Making the transition from corporate to real estate can be tricky without the proper guidance. Here to guide you on setting up your syndication business is Kent Ritter, CEO of Hudson Investing and host of the Ritter on Real Estate podcast. Kent is a startup owner and a corporate executive turned full-time real estate investor and operator. He joins Sam Wilson to share some lessons he learned while setting up his multifamily real estate business for success. Tune in for some great real estate insight!

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How To Set Up Your Syndication Business For Success With Kent Ritter

Kent Ritter is a former management consultant. He is a startup owner, corporate executive turned full-time real estate investor and operator. He is the CEO of Hudson Investing. They are a multifamily firm based in Indianapolis, Indiana that helped busy professionals scale and diversify their investment portfolio. Kent, welcome to the show.

Sam, thanks for having me on.

The pleasure is mine. There are three questions I ask every guest who comes on the show. Can you quickly tell us, where did you start, where are you now, and how did you get there?

I come from a few different angles, but I started as a management consultant. I started right out of school and did that because I wanted to experience a lot of different businesses. I didn’t know exactly what I wanted to do, but I knew I wanted to own a business someday and I wanted to get good at understanding business and running them. I thought that would be a good way to travel around the country and help a bunch of different businesses and understand what makes them tick. That’s where I started. I’m the CEO of Hudson Investing. I also do a podcast called Ritter on Real Estate.

I’m having a hell of a good time doing a second career in real estate. I sold our management consulting business back in 2015 and that set off my real estate career, taking that capital and personally investing it. It grew organically as people start hearing what we’re doing. They want to know how they can be a part of it and get more people asking. One thing leads to another and the next thing, we’ve got about 650 units that we’ve acquired. We’re holding about 450 now and we’re having a lot of fun with it.

There are buzzwords in any industry like a management consultant. I don’t even know what that is or what that means.

The easiest way to explain it is I would help businesses solve problems that they couldn’t solve themselves. I’ve been to every state but two. I’ve worked in every state but two. Essentially, that’s what we did. A lot of operational work, financial consulting, technology consulting, and a lot of different aspects. Essentially, what we do as consultants is solve problems.

It’s easier to buy and run a 200-unit apartment than it is a 20-unit apartment.

What skills have you taken from that experience that you apply in your business?

From project management, how to organize, stay on task and set deadlines, how to motivate and influence people, how to provide a vision that people can understand, and get everybody moving in the same direction toward that goal, how to create measurable key performance indicators and track them. There are many things that all relate to multifamily investing which is what I do.

How did you pick multifamily investing? You sell a management consulting company and you’re like, “I know, multifamily investing, that sounds right.” What was the transition there?

It wasn’t quite as straight-up path as that. We sold that business and I wanted to diversify. I started looking into real estate and like a lot of people, you find what’s close to you. We had a family friend who was a commercial lender and he was doing some note buying on the side. I started getting into buying some notes, building up a note portfolio, did some fix and flips, bought some singles and doubles, and had to find my way. The reason I fell in love with multifamily is because it had the scale to get me where I wanted to be.

When you start thinking about buying single-family houses, you do the math on how many you’re going to have to buy. When you realize how hard it is to buy one house and then you start doing the math on how many you have to then buy to get you where you want to financially, it’s a hell of a lot of houses. It’s better to go out and buy 100 units under one roof than to go out and buy 100 houses. That’s what led me to multifamily. My mindset was