JF1061: Make Enough Money in Real Estate to Quit Your Job!! With Drew Kniffin
He got started with single family investing. Like a lot of other investors, he scaled up from there, and after a while, he was able to quit his job. Hear how he knew it was time to leave his job, and how he scaled from single families to buying a 64 unit property. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Drew Kniffin Real Estate Background:
-Acquisitions Specialist with Blink Equity
-Began investing in 2014 with a single family home
-Since then he’s purchased small (4-10 units) and medium-sized multifamily properties (30-60 units)
-His focus is distressed properties and repositioning them to stable assets
-Based in Seattle, Washington
-Say hi to him at www.blinkequitygroup.com/
-Best Ever Book: Millionaire Real Estate Investor
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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff. With us today, Drew Kniffin. How are you doing, Drew?
Drew Kniffin: Doing great. How are you, Joe?
Joe Fairless: I am doing well, nice to have you on the show. A little bit more about Drew – he is the acquisitions specialist with Blink Equity. He began investing in 2014 with one single-family home, and since then he’s purchased 4-10 units in medium-sized multifamily properties, 30-60 units. His focus is on distressed properties and repositioning them to stable properties. Based in Saint Paul-Minneapolis area. With that being said, Drew, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Drew Kniffin: Sure, absolutely. Thanks, Joe. That story is right – I began single-family investing in 2014, and that was just after a lot of people had gone through the downturn… I had a condo that I lived in myself. I moved out of it but I couldn’t sell it, so I was sort of forced into renting it, and that’s when I stumbled into real estate investing.
I started to understand the economics of it, and then once I had some more money and capital, again, doing single-families, and like a lot of people, scaled up from there into larger properties. So I was joining on the side until 2015, and then I stopped that job and I’m doing real estate full-time now.
Joe Fairless: Wow, let’s talk about this. You began investing in 2014… Was that the condo? You couldn’t sell it and you were forced to rent?
Drew Kniffin: No, in 2014 was the first property that I bought for the purpose of investing. The condo was 2011.
Joe Fairless: Alright, so you bought your first intentional rental property in 2014. Walk us through all the properties that you have purchased from then to now, because I wanna get some specifics on your acquisitions.
Drew Kniffin: Sure. So that first single-family was purchased off HomePath, Fannie Mae’s clearing house for foreclosed on properties. That was kind of a standard 3/2 single-family in a suburb, and that was just kind of wetting my feet into real estate. From there I got a fourplex, and almost all of the rest of the properties was done with a partner. I bought the fourplex with that partner, and then a six with a partner, and then we bought a triplex from a wholesaler, fixed it up, and then financed it, pulled cash out of it and used that cash to buy a 32-unit. That was really my jump into the bigger space. That part of it was 2015.
In 2015 I also moved from the twin cities which you mentioned in the beginning out here to Seattle, which is where I live now. I bought a number of duplexes from a wholesaler – Blink Equity, which you mentioned in the beginning. Next we bought a 64-unit last November – that was, again, with another group of investors.
Right now we’re under contract to sell both our four and our six, and 1031 that into 56 units, which we have under contract right now.
Joe Fairless: That is a lot of transactions in a short amount of time. Congratulations on that! What was your occupation prior to 2015?
Drew Kniffin: Out of grad school I was working in investment banking for a small sell-side company; we helped owners of companies sell their company. I was very comfortable and used to valuing assets, whether they were companies or, ultimately, apartment buildings. When I took that skillset into a Fortune500 company – I was helping them negotiate some of their joint venture agreement, so I was taking that same skillset into the corporate world, and I did that until 2015.
Joe Fairless: Why did you leave?
Drew Kniffin: Well, basically it got too busy to raise a family, work full-time for a W2 job and grow a real estate portfolio, and I was just enjoying less working for someone else, and I had the opportunity to do this full-time, so I did.
Joe Fairless: Is Blink Equity your company?
Drew Kniffin: No, it’s not. Blink Equity is the company of a friend of mine here in Seattle, and I worked with him on the acquisition side for his deals. Then another company that I hold much of the real estate with is with another colleague of mine, a separate colleague of mine. That friend is based in Minnesota. So there’s two organizations I work with – Blink Equity, as well as the LLC that holds many of the properties in Minnesota.
