Kenneth Gee is the founder and managing partner of KRI Partners and the KRI group of companies. He has more than 24 years of significant real estate, banking, private equity transaction, and principal investing experience. In this episode, we are going to talk about why Ken invests in Multifamily housing, how recessions hurt middle-class and low-income people, and how he’s making the best of today’s investing environment.
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Why Multifamily Housing is a Safe Investment with Ken Gee
Shannon Robnett 0:45
Hey, everybody, welcome to Season Two of the real estate rundown. Today, we’re joined by Kenneth Gee. And you guys are gonna want to stick around and listen to the end of this podcast because Kenneth is going to bring us some knowledge. And we’re gonna talk about some of the differences between active income versus passive income, what kind of timelines we’re talking about and market cycles, and maybe we’ll get to what are blind pool funds? And how do they work? Which are a lot of questions that a lot of people are asking in this tumultuous market we have going on. So with that, Kenneth, welcome to the show.
Ken Gee 01:16
Thanks so much for having me, Shannon. Appreciate it.
Shannon Robnett 01:18
So Kenneth, give my listeners a little bit of your bio so that we can understand when we get into these, what qualifications you have and how long you’ve been involved in the real estate game and kind of just the background there.
Ken Gee 01:30
Yeah, sure. So my background, I’m a commercial lender, CPA. So I spent five years as a lender, seven years at Deloitte as a CPA, mostly in tax side doing m&a work. And it was during that time that I decided that I was tired of working for somebody else, and working really hard. So they could go relax, enjoy their families, and so on and so forth. So I like everybody who spent a lot of time and energy trying to figure this business out. And so I bought this is back in the late 90s, 1997 I think I bought our first deal. bought three deals, sold them, not all at the same time, but over a couple years. So them three years later…
Shannon Robnett 02:11
When you say you bought three deals. What were they?
Ken Gee 02:14
Yeah, there were small apartment buildings. So the first one was a 28 unit building and shaker square in Cleveland. Second was 24. I think the third one was 22. Something not that you remember your first few deals. But yeah, I do.
Shannon Robnett 02:28
You stayed in your home market. Right. You stayed in the Cleveland area?
Ken Gee 02:30
I did at the time. Yeah. Yeah. Yeah. So three years later, we sold those tonight. I mean, it blew my mind. I made half a million bucks. I never thought in my life, I would make a half a million dollars, let alone make it on the side. But I was still working at Deloitte as a CPA.
Shannon Robnett 02:46
Which I’m… I’m assuming that after you made that half a million dollars that that employment terminated very rapidly.
Ken Gee 02:53
You’re telling the story perfectly, Yes. Yeah, yep. So now fast forward to today. You know, I, you know, it was my goal back then to put my kids through school without debt and, and, you know, really make the life for my family that I wanted to now, you know, fast forward to today, I’m happy to report that I did put my kids through school without any debt. You know, we’ve been very, very successful. We’ve done about 18 deals, worth, I don’t know, probably $125, $150 million, something like that. First 10 years, we grew up in Cleveland, tough market to buy and make money in the apartment business. And about 15 years ago, I thought, you know, what, if I can do this well, in Cleveland, what if I went to a market that was actually a growth market?
Shannon Robnett 03:37
So explain why what was wrong with Cleveland? I mean, for those of us that don’t know. I mean, you got you’ve got a great football team, right? The Cleveland Browns. Right?
Ken Gee 03:47
Yeah, we’ll go with that.
Shannon Robnett 03:48
You know, as long as your apartment record is better than your football team’s record, I think you’re gonna win, right?
Ken Gee 03:53
Yeah, right. Right. Exactly. So, so when you think about our business, we’re in the apartment business? Yes, it’s like any business, you would rather have demand be greater than supply. And that means you need some sort of population and employment growth. And that just wasn’t happening in Cleveland. In fact, there’s been a slight decline, people are moving around in the state of Ohio. But generally speaking, Cleveland just wasn’t a growth market. So it was super important that you really buy it right. And make sure you add value, because that was the only way you were going to make money. Because the chances of growing out of a mistake, you know, through you know, just normal rent increases, because, you know, there’s more people that want to live there, and then what’s available, you know, that just wasn’t going to happen. So we we, I think of it as a bear market thinking about trying to go along in a bear market. That’s what you’re trying to do when you buy in a in a market like that.
Shannon Robnett 04:48
So basically, you had a 7%, 8%, a 9% vacancy, and you had to do a growth strategy where you could take the rents that were there through only elbow grease and things like that you could improve rents by better management, better response times, better amenities, better upkeep, all the things that cost money, right. So by doing better, you’re increasing your bottom line to an increase your top side. But, you know, I think a lot of people have gotten spoiled lately, because in the in the cycle that we’re in, you know, you could buy a mobile home subdivided into four units and still make money, right? I mean, it’s a little bit of an exaggeration, but but the reality is, you know, rents were increasing naturally anyway, all over the nation. You did that in somewhere that had excess supply?
