jack BeVier (30:52) What's your, so the, about the, the business that you're building right now, what's the structure that you're building? Are you asset managing, property managing, acquisitions and construction, or are you certain, you know, are you all of those things or just certain segments of those things? Andrew Kuhn (31:10) Good question. we are building, our 10 year BHAG is to be a 25,000 unit operator. Like that's the, that's the vision, that's the singular focus and where we're tracking. We want to be a vertical, well, we are in our building now, a more comprehensive, vertically integrated investment firm where we own and operate on our own assets. I will share with you that, you know, like most operators made lots of mistakes. One of which for me personally was the fact that over the last couple of years when we weren't growing, I thought I would, because I feel that we've put some pretty good systems and processes in place, I would do some third party management in a multifamily space. I learned real quick that it's a pain in the ass. And the business model, yeah, and not only, know, right? But not only that, the fundamental business model of third party management is not a very great wealth creation business. First off, your client or fellow owners oftentimes, Craig Fuhr (31:54) Really? Andrew Kuhn (32:08) who have no clue about operations. And so they may not have the same core values as you when it comes to operating properties, right? So every individual asset you own is like a mini business. It has expenses, it needs reinvested in and upkeep and preventative maintenance and all this stuff. And you'll run into people who think that they're just ATM machines. I buy it once, I pull out all the cash and then, you know, and then I move on type of thing. But the reality is, is we all know that you need to reinvest and you know, maintain the golden goose that lays the golden eggs for you, right? And oftentimes, we would have conflicts. And despite that, the management fees you make from doing this is not worth it. And so I had to learn that lesson the hard way had to hire some clients, fire some clients, and have my leadership team practically mutiny against me and some of our leadership L 10 meetings of this is distracting us, especially when they're like, well, this is distracting us from your assets. And I'm like, wait a minute, hold on. Like we got to talk about this, right? And so, cause I don't want my assets obviously that we own. so I learned a lot of things, but yeah, so we're focusing on that and we're building out a construction team right now so that we can vertically manage our renovation process and really kind of push the lever down on some strategic advantages. One of which is speed, right? Dan Kennedy, heard him originally say in 2008 or 2009, money loves speed and I loved it so much. actually got a money clip that I literally so funny. I still have it that I had engraved said money loves speed on it. And the point was, is that your ability to take ideas and processes, turn apartments around quicker than anybody else, keep your vacancy down by being better at implementation of processes and execution are going to get you the success you want. And so I'm really working on tightening up processes so that we can be a better company, quite honestly, than the others in the space. Jack BeVier (34:02) So the properties that you manage now, you still do any third party management or is it all just your portfolio and stuff that you have equity interest in? Andrew Kuhn (34:08) Good question. I have one client who's also a friend. He's a fellow EO forum member. He's a buddy of mine and you know, I'll LP invest in his deals type stuff that I'll do for him, but no one outside. Jack BeVier (34:23) And the, so what is like, you know, because you've been in multifamily the past, you know, past whatever eight years, that's been an interesting roller coaster. What, you know, were you buying in, were you buying in, you know, 2020, 2021, early part of 22? and if so, like, how's that going? and, you mentioned like last year you hadn't bought anything, but are you like, you know, how are you thinking about the market today? I guess last two part question. Andrew Kuhn (34:27) Yeah. Yeah. Yep. Ethan. Yeah, good question. Great question. So I love this. It's like watching a sitcom, right? from call it 20, well, actually even before that, most of the bull market from when I started, know, 2016 or so all the way up till 2020 ish, we were buying, we were actively buying stuff, making things happen. And then what happened, COVID happened obviously, COVID moratorium through a whole bunch of wrenches in the mix for people with Sarah funding and. you know, certain municipalities that are telling people they don't have to pay rent and all that jazz. So that was really fun. then it was interesting because 2020, 2021, 2023 deals weren't making sense, right? From a, if you're sticking to your, so a couple of things I've learned, if you're a conservative underwriter and the people I've seen and know that have been in this market for 20, 30, 40 years, even that have lived through many cycles, right? They're conservative. Their debt is conservative, know, they're 50 to 60, 65 % leveraged on their deals. They stress test and they don't vary from their financial underwriting criteria. But there were all these firms, call it 2020 to 2023, that were really good marketers. Oftentimes, you know, they were very new to the space, first market cycle, and they were paying crazy numbers that wouldn't make any sense, right? And what we learned is a lot of them were either fee guys, right? So syndicators that were fee guys with little experience or financial restraint. And they were looking for