Joe Fairless: Do you have a standard structure with partners? You said the fourplex, the sixplex — basically, all the deals after the single-family HomePath loan in 2014… Do you have a standard structure you use with investors or with business partners?
Drew Kniffin: I guess I would say my standard structure is not to make it too complicated. We use an LLC, and I work with people that I trust immensely. As far as best advice goes, one of the things that I’d say is I see people get paralyzed on moving forward, because they get caught up on how to structure their organization, how to get themselves legally or from an accounting perspective set up, and that brings them to inaction. I would say that’s the biggest inhibitor of people moving forward, getting caught up on these things.
There might be an ideal or perfect structure that I haven’t uncovered yet, but I try not to let perfect be the enemy of the good, so I move forward with people that I trust, doing this kind of split 50/50, or 1/3, 1/3, 1/3 structures, and we haven’t had a problem with that so far.
Joe Fairless: On the split 50/50 example – and perhaps, if you could use a specific property just to add some clarity – what would be your responsibilities, versus your partner’s responsibilities?
Drew Kniffin: Great question. On the sixplex that we’re selling right now, I would say — first of all, he is there near the property in Minnesota and I’m in Seattle, so there’s a location difference. There’s also like a skillset difference; he is extraordinarily good on the details. He is reviewing our property manager’s financials regularly and often uncovers things that might look not correct. So he’s kind of got the operational side covered, and meanwhile, I’m a little bit more on the acquisitions side, looking for more deals, thinking more strategically. Not that he’s not working strategically, but I think that our skillsets are more on the day-to-day side, the oversight of the actual asset, versus sort of looking big picture where we’re going next. That plays to our strengths as far as what our natural tendencies are, and it’s also helped the partnership work well, because we sort of understand “Hey, he does this well, I do that well. I respect him doing that and making decisions for us there, and vice versa.”
Joe Fairless: So just to grossly simplify, because I know you like simple structures… You identify the acquisition; once it’s acquired, then he does the asset management, basically?
Drew Kniffin: I think that’s fair, yeah.
Joe Fairless: Okay. Who brings the money?
Drew Kniffin: We do 50/50 together. We both bring the money to the table.
Joe Fairless: Okay, got it. That makes sense. And are you both on the loans?
Drew Kniffin: Yes, we are. Of course, in the beginning, when you’re doing residential 1-4 units, the financing was based on our personal [unintelligible [00:09:23].07] and once you get to commercial, it looks differently… But our loans are recourse, so they could ultimately come at us personally for the assets. And we’re both signed on the most loans, yeah.
Joe Fairless: What type of lenders do you use?
Drew Kniffin: One of my worst experiences in real estate was trying to get Wells Fargo to finance my four-unit. It was just extraordinarily painful. Since that, we’ve used local bankers that are regional to the twin cities, where we’ve literally gone out for drinks or lunch with our banker, who knows us, who comes and visits the asset, and there’s this extraordinary feeling of partnership. It’s extraordinary how different it was from working, in our experience, with an institutional bank. So we like the regional bank, the one where there’s a relationship, where the guy responds to e-mails quickly… It’s just been a huge difference to work with local banks.
Joe Fairless: And what about your duplexes in Seattle?
Drew Kniffin: That’s another regional bank. That one is a fantastic deal. I bought it wholesale and then I could turnaround to the bank and get an 75%-80% loan to appraised value. And since they’re going off appraised value not purchase value, I was able to get usually all of my cash or more than all of my cash back. But again, that was a regional bank, based right out here in Seattle.
Joe Fairless: Looking at my notes – I was writing notes as you were talking earlier about your timeline of acquisitions… It looks like the triplex from the wholesaler where you fixed it up, financed, did a cash-out refi and then bought a 32-unit – that was the big jump from where you were… So can we talk a little bit about that triplex – what are the numbers and how did you get in contact with the wholesaler in the first place?