Ken Gee 05:41
Shannon Robnett 05:42
And and so you had to create, not necessarily artificial demand, but you had to create organic demand, because it wasn’t just that people were moving in and droves and they go, Well, you know what, Ken’s got one, I’m gonna take it because it’s the first available it’s the only available I’m gonna get it, and I’m gonna move on later. They definitely have their pick.
Ken Gee 06:01
Yeah, we got our tenants by stealing it from the guy next door.
Shannon Robnett 06:05
Yeah, well, I mean, that’s the honest way. Right?
Ken Gee 06:08
That was that’s, that’s just the way it happened. You’d incentivize them to come up to your property. You made it nice. You managed it well, and you know, your property is better than his and with a little bit of incentive, a little concession, they would agree to move. And then that process just kind of keep kept going.
Shannon Robnett 06:25
And then simply from there outperform so they didn’t leave?
Ken Gee 06:30
Yep. All right. Great. Yeah, exactly. Right.
Shannon Robnett 06:32
You know, and a lot of people Ken don’t remember that part of our market. Right? They don’t remember, market cycles like that, where you actually had to put real lipstick on said pig, right? You couldn’t just buy the pig. And then somebody came along and bought your impressive pig. Just because you had a pig, right?
Ken Gee 06:53
That’s exactly right. Yes, sir. You had to work for every every penny.
Shannon Robnett 06:58
So you really had to figure out where I mean, and let’s go back to the time in life that that was that was ’97, ’98, ’99….
Ken Gee 07:07
Shannon Robnett 07:08
…kind of normal flat real estate market increasing by two or 3% a year. And as far as where the nation was at it was a ’01 we had a little bit… 2001 We had a little bit of recession. Is that correct?
Ken Gee 07:21
Shannon Robnett 07:22
Why me? I mean, I, you know, I was starting my business in real time at that time, too. But I wasn’t at the investment stage yet. Right. I was just starting my construction company. So had a little bit in ’01. But but it was just a slow and steady, It was nothing special. No, no COVID growth, no, nothing like what we’ve seen the last, you know, 10 years of uninterrupted growth cycle. And what did you are involved in the active side? You just went straight to the active site? It sounds like?
Ken Gee 07:52
I did. I did? Yeah, because I… in Cleveland, there weren’t very many third party managers. In fact, when you think about in order for a third party management industry to grow up and thrive in a community, you have to have outside investment. And it Cleveland wasn’t back then it was the city that the river caught on fire, if you recall. I mean, it wasn’t something that somebody you don’t remember that the Cuyahoga River in Cleveland caught on fire. And, you know, to this day, Cleveland bears that, you know, that challenge. But you know, I what I don’t want to do is beat up on Cleveland, here’s what’s important about my time in Cleveland, is it taught me how to really make money in real estate, how to really add value, select your renovations, carefully spend your money carefully scrutinize your underwriting. And then 15 years ago, we took that to Florida. So now we’re in a growth market, we grow Florida has always been growing, that really hasn’t changed. Did it accelerate in the pandemic? Yes, but we’ve been down there for 15 years. And we’ve done well down there. You can’t focus on stealing properties down there buying them, quote, unquote, right, because that there’s too many people that want to buy. But what I can do now is focus on your value-add plan, really add lots of value, because there’s people in line that want to live at your property, and you don’t have to go steal it from the next guy through incentives and things like that. So you can create a really nice product, serve that market really well, and you’ll be really well rewarded, because now you have a demand outweigh supply issue, which is a bear market… or a bull market. Right now we’ve we’ve taken that bull market and put a value add strategy on top of it, and our returns just explode. Right? That’s why we went to Florida.
Shannon Robnett 09:40
But you’ve also got you know, you mentioned earlier, you know, in Cleveland, you couldn’t you couldn’t manage or build your way out of a mistake. You know, there wasn’t there wasn’t a lot of grace there. When you get into a growth market. There is some natural grace that if you give it long enough if you can persevere long enough it will, it will come back around, it might be 10 years, it might be 15. But, you know, as we know, and having done this for about… sounds like about the same amount of time, we both know that there is… there’s a full circle here and and you only lose on real estate when you sell. Because if you still have the asset, you still have you still in a game, you still have the ability to improve, you still have you do have losses this year, right? I mean, we’ve all had those, I’ve had those where we’ve had losses this year, but we haven’t lost because we still have the asset. But you also have to buy it right? Because if you’re not buying it right, you’re gonna make those losses work. But in a bull market, you can buy not, it doesn’t have to be so right. Doesn’t have to be buying perfect. Right?
