It's good to hear from people who achieve massive success very quickly. Go big with multifamily properties like Joe Fairless in Episode 10 and 23, Michael Becker who went from 0 to 1000 units in Episode 17.
But then sometimes it's good to hear from people who start smaller and grow more slowly and conservatively. Who are more cautious.
But what they all have in common is that they're taking action each and every day.
I'm excited to talk with Drew Kniffin who just recently closed on his first large multifamily deal – a 32-unit deal. And last week he just quit his full-time job.
Not unlike my podcast with Jay Boyle, it took him 6 years to get there. He started out small, buying a couple of SFH, then duplexes and quads. He partnered early on with a more experienced investor. He teaches us how to partner with someone to get into the game.
Drew is another example of slow but methodical growth. Drew is conservative but very intentional. He admits that he struggles with limiting beliefs and sees raising money has a big challenge. Even though he now has a 32-unit multifamily property, he doesn't feel ready yet to take people's money.
I think Drew's a perfect example for us to emulate. He just takes small action each and every day, doesn't dream outlandish dreams, and hits a bunch of base hits.
But after hitting base hits for 6 years, he finally quit his job, supported by his current real estate, his wife, and the confidence that he can increase his portfolio to the point that he can replace his corporate income within the next 6 months.
To connect with Drew, send him an email at andrew dot kniffin at gmail dot com.
What an awesome session … let's get into it.
How did you get started investing in real estate?
We bought a condo before the recession, and couldn't sell it. So we decided to rent it out. That's when I realized how powerful RE is. Powerful because of the cost of capital is low. You're getting the depreciation. The tenant is paying down your mortgage. You're getting cash flow in good scenarios.
At what point did you decide to pursue RE as an strategy?
My friend picked up a few houses in the area, this is while I was in college. Getting cash flow. Equity appreciation. I saw him do it. I could ask him kinds of questions. As soon as I had more capital.
What did you want to achieve with RE?
My goal was to get a couple of SFH's. My thought it was a side-business to complement my full time day job. That was my initial goal.
What did you start doing after that?
I started looking at distressed properties. I looked on HomePath for Fannie Mae distressed properties. I was cruising the MLS, day dreaming. My nanny was looking for a place close by. And that got me focused on solving two problems at once. I came across a SFH close to my home. The numbers looked. I decided to take action. That was in 2013. It worked out wonderfully well. It was made turn-key by Fannie Mae when they took posession of it. There was some concern about structure. I got a contractor to certify. I paid $110K and got it appraised for $150K some months later. Rented for $1300 per month, and it's always been full.
What happened then?
The friend of mine and I started talking about what we could do together. He had a friend who quit his day job because he had been building up a property management company. With that first friend we bought a 4-plex and 6-plex. With the 3 of us, we bought a 3-plex.
How did you structure the partnerships?
We created an LLC for each of the people involved. We tried to keep it simple and just split it 50/50 or 1/3 or 1/3.
When did you decided you wanted to do bigger Multifamily deals?
I felt that we had the experience TOGETHER to do bigger deals. That's one reason we brought on that 3rd partner who could handle larger deals. The PM gave us a break on the commissions and the management fees.
How did you find the 32-building.
It was the property manager, he had access to deal flow. He brought it to our attention.
Why did he bring you along?
Capital. Another set of eyes. We're not raising money from partners. We had to bring $300K. Also from equity from the triplex. He signed promissory notes that would end up putting in as much as us.
Tell us a little bit more about your 32-unit deal
It's 32 units in the twin cities. Bought it a 7% cap. Listed at $1.7M. We walked through it and found some work that needed to be done. We purchased at $1.6M, just about $50K per door, good price, low vacancy. The business plan is a long-term hold. We are trying to improve it. We're not taking any distributions. We're rehabbing the units, updating them as well as the common spaces. Old laundry facilities and make that another source of revenue. There's room for managing the expenses. The rents were under market, about $50 per unit. Some units require renovation, others light cosmetics. $50 x 32 x 12 months – we created about $200K in value.
One of the reasons I moved into the multifamily space is when I listened to a podcast that talked about raising the rents just by $50, and you can create tremendous value.
What's next for you guys?
We looked at another 36-unit nearby, but the numbers couldn't work. But we're interested in doing buildings like that. At the same time, there was a learning curve. You don't want to get too far ahead of yourself. I'm still learning. I want to learn more about them.
What's your biggest challenge right now?
Access to capital is a huge challenge. So far, I've been self-funding, and that's self-limiting. Something else that I thought about, listening to your podcasts, is the idea of limiting beliefs. Being confident that you can do big things. Why do I think I need to be at 35 units. Why can't I do larger deals?
How do you plan to overcome the access the capital?
I want to do a capital raise from friends and family. You don't want to let them down. I want to have confidence that I won't let them down. I'm part way there. That's where I'm headed. But I have a little more experience to go.
What are your 12-month goals?
Two things: (1) I want to build a platform business. To have a core operation of units that produce cash flow. These are smaller buildings, maybe 20 units, here within the Seattle area. (2) I want to get exposure to the larger MF space here in Seattle, so that if a deal comes along, I can pursue it.
How many hours per week are you dedicating to this?
I just ended my regular job this week! Previously I've been very constrained. I want to spend 20-30 hours per week. My wife and I both work. That allows me to be more opportunistic. I have been able to reach a point in my RE that I have enough confidence to believe that I can quickly get to where I want to be. You have to push yourself out of your nest to learn to fly.
So your plan was to quit your job?
I flirted with it more and more as years have gone by, it became not just what other people do, but something I can do as well. It's been growing over time. My wife is also on the same page as me, and she is supporting me. It's a family sport, it's a risk you're taking togehter. If you have to do this together as a family. You have to stop and get their support.
Talk about a time you failed.
My first SFH in Seattle did not go well. I bought it out of foreclosure, I was so excited to get a property around here, and I just bought it without a really good plan. I didn't evaluate it carefully. And it's costing more money and time. the lesson, don't get so excited that you don't take the time to carefully evaluate it and put a good plan in place.
Talk about any kind of “aha” moment you had, and how that impacted your life?
Coming out of graduate school I worked for a great Fortune 500 company, a dream job for many of my friends. I wanted to start out on top. I wanted to have more authority than I had. When I bought that first SFH, it was just me. No office politics. I loved how crystal clear the issue was for me. I liked the idea of working for myself. My father was a full time corporate man. And then my whole perspective changed.
Imagine if you could travel back in time and have a conversation with your younger self. What would you tell yourself?
With perfect hindsight, take a step back and evaluate what your values are and where your skills and talents are. I got caught up with going to grad school and getting a good job. But I wasn't following my own compass, financial independence, spending time with my family. I would tell someone to evaluate more carefully.
Any Favorite books?
Rich Dad Poor Dad was very influential for me. It shifted my perspective.
A book that was more step by step was the “Millionaire Investor” by Gary Keller, who describes how you can take $20K to buy the first house.
Parting piece of guidance for newbies?
If it's scary for you, then partner up with more experienced people. You have two sets of eyes, pool your capital. I wouldn't have done the 32 unit myself, but with a couple of partners I could do it.