Drew Kniffin: Great question… I don’t remember how we got in contact with the wholesaler. I think basically we were just hustling, looking to meet people, looking to get an edge on getting deals upstream of the MLS and where everyone else is getting deals, and we came across this wholesaler; he offered us this deal.
The key thing for that transaction was that we were going in it 1/3, 1/3, 1/3, so there’s three of us, but one of the guys is a full-time property manager; he owns his own property management business, and he gave us the confidence to say “Hey, we can buy this for (I think it was) 88k, put about 25k into it, get it appraised around 170k, put a debt on it, take all our cash out.” Especially at that point in time doing that on my own would have been too scary, but going with someone that I trusted, when you knew the market, enabled us to go forward, and ultimately that transaction gave us basically the cash of the down payment to leap into the larger multifamily of 32 units.
Joe Fairless: Absolutely. And was the 32-unit in the same market as the triplex?
Drew Kniffin: Yeah, the 32 was in Saint Paul and the triplex is in Minneapolis, so they’re in different zip codes, but the same metropolitan area.
Joe Fairless: Okay. And can you tell us the numbers on the 32-unit?
Drew Kniffin: The 32-unit was purchased for 1.6 million, so it’s $50,000/door. There was a lot of distress on it. It was a property that they prior owner milked for cash and didn’t put money back into it… But that was fine; we knew that going into it. We’ve owned it for I would say 15-18 months now, and I’m thinking of not taking a cash distribution out of it, other than we got it refinanced with a new appraisal. We’ve been pouring cash back into it and turning over the units; we have a thankful and appreciative and somewhat loyal tenant base, and I would roughly guess that it’s worth 1.8-1.9 now.
We try to be patient with capital; we’re not looking for flipping a property in and out in 12 months, but that gets to our long-term strategy, which is buying distressed and repositioning to stable, and then being able to really improve NOI, as well as cap rates as we make that transition from distressed to stable.
Joe Fairless: Yeah, let’s stay with this 32-unit. That’s a fascinating story. You bought it for 1.6… I think I heard you say that you haven’t taken cash distributions except when you did a refi with the new appraisal; what did it appraise for?
Drew Kniffin: I should have the numbers in front of me… I think it was 1.8, Joe.
Joe Fairless: Roughly. Got it. No biggie, just curious. So the cash that you got from the refinance on the previous property certainly wasn’t covering the down payment for this 1.6 in the total… So did you all ante up again and do 1/3, 1/3, 1/3?
Drew Kniffin: You’re right… The down payment on the 1.6 million dollar 32-plex – 10% or half of the down payment came from the cash-out refi of the triplex, and the other half of the down payment we split 1/3, 1/3, 1/3.
Joe Fairless: Okay.
Drew Kniffin: Essentially, what that allowed us to do is — let’s see, over 3% of the purchase price (from a cash perspective) I was buying into a 32-unit building.
Joe Fairless: And if it was distressed, then tell us about getting financing for it. I’m sure that was an ordeal.
Drew Kniffin: It was distressed physically, but there wasn’t a lot of vacancy.
Joe Fairless: Oh, okay.
Drew Kniffin: It depends on whether it’s physical or economic distress, but this is more physical distress. And again, us getting financing on this was also due to one of our partners who had a deep, long relationship with a local banker, and that local banker had seen him perform on previous transactions where there was distress, so we were able to basically borrow from his experience and history with the lender, and able to get that financing. I think if we tried to do it on our own, our only history with single-families and a triplex or quad – it would have been difficult to impossible, but with that partner it was a different story.
Joe Fairless: The property management partner in particular is the one you’re referring to?
Drew Kniffin: Yes.
Joe Fairless: Okay.
Drew Kniffin: He brought the history, and he also brought confidence that it was gonna be managed in good hands.
Joe Fairless: Yeah, that’s huge… As the banker proved!
Drew Kniffin: Exactly.
Joe Fairless: I know that we all have roles in our business, and if yours isn’t doing the asset management, then feel free to say “Hey, Joe, let’s shift gears a little bit”, but I do have one more follow-up question on the 32-unit, and that is what specific steps were taken to bring a property from physical distress – the mechanicals and perhaps the landscaping and just the outward appearance was very tired or in disarray – what specific things did you all tackle first and how did you go about it?