Ken Gee 10:50
Shannon Robnett 10:52
So that what is it that you’ve learned in that timeline of market cycles and everything else just with with all that’s gone on, versus I wouldn’t say you your time in Cleveland was a razor thin market margin. Right? Florida’s giving you more you will also seen market cycles in both markets, you know, what would you what would you say about the whole thought process of timing the market? And how, how important that is versus how important just making sure that you buy right at your time in the cycle?
Ken Gee 11:23
Yeah, that’s a really good question. So we don’t… I don’t know that it’s, it’s really hard to time, the market, the way we approach our underwriting is we’re extremely disciplined. We know going in that no matter what, whether we’re in Florida, Cleveland, we don’t do anything and Cleveland anymore. But wherever we are, we have to be able to service our debt and give our investors a return going in day one. That has to happen. But we’re not going to buy it if it doesn’t happen. Right now, the biggest difference in the higher growth markets than the lower growth markets is in Cleveland, a renovation, I’m hopeful would get 50 to 100 bucks in upside rent. in markets like Florida, you can improve more, and get $300, $400, $500 a month upside. And we are legitimately getting them even today, right in this market, we are still getting them. Because people want the product that you have. That’s it’s a demand supply thing. So when I look at the long term health of our business, I look at the demand and I look at the supply. And I’m trying to figure out which one is going to create a problem for me, and I can’t see either one, the supplies, they can’t build B class properties, that’s what we buy, they can’t afford to build them. So I don’t think there’s going to be a big change in supply. So now what will stop people from wanting to live in a market like Florida? Well, the same things have existed in Florida for the last 20-30 years, they’re going to continue to want to live in Florida. So I can’t see the demand destruction. And that’s the other reason we stay in, in the multifamily world, everybody needs a place to live. So I can’t see either of those two things going away. And that. So now all I have to do is build my business plan on top of that, and make sure I’m adding a lot of value. And then, of course, when we do our underwriting, we’re using exit cap rates that are higher than our going in cap rates and all that kind of stuff. But what you know, what’s important is discipline through all these markets, it’s got to be disciplined. The biggest thing I’ve seen people do, you know, when rates were low, and everybody was doing it, there’s this FOMO you’ve heard of FOMO fear of missing out, people are, they’re just hey my buddy’s doing it, he’s buying one and she’s buying one and, why can’t I do this? And they go out and they just buy because they’re like, Man, I gotta get in the game somehow. And that is usually what sinks people when markets start to soften a little bit or something starts to happen, like interest rates going up.
Shannon Robnett 13:51
Well, the other thing, too, I mean, you know, you mentioned even buying today, because I agree with you. I mean, as long as your your market is cash flowing, right, if you’re buying something that the debt service on there is, you know, $1,000 and your rents are, you know, $1,500 and you’ve got 36% expenses, you’ve got cash flow, if you’ve got cash flow, you’re headed in a positive direction. So that means that even right now, again, back to your demand issue, if we, if we’re not… I mean there are markets right now that are having falling demand, right, there are markets in California, there are markets in New York, their markets in Washington that are experiencing falling demand. A lot of it has to do with politics, it has to do with external pressure, and people are moving which is causing even more demand in the areas that you like Florida and that I like as well because you’re looking at it going okay, you know, we’re positioned in areas that are pro growth, we’re in position in areas that are going to continue to import people that are going to continue to attract people for more than just, you know, the job driver or the you know, or the the retirement community or the whatever it is, you’re gonna continue to experience this stuff. But, you know, so, so you you picked a good market, you know, you’re watching how that supply and demand goes on. And in the foreseeable future, even with increasing interest rates, even with inflation, even with all of that, it sounds like you feel that there’s still going to be value to be purchased out there to continue to expand your portfolio.
Ken Gee 15:30
Yeah, you just have to stay discipline. You know, if you don’t stay disciplined, you’re gonna get yourself in trouble. And that doesn’t matter. If you’re in an up market down market doesn’t matter. You’ve got to understand what you’re doing and stick to the rules stick to the discipline and do things that you know will be okay. Now, you talk about rising interest rates, and I’m talking a lot about interest. I’m pretty sure that you know, the Fed is hell bent on putting us in a recession. They are. They did, yeah, they were pretty outward about that. So you know, part of when you look at, like you’ve been doing this for a long time, there’s a reason that we don’t buy here in the lower income neighborhoods. We don’t do that, not because we don’t like lower income people has nothing to do with it. It has everything to do with who gets hurt first and a recession, lower income tier, it’s terrible, but it is what it is. So we try to stay above that, because I don’t I want to mitigate mitigate that risk of recession. Now, the Fed is trying to beat down this inflation issue with interest rate increases, right? Well, what does that do? I think last week, I think the first first mortgage purchase 30 year non jumbo rate was like 7.2%. I mean, that’s crazy. So now, we’re already, you know…
Shannon Robnett 16:44
Wait a minute, that’s crazy compared to the last 24 months or 36 months, right. But going back to when you and I started. That was that was what was available. Right?