the quick buck and then they were levering to the Hill, right? With, with adjustable rates and then coming back with supplementals. And, know, a lot of us were sitting here in groups. That's the importance of getting in groups and talking to other operators. Like, am I looking at this wrong? Like making sure I'm still saying, right? But what would happen is these guys are overpaying on these deals. And now, you know, they all got caught, right? When we saw our historic interest rate rise with the Fed, you know, we tend to track the tenure, the SOFR and the multifamily space, because all our agency debts pegged to that. But it's been fascinating because these guys are just falling. And deal volume dropped last year. This year has been one of the worst years for commercial transactions in that multifamily residency space, you know, in 20 years. The brokers are really having a tough time. so, and then all these deals that were sold in 2020 through 23 are trying to come back on market as one final Hail Mary before the bank forces the sale. Have seen lots of workouts, lots of whole portfolios from a lot of regional players, even people who should know better. Like guys that have been around the business 10, 15 plus years. There was a portfolio the other day out of, out of Chicago that came on operator 20 plus deals under their belt. you know, they, from what looks to from what I'm understanding got over leveraged and tried bringing in pref equity, you know, couldn't handle with the rates, either rate caps, you know, expired or didn't buy them. And now they're fire sailing a whole portfolio. I'm seeing that often. And I do talk with receivers. I've been building relationships with receivers and stuff like that. And I did on several receivership deals. we are getting more, we're getting a tremendous amount of deals that are coming on the market. and the gap between the bid-ask spread is shortening. And I'm excited. Like the deals are coming and especially in the multifamily space, we're gonna start seeing more both on-market and off-market opportunities. Jack BeVier (38:29) I'm seeing a similar trend, I guess seem very similar trend. We bought a 28 unit and a 20 unit recently, which I've never bought multifamily before. We've got 800 houses, but we've got a couple twos and a couple threes, but never really bought a building before because, well, we weren't ready to for a long time. But then the past five years, we were just like, like you were saying, we're conservative as it relates to like levering up the portfolio. Andrew Kuhn (38:53) fence. Jack BeVier (38:58) We just couldn't compete. But now I'm starting to and I'm starting to get looks, but it's in the waves too. And it's situational. There's always a story behind it. No one's a willing seller right now, mark to market. But there are still some unwilling sellers that just have to sell. And so I feel like those numbers are starting to get a lot better. Andrew Kuhn (39:24) Yeah, it's getting exciting, right? Like we're gonna, we're finally turning into what I feel is one of the better buying opportunities that we've had since the 09 and 2012 2012 blitz that, you know, all of us look back fondly and, you know, talk about the good old days about. So I'm excited. I really am. And so are the guys that like have been in this another 20 years longer than I have. They're like, they're coming. Just wait because the banks, right? Even the banks don't want to realize the losses on our books yet. And so a lot of them have done workouts. I know lots of operas that have done that, to try and get out of the trouble and stop the bleeding. But everybody, the whole slogan in the multifamily space was survive to 25, right? If you go to the industry conferences like NMHC, that was kind of the slogan, but it's not happening, right? Like rates aren't dropping, you know, 10 years, 420 yesterday and spreads on agency still 150 to 175 Vips. And so like they aren't getting the reprieve they thought they were. so eventually. you know, a lot of these are gonna be for, so they're gonna be lender for sales. And so those who dig into the story are gonna be the ones that get them. Craig Fuhr (40:28) I would ask both of you, what's the appetite then right now? Jack, you and I have talked a couple of times on the show and offline about how multifamily is sort of feeling the pinch right now and dropping like a knife in some place. And you've even said, don't know if I want to catch the falling knife in many cases. So what's the appetite then for capital for this kind of stuff? Are banks turning away? Are your equity investors super psyched right now to get into the space? And so I would ask both of you guys. Andrew Kuhn (41:05) Good, Jack. Jack BeVier (41:06) I'll go first and then you come in with the right answer. Andrew Kuhn (41:09) Yeah Craig Fuhr (41:09) haha Jack BeVier (41:09) The so my sense of it is that equity, the there's there's not a ton of equity because the prices are not falling to the point where they're like high teens IRRs or high teens levered. It's the it's just coming from like that made no sense whatsoever. And even after a 20, 25 percent drop, now we're getting to like a seven cap. And it's just like. But on an unlevered basis, the seven cap on residential real estate is, think is a compelling for a long-term investment perspective. But the lenders, the banks don't want more CRE, don't want more commercial real estate on their balance sheets. So they're hesitant slash low leverage. The agency side of things is worried about the overhang that it's still got in like the CMBS side of things. And so I don't see aggressive leverage levels or aggressive underwriting criteria. It's like high DSCR, low LTC leverage. so then, so you can't