Drew Kniffin: As tenants vacated, we would turn a unit and rehab it. We did go from inside out. We went from actual units, to common spaces, to exterior. When units turn, we’d be able to give them a light rehab or a heavy rehab, depending upon how worn out they were. New carpeting in common areas, new paint in common areas, and eventually on the exterior we resurfaced the parking lot, we rehabilitated some of the parking structures, the garages, and then there was gonna be some landscaping on the outside as well. [unintelligible [00:16:31].12] exterior roofing.
I’ve heard people talk about going outside in, because someone sees a property from the outside first… But we did it inside out in this transaction.
Joe Fairless: And you had some mind-reading abilities right there, because that’s exactly what I was gonna ask you… What was the reason why you did inside out versus outside in?
Drew Kniffin: I don’t know whether it was extraordinarily well thought through, and I think I’d have to talk to my [unintelligible [00:16:55].29] whether we do it the other way next time… I think it was merely that we were looking at some units that were quite distressed. At the end of the day, you could have extraordinary landscaping, a beautiful parking lot and a brand new roof, but if the unit’s trashed, people aren’t gonna live in there.
Probably, if you flip that around, people might still live in there. You could argue it both ways. We just had to get these units kind of up to par. Our handyman was there almost full-time for about half a year, rehabbing units and working on the common spaces, and the tenants got to know him by name, and they expressed often their appreciation at the work he was doing to make it a better place to live.
That was validating that what we were doing was increasing the quality of life and probably tenant loyalty and longevity of tenants, which of course, it can be costly too to turn over units, if they’re cycling through every 12 months.
Joe Fairless: Oh, absolutely. If you have some retention and some loyalty with your residents, holy cow, that will affect your bottom line exponentially.
Drew Kniffin: Yeah.
Joe Fairless: What is your best real estate investing advice ever?
Drew Kniffin: To move forward, that’s my advice. I thought a lot about this, but… I’ve seen people e-mail me or ask me questions, or friends that are interested, and you can tell that they’re intrigued, but they don’t take action. They don’t take action because they’re either caught up, as I said before, on some arcane legal rule that their attorney should be solving for them, or they’re caught up on finding financing, and there’s answers to that as far as how to get banks to bring money to the table, or “It’s just not the right time. Maybe in 12 months.” Or they find good deals, but they want unbelievable deals.
What I’ve found is that I get progressively better at analyzing deals and I get more confidence the more that I do one transaction at a time, or as I’m speaking to my property managers every week and I learn more about the property. But if I had waited for the perfect deal to come along, I would never have gotten started. So I would just say “Get going!” The thing about real estate is that the wind is at your back. It’s an industry that is forgiving, as long as you follow general guidelines. So you can go ahead, take that first step, make that first transaction, not know everything, and it should still come out okay.
From there, you’ll build the confidence and you’ll build relationships with property managers, with brokers that will help you make a second deal and third deal easier.
Joe Fairless: What would you say to someone who doesn’t want to partner with people?
Drew Kniffin: Well, the first thing I’d say is reconsider. But if they were insistent upon that and there are good reasons to be cautious about partnering, then still find people — they don’t have to be formal mentors, but people who you trust and you can say “Hey, can I take you out for lunch and show you this thing I’m looking at and you can give me your input on that?” Getting someone who has experience, their input, as long as you trust that they’re being candid and have your best interest at heart, is extraordinarily helpful, and very cheap as far as avoiding you from making bad mistakes.
I guess my advice is real estate is not a lone ranger sport, it’s one where you want people to be bringing you advice, whether it’s legal advice, accounting advice, property management advice. The more people you have on your team, the stronger you are. So whether you’re formally partnering in the ownership of the asset or just getting input from others that provide different disciplines, the more advice you have, the better off you are.
Joe Fairless: I mentioned that obviously because of your background and the partnerships that you’ve participated in and that have gotten you to this place where you’ve grown tremendously in a very short amount of time. What’s one way that you personally qualify potential new partners?