Ken Gee 16:52
It was. But here’s the point, it’s a relative number. So I’m in a market where demand already exceeds supply, I have a value add business plan that I’m putting on top of that, right now the Fed is helping me because they’re making a lot of people who would go by home, they have to stay in the renter pool. That’s correct. But there was more demand to my to my equation.
Shannon Robnett 17:14
And that’s where I see it. And I couldn’t agree with you more, you know, not that, not that you don’t want to be in this D class or the C Class property. But a lot of people feel that somehow they have to start there, because it’s more affordable. But I think that you’re, like you said, you’re asking for trouble. Because look, if you’re making $50,000 a year inflation is knocking your teeth in. Okay, the Fed is crushing, not your hopes and dreams, they’re crushing your ability to stay alive, they’re crushing your ability to stay in a house and make your car payments and those kinds of things. If you’re making $100,000 a year, it hurts $5, gasoline is not fun. And chicken doubling in price isn’t convenient. But you still aren’t going to be moving out of your house to live in your car over those kinds of things, unless you’ve made some really serious life choices that are going to affect that. And so so you see a lot of people are doing this flight to security trying to get out of the D’s and C’s, because the delinquency rates are increasing, as we see, you know, I saw we do. Yeah, and I saw a survey the other day that said that, in the D class property, and this was a nationwide survey, and I didn’t really check where their data was coming from. But in the D class property rent alone is upwards of 34% of their income. Yeah, in a in a, a class property, it was about 26 and a half percent. So a much even though the rents between the D and an A, were $1,500 difference. It was still a much smaller piece. So like you said that, you know, and also Ken I think it’s also worth noting, and I know you can relate to this. Of all the recessions we’ve ever had, only three in our history have hurt real estate prices. And only one 2008 hurt like that. I mean, the one we had in 2001 was less than 2%. I think my market currently my main market Boise, Idaho is experiencing… we are still 1% higher sales price than we were a year ago. We peaked in February. So we’re not as high as February, right? But we’re still 1% higher than October of last year. So I think that, you know, we’re coming in the Feds pushing rates, everything’s changing, but everything’s staying the same. When you look at the model that you’re implementing, which is cashflow, creates ownership opportunity because somebody else is paying the mortgage somebody else is paying the maintenance guy somebody else is paying the bills while the rent appreciates and the inflation is exacerbating the demand crush…
Ken Gee 19:56
With this yes.
Shannon Robnett 19:57
Which, as much as none of us really like it, your rents are being pushed even faster now than they were pre inflation. Is that what I’m hearing?
Ken Gee 20:09
That, that is, that is. I am on a quest to try to figure out what what really pains me as I watch what the Fed is doing right now. I’m not an economist, all right? So you got to take…
Shannon Robnett 20:20
Well you said you were an accountant, that’s almost as bad though.
Ken Gee 20:22
Yeah, right. Right. Right, exactly. But when you think about you, the what the Fed is doing here trying to force us into a recession, the all the things that they’re doing or demand side limiters, It really pains me to think that the only way we can get inflation under control that by the way, is caused by supply side problems, not demand side, is to destroy massive amounts of wealth, and hurt the lower income group of people and literally just destroy them. Because that is what they’re doing. The people in middle and upper, they’re going to be annoyed a little bit by these things, but it’s not going to change their life. I wish we could figure out a way to think about this. If you, if you understand I’m sure you do, you understand why we’re in this inflationary environment, because we shut all the demand down, and the supply finally get down, we’d flip the light switch on demand went way up, and now everybody else’s money in the bank, because they the government gave it to them, and B, they didn’t have anything to spend their money on. So they’re wealthy, relatively speaking. And when soon as you flipped on the light switch, there’s not enough energy there to power the light bulbs, it takes a long time for that supply, those supply issues to get worked out. It…we just have to figure out a better way to do this. It just pains me to think that the only way we can figure this out is to destroy people throwing their wealth. Instead, it seems if we could have helped the supply side catch up quicker. That seems like that would have been a less painful way to deal with that. But I could be all wrong.