get those really high IRR equity returns. for the equity that, know, but for folks who have equity to deploy into a safe place that they think, you know, they think it's an attractive risk adjusted return. It's not sexy. But if you're investing for 20 years, it's good. Like it looks pretty good and it hasn't looked pretty good in like five plus years. And so that's the lens through which at least we're looking at it. And the other folks that I've been talking to, the lenders that we've been talking to, that's the feedback I'm getting. Andrew Kuhn (42:45) Yeah. Yeah. Yeah. Yeah. No, absolutely. So I'll talk about it two parts, right? Like Jack definitely nailed the lender equation of it, right? So LTC, LTV ratios have dropped. Death service coverage has gone up. Lenders are still pushing. They still need their yield. Jack BeVier (42:47) What's the right version of that? Feel free to correct me. Feel free to correct Craig Fuhr (42:50) Take them to school, Landshur, take them to school. Andrew Kuhn (43:08) And so spreads gap out that type of thing. So whereas you used to be able to go to and get 70, 75%, even 80, you're seeing a lot that are debt service, know, ratioed out at 60, 65, that type of thing, right? You know, I like the Midwest because we didn't go up as much as a lot of the South, Southeast, Southwest States did. And so we're not falling as much. But what I will say is that like actual, investor equity. there's a couple different buckets out there, right? So there are the retail buckets that the syndicators, whether they go on, know, Couchsourcer or any of the others, or just the family and friends, that equity definitely has dried up. And a lot of it's because honestly, a lot of people, especially in the multifamily space would put a hundred grand in and it was a big investment for them and they got burned and they lost it all. And honestly, look, full disclosure, I love real estate. And I have money too that I can't invest in myself, like self-directed retirement stuff. I put some money as an LP in other people's deals. And even I have gotten a goose egg or two, right? And so I've lost real money doing that. Which is again, another reminder of always just investing in yourself is always the best return, right? Because what I've realized is that, so being successful in real estate is a three-legged stool. You gotta buy right, you gotta finance right, and you gotta operate right. And there are a lot of really bad operators out So then that's something that you can actually really control, right? And so any one of those legs gets out of the stool, you're in trouble. And so at retail equity, mom and pops, family, friends, type of thing, definitely dried up quite a bit. It's really hard, especially for the public syndicators that are running, know, SEC registered funds and stuff to raise. Like their time's taken longer, they're not fully funding deals, the whole deal. what I will say is that family offices, cause I work with a lot of all trying that worth individuals now and family offices and longer term money, they still like the asset class, right? And the other thing I've also learned is that like, can't time the market. And so you do kind of have to find the right deals that buy through all parts of the market cycle, right? If you want to continually to grow and that family offices and others that have a longterm mindset are still actively. putting in large chunks, one, five, $10 million plus checks, which is a whole lot easier than trying to get 50 or 100 at a time from people. So there's that aspect of it. And then the institutions, like I do deal with some institutions as well, there's still an appetite, but like Jack mentioned, people are highly sensitive about being over-concentrated in their commercial real estate segment of their risk allocation. And if you have bad deals or that type of thing, it can also throw off their allocation and we'll be like, hey, I'm done for the year. Like Freddy Fannie right now, they have more business than they know what to do with. So they're gapping out their spreads right now to make more money off of the year end loans that they're gonna do between now and the end of the year, right? And so, and then they'll be reset next year, but they're still not a nonprofit. They're a government sponsored entity and they're still in it to make profit. And so, all that being said, harder to raise equity. but there's still the right equity for the right deals out there. And I find a seven, eight plus unlevered mid to high teens IRR still makes sense, but they're still looking most of the time for a preff preff on their equity. it sucks because excuse my language, but like where you used to be able to get like a five, six preff because the savings rate was zero. Now they're like, well, I can just put that in a CD at four or five. And you're like, all right. And so like, So you run into those challenges too. Your equity can actually be more expensive than your debt cost right now. Jack BeVier (46:47) Yeah. Craig Fuhr (46:48) So, Andrew, I don't know how much time we have with you. Can we get you for another episode? Andrew Kuhn (46:53) Yeah, sure, absolutely. This is fun. Like I'm getting to talk about stuff I really like about. dude, trust me, I'm more than happy. Craig Fuhr (46:55) Yeah, I really want to talk about the operation side. That's why we do it. Jack, what do say we end this one and we'll pick up on the next one and really get into the operations and types of assets that you're seeing out there right now and all the good stuff on how you're growing. So we'll go ahead and end this episode of Real Investor Radio with Andrew Kuhn and Jack Bevere and we'll be back for episode two in just a second. Andrew Kuhn (47:23) Thanks guys.