Drew Kniffin: Well, I don’t take anyone just out of an e-mail as a partner. Of all my partnerships, they’ve all been based off knowing someone on a relational basis for a while – I might have met them at a local REA… But for me, all of my partnerships are rooted in deep trust. If someone just e-mailed me and said “Hey, I’ve got a great deal in St. Louis”, I might 100% believe that’s a great deal in St. Louis and I might pay them a wholesaling fee if I wanted to enter it, but I wouldn’t partner with someone that I don’t know deeply. So that’s my sort of threshold or test for partnerships.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Drew Kniffin: Let’s go!
Joe Fairless: Alright, let’s go. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve read?
Drew Kniffin: Millionaire Real Estate Investor by Gary Keller. That just got me going, got me fired up for the whole industry.
Joe Fairless: Best ever deal you’ve done?
Drew Kniffin: The six-unit we’re about to sell. We bought it distressed, and basically bought it for 250k, selling to for 450k in two years, and with leverage that’s more than a doubling of our money. It’s been fantastic.
Joe Fairless: Wow, congratulations. You bought it for 250k… How much did you put into it?
Drew Kniffin: Not much, maybe 10k-20k. It wasn’t like a huge project, it was more maintenance. Putting money into it came from the operational cash flows of it, so it wasn’t additional money from our pockets.
Joe Fairless: What’s a mistake you’ve made on a transaction?
Drew Kniffin: Not staying on top of property managers and making sure that they’re managing the property well. One skillset that you develop in real estate is managing your managers. You can’t go to sleep and let them do all the work for you, you still have to oversee it. I think a healthy regular phone call with them to build trust and understand what’s going on helps them know you and take care of you better, and helps you build confidence with them. Staying asleep and not paying attention would be a big mistake.
Joe Fairless: Best ever way you like to give back?
Drew Kniffin: I hope this sounds sincere, but I love to provide quality housing that looks after my tenants well in my investing. I wouldn’t manage a property that I wouldn’t put my brother or my sister or my friends in. That’s not giving back like serving a soup kitchen, but I truly think that there’s a lot of terrible landlords out there that don’t care about the quality of life of their tenants, and I do take that seriously. So I’ll do things that may not at first blush with economic sense, but I do it because I wanna be proud of the way that we provide housing for people.
Joe Fairless: Where can the Best Ever listeners get in touch with you?
Drew Kniffin: They can e-mail me. I can provide that e-mail right now, Joe…
Joe Fairless: Yeah, of course.
Drew Kniffin: It’s just first name dot last name @gmail.com – email@example.com. I love talking to people about their real estate journey.
Joe Fairless: And Andrew, do you go by Drew or Andrew?
Drew Kniffin: I’ve gone by both. Mostly by Drew, but the e-mail is Andrew, so…
Joe Fairless: Okay, cool. I apologize for butchering your last name’s pronunciation whenever I introduced you, and thank you for not calling me out.
Drew Kniffin: Are you Joe Seamless, or what’s your name…?
Joe Fairless: [laughs] Yeah, exactly… You’re very patient with me. You may call me whatever you wish.
Well, Drew, thank you for being on the show, thank you for sharing the trajectory that you’ve had with investing, from the single-family HomePath loan to the fourplex, to the sixplex, then the triplex that you fixed up and refinanced, used the proceeds from that plus your own money and two partners’ money to buy a 32-unit, and then bought some duplexes, then a 64-unit (holy cow)…
Drew Kniffin: One last thing, Joe, is the 56-unit that we have under contract – we’re not gonna put a penny into buying that, because it’s just the gains on the 1031s from a four and a six.
Joe Fairless: Bravo!
Drew Kniffin: The business really snowballs once you get going. You’ve just gotta get going.
Joe Fairless: Yeah, and having intelligent choices along the way has served you well. One of them I’ve noticed is partnering, so together you can do more, but two is finding the right partners who complement your skillsets and bring other skillsets to the table, like, as you mentioned a couple times, a property management partner who helped get some good financing and also seed on the ground management in certain cases.
Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Drew Kniffin: Thanks so much, Joe.
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