Shannon Robnett 21:59
Well, and you know, the thing that we had, I mean, when you look at what exacerbated this, 2008, 2009 wasn’t, you know, we had a pretty equilibrium of supply and demand in the housing market, we were pretty equal, then we had all these funky loans, right, then we didn’t really have a housing crisis, we had a liquidity problem, nobody could give you nobody would give you a loan at a 50% loan to value on a great cash flowing property, because everybody was afraid it was gonna affect their balance sheet, you know. So we went through the whole global financial crisis, which was really a liquidity problem. When that came back around, we wound up behind the curve. And I remember I remember talking through this many, many times in my area 2009, 2010, you could have bought a three bedroom, two bath, two car garage for about 140 grand. At the bottom of the market, you’d get you got a 6% interest rate loan, your payment would have been about 1400 bucks. Two years later, that house was trading at about 220, your interest rate was now five and a quarter payment was about the same, right. And so the fed through this quantitative easing, they made interest so cheap that as that price of that house kept going up to $450,000. And that interest rate coming down to 2.2%, 2.3%, the payments stayed the same.
Ken Gee 23:19
Shannon Robnett 23:19
Then you’ve got, then you’ve got you know, things going gangbusters here and we can’t keep up. So now we’ve got even more demand, which is just exacerbating the problem. We can’t produce it fast enough. We’re already 5 to 7 million units behind the curve anyway. Yeah. And now we have even more issues, right? So you and I are feeling the same pain. And this is really nice to talk to a kindred spirit that’s been in the game a long time, because it really gives us a look ahead as to what’s coming. Right. This looks a lot like other recessions we’ve had where the economy as a whole slows down. I remember the .COM bubble, right? Had nothing to do with real estate. But everybody quit buying everything. Right? If you’re not if you’re not buying new computers and new Ferraris those guys don’t have money to pay, to pay… you know, to buy houses with that affects me, right? Yep. And so you see how this is happening? And what it does every time it does this, Ken you know this, It grows the poor, out of the bottom side of the middle class. Right? It eats away at the bottom side of the middle class and there’s less and less middle class. And so now there’s more have-nots. And it consolidates to the upside on the halves, right? So creating more, you know, more more animosity between the two because people that were making 100 grand a year and let’s call it New Jersey, and life was great. Four years ago, 100 grand a year in New Jersey, you’re starving to death now. You can’t make it. You know, I’m watching I’m watching my kids, you know they’re looking at $16, $17, $18 an hour is not enough to do what $8 An hour did five years ago.
Ken Gee 25:00
Oh, no. Isn’t that crazy? Yeah, yeah.
Shannon Robnett 25:03
So let’s talk about, let’s talk about where you see all of this going. And what you do. We mentioned that, you know, you’re in the syndication world, you’ve got active investors, you’ve got passive investors. What is the advantage? I mean, we’re going into, you know, everybody was getting on board, you know, there’s always this FOMO that you’re talking about, everybody’s getting on board. Everybody wants to be Ken, right? Everybody wants to jump in, and they want to buy an apartment and they want to do this and they want and it’s, real estate is sexy again. But it’s very quickly becoming that everybody’s looking around realizing if we’re, what boat are we on? Are we on the USS minnow? Are we on the Titanic? You know, which boat are we on? What’s the, what’s the benefit of the syndication model at this point in history?
Ken Gee 25:48
Yeah, so syndication or fund, the use of other people’s money. Here’s what I think passive investors need to look at right now. I just had this conversation with someone this morning, I have money in the stock market. I’m so angry about how much money I’ve lost in the stock market. There’s just no, there’s just no excuse for it. On the other hand, when I look at our real estate investments are real estate continues to throw off cash, it continues to increase cash, people generally pay for cash, I don’t have this crazy volatility. And I’ve got an asset, that I can’t figure out how to make it go away. It’s not office, it’s not storage, that can make a case for a lot of asset classes going away withering on the vine, small retail, all that I can’t figure out how to make multifamily go away. So if I’m a passive investor, I’ve got inflation eating away, if I leave my money sitting in the bank, if I go to the stock market, well, you just need to you just need to have an Iron Stomach, if you’re going to do that. That’s just how I feel. I’m just really annoyed. I don’t like losing money. And so if you look around, what else are you going to do? That’s going to help protect you and give you some cash flow? And that’s when I look around. And I’m trying to find a reason that you would not want to be in multifamily real estate. I can’t find a reason.
Shannon Robnett 27:11
But here’s the reality, if I’m brand new to this whole thing, and I’m just getting exposed to this, and I, you know, I’m 26 years old, and I just come to the place where I got some money and I want to do something. And I’m looking out there the single family market right now. And I’m looking at 20% down for an investment property. And I’m looking at all these different things. And I’m, I’m trying to cut my teeth and I know that real estate’s a great deal. Now, it’s just not my time in history, I’m not comfortable because the waters really choppy, right?
Ken Gee 27:37
What I want you to do is I want you to find a mentor, somebody like me, so maybe somebody like you, you’ve been doing this a long time and work with them and figured out we don’t I don’t like the single family market because the pricing in that market is so emotional to me. Yeah, I like multifamily. Because I if I generate more cash flow, there’s going to be someone who wants to pay for…
Shannon Robnett 27:59
There’s a mathematical formula as to what you’re selling for. Right?
Ken Gee 28:02
Shannon Robnett 28:03
And you can calculate that.
Ken Gee 28:04
So that’s what I tell people is find yourself an experienced mentor to work with you work on their GP team, and just just learn from them. If you don’t even get much out of it, you’ve got to, you’re coming up on times that you need to have an experienced person by your side to make sure that you’re not going to make mistakes that you don’t even know you’re going to make yet right you just don’t. That’s why I tell people I have four rules, I want every passive investor to follow. If you do this, you’ll probably be okay. Number one, invest with experience sponsors only. Number two, they gotta have a correct track record, and they’ve got to be willing to show it to you. Ours is on Verivest site, they’ve audited our track record, all 18 deals, 25 years, they’ve audited it. Next thing they need to do is make sure that the terms of the deal puts the investors first. Right, and then lastly, you need a sponsor which is truly transparent, putting your entire track record out on Verivest is transparent. So my point to new passive investors is you follow those four rules, you have really significantly lowered your risk that you’re going to invest with somebody who’s going to lose your money, I can’t guarantee it, I can’t make it go to zero. But boy, you follow those four rules, you’ve eliminated most of the risks there.
Shannon Robnett 29:20
Well and the other thing too with that Ken, you know I’m with you, I encourage, I encourage people first to be a limited partner, right? Be that limited partner and this is what I tell people all the time if you want to learn how to do this, if you’ll invest with a with a sponsor that will show you everything like I do like you do, I don’t have any secrets because the more I can teach you, the less likely we’re going to get sideways with each other. Right? Because you’re gonna understand and then you find those ones that now all of a sudden they want to know more and then they see themselves slowly joining the GP team because they can understand they can bring value. They can understand what’s going on and and they can see what is happening and then all of the sudden it’s that transformation that goes from, Hey, I didn’t know anything to now I can spot a deal, or I can help manage a deal or I can help, you know, I can help with the financing part of the deal. I can bring these pieces. But you’re getting that education. This is the one thing that I think is missing from a lot of colleges right now is there’s an education in one sector in this bubble. And then you go out in the real world, and you’re wondering how this fits in instead of the apprenticeship, right of the of the 1800s. In that where you came alongside and you worked with, you know, you worked in the business, that’s where I grew up is in the family business, right. And then at the end of that, you’ve gotten that apprenticeship, you know, what’s going on. You’ve seen how the deal works. You’ve seen how the cash flow models work, how can we only got 10 bucks this month, and we got 30 bucks last month, you know, what’s what’s going on? You’ve had that opportunity, and you’re safe. Because you’re not the captain of the ship, and then you’re slowly able to become the next Dread Pirate Roberts, right?
Ken Gee 30:54
So no, you’re exactly right.
Shannon Robnett 30:56
Princess Bride reference there. Right.
Ken Gee 30:58
I noticed that. I noticed that. Yes, yes, I will tell you, you know, I’ve been at this a long time, 25 years. And in the beginning, there were people that lent me a helping hand helped me understand the business taught me a lot, you know, and now 25 years later, I will tell you, so if you’re new starting out in this business, seek guys like me guys like you out. Because the one thing that happens, at some point in your life, most people at least I’m going to talk about myself here. After 25 years, I realized, wait a minute, I can help change someone else’s life. Yeah, because it really changed my life, I will tell you in a massive way. And nothing makes you feel better. If you’re sitting in my chair, knowing that you were able to help someone else put themselves on a path that their life is going to be amazing. And so there are people out there who want to help the 26 year old that you described you want to get in this business, we’re here to help you, you just got to be willing to do the work and find those people. So this, this view can get this match to happen. You’re set.
Shannon Robnett 32:03
And you know, that’s the truth of the matter to Ken. And this is the funny thing that I’ve realized, you know, I came from a development background. And the more I get involved in the multifamily community, the more I realize it’s a team sport, number one. And number two, there are people that are willing to help people get out of their J.O.B, get out of that insecure place that’s got you chained with a paycheck every Friday, and get into a place where you have control of your life have control of your future, right? It really is a place where it’s Main Street helping Main Street, you know, and get away from that dependency on somebody else. Right, right. And I’ve seen it and I’ve and it was at first it seemed kind of creepy, weird. Like they were trying to steal your secrets, or they’re trying to, you know, get to know you so they could pill for you or cut you off at the pass or whatever. But it’s really, it really is a community that wants to help. And I and I completely agree with you that the sooner you can get plugged into that, the sooner you can get everything handled, so that you can win. And winning is what this is all about. It’s about the passive income. It’s about the ability to get free from the J.O.B. And to get into a place where you have time control of your life. Right.
Ken Gee 33:14
Absolutely agree. 100%. Yep.
Shannon Robnett 33:16
So, so when you do what you’re doing, and one of the things that you’re looking at, we’ve talked about, you know, this is a choppy time. It’s not the best time but it’s really definitely not the worst time right. Time to be buying real estate was seven months ago.
Ken Gee 33:31
I, well, I love this. You know why? Because I no longer have 30 people standing next to me that want to buy a piece of real estate.
Shannon Robnett 33:37
That’s what I mean!
Ken Gee 33:38
Which half of them don’t know what they’re doing. So they’re paying great prices, somehow getting the deal done. So know this, right? I love this time. Because what happens when things get choppy. Most people know, man, this is scary. I don’t understand what I’m doing. And they step aside. And the people like you and myself and other experienced people, we now it’s finally an opportunity for us to, you know, the things that have been making it tougher for us to buy, or kind of going away, we still have challenges. I’m not suggesting that there’s deals everywhere. But I actually don’t mind these times. The only thing that’s bothering me about what’s happening right now is that the little guy is getting destroyed by the Fed that is really bugging me, because I really don’t think it had to happen. And they’re going to really get hurt and that bugs.
Shannon Robnett 34:27
I, honestly Ken, I think it’s by design. And we won’t get into conspiracy theories. But I think the government likes people dependent on the government. This is the only industry that can, through its policies create its dependence, right. I mean, it’s like…
Ken Gee 34:42
I never thought about it that way. Yeah.
Shannon Robnett 34:44
The helicopter mom that solves all the problems. Don’t worry about the recession. You’re unemployed. Don’t worry, we’re going to print more of that money that’s going to cause more of a recession. But now you’re going to be dependent on us and then with dependency comes voting, right? But we won’t get into that.
Ken Gee 34:58
I never even thought about that, that’s an interesting perspective. No, I’m glad you I’m glad you mentioned that. I just never thought of it that way. Yeah.
Shannon Robnett 35:04
So, you know, when you’re looking at the future, give me what what is your when do you think the Fed? When do you think things are going to smooth out? When interest rates are going to stabilize? We’re still in a massive upswing? When do you think that that’s going to stabilize a bit and kind of smooth the water a little bit?
Ken Gee 35:24
Yeah, so this is, you know, I watch a lot of economists I, I spend a lot of time looking at the forward rate curves, if you ever go to Chatham financial, you can see it right online, trying to figure out where the market thinks, what the market thinks is gonna happen. When I think, I always try to step back from it and just say, alright, let’s just take a common sense approach here, what’s what’s happening? Well, if you turn on the financial news networks, you hear now, the people are starting to get annoyed with the rates, the rate increases that are happening, people like me are getting annoyed, that the risk of recession that or really hurt people is becoming greater, what I think will happen is that at some point, I know the Fed is supposed to be independent, but I, they’re human beings, and I think that the the pressure is going to grow rapidly here as things start to deteriorate. I don’t know exactly when that’ll happen, I’m gonna guess it’s gonna be within the next six months. But I could be wrong. I don’t, I’m not that good with timing. But if I think about the reality, people are going to be screaming really soon and really loudly. And the government will probably start to listen, and either stop at the increases or start to back off a little bit. And then people will slowly start to build confidence back into the system. That’s what I think, we’ll see if I’m right, or not. Only time will tell. But again, it’s only based on a gut feeling and just how I think people will react to the pain. Yeah, I mean, it’s going to be pain. And I just don’t want to see it happen because it doesn’t have to. It doesn’t necessarily have to.
Shannon Robnett 37:07
Well, and you know, Ken that’s where you know where I see it, too. The only thing, the only caveat that we have with this is we have become so dependent on imports. You know, that we can’t really have total control of our supply and demand.
Ken Gee 37:23
Shannon Robnett 37:24
So when, you know, I tell people all the time people go, man, we need more more affordable housing. Well, that’s easy. Oh, really? How cut all the developers loose, let them build like crazy, give them incentives. And then what happens is there’s this mushroom, now we have too much supply, what happens to price when you got too much supply? Price implodes on affordable housing.
Ken Gee 37:45
You just illustrated exactly what I said a few minutes ago.
Shannon Robnett 37:48
Ken Gee 37:49
If we could find a way to impact the supply side and not not destroy the demand. You just said give those developers incentives help to get it build the supply. You could do that in every…
Shannon Robnett 38:00
If you look at it, Ken, go look at… nationwide, Houston fought the…fought the uphill curve, the most, you know why Houston was the least affected by supply problems and demand issues is because Houston has no zoning in the city. So I can go build a multifamily apartment complex anywhere I can find a piece of dirt, I don’t have to have city approval, I don’t have to do anything. So I can go build tomorrow. Which means that I don’t have, even in Idaho where I’ve got a year to get in the ground, or California, where I’ve got four years to get in the ground, you got to pay me for my time. That all that all bakes into the cake. So when it gets out there, you know, this is what you’re gonna pay. And so when you can remove a lot of those things, those governmental regulations or governmental hurdles, you can improve that. But what we’re seeing still on the development side is switchgear for electrical, all these things that are coming from China, you know, cabinets and things like that, that are coming from China, a lot of the things that, you know, chips that go into the microwaves and the dishwashers we’re seeing, we’re seeing bottlenecks on that, that are continuing to squeeze that supply. So now we’re not even the only ones… and now we’re we don’t have control of our gasoline. And again, we won’t get we won’t go down that route.
Ken Gee 39:12
So now we’re gonna raise rates and cram ourselves into a recession, when the problems aren’t even internal, their external.
Shannon Robnett 39:18
Well, they’re both they’re both, they’re internal…
Ken Gee 39:21
I understand, but you just described your supply chain by…
Shannon Robnett 39:24
So now…Yep. Now that we’ve talked about ourselves, and now we’re in a recession, we’re gonna cause them to have a recession because that supply chain now gets cut off and what they were giving us, we no longer need any of it. Right? So now all of a sudden, therefore they’re in a so so there’s some interesting things coming you know…
Ken Gee 39:42
There are it’d be fun to watch.
Shannon Robnett 39:44
If you can’t understand everything we just said, replay it again. It makes a lot of sense, but it really is about supply and demand. It really is.
Ken Gee 39:53
Always comes down to that. Yep.
Shannon Robnett 39:54
And you know, Ken, it’s it’s great to speak with somebody with your level of field knowledge of actually doing the deals and, you know, not doing.. I know people that have done 18 deals in the last three years, right? That’s not impressive. What’s impressive is doing 18 deals over a 25 year career, because you’ve seen all of that you’ve seen the ups, the downs, the sideways, the in the out, and, and really being able to understand and articulate that knowledge. And, guys, if you’re wanting to know how to get a hold of can send me an email at [email protected], we’ll get you plugged in with Ken, because he does have a wealth of knowledge, as you guys can tell. And he’s definitely somebody that’s worth a follow. So Ken, I really want to thank you for showing up here at the Real Estate rundown, I want to thank you for giving your knowledge. I’m going to check back with you in six months, because I’m looking for a 5% loan and you said I could have one then. We heard it right here on the show. But, Ken, any final words for our listeners, as far as you know, what, if you had one piece of advice to give to your 25 year old self? What would that be? Is your closing words?
Ken Gee 41:02
Yeah, wow. Learn as much as you can and figure out how to get your brain out of your way.
Shannon Robnett 41:11
Yeah, yeah. You know, what…
Ken Gee 41:13
You do those two things you’re gonna be golden.
Shannon Robnett 41:14
I tell you what, there’s been nothing in my life that’s been more detrimental to my growth than my own brain. And I can see those as very, very wise things. Well, thank you again today, Ken, for being with us. And thank you guys for tuning in the real estate rundown. Don’t forget to like and share, and subscribe to the real estate rundown. Wherever you get your podcasts, leave us a review. And if you want to connect with me, it’s [email protected]. Send me an email, and we’ll get you connected with Ken and other great episodes here on the real estate rundown. Thanks again.
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About Kenneth Gee:
Kenneth is the founder and managing partner of KRI Partners and the KRI group of companies. He has more than 24 years of significant real estate, banking, private equity transaction, and principal investing experience. Throughout his career, he has been involved in transactions valued at more than $2.0 billion, much of which has included the acquisition, management, and financing of various multi-family real estate projects.
Before forming KRI Partners, Kenneth was a tax manager with Deloitte & Touche LLP. Some of his major clients included The Riverside Company, Key Equity Capital Partners, Blue Point Capital, Linsalata Capital Partners, The Zaremba Group, Charter One Bank, and Applied Industrial Technologies, Inc.
Before his career at Deloitte & Touche, he spent several years at National City Bank (now part of PNC Bank). He also owned and operated several certified Cessna Pilot Centers in the Northeast Ohio area.
Kenneth is a licensed Ohio Certified Public Accountant, a member of multiple apartment associations, and Ohio Society of Certified Public Accountants and American Institute of Certified Public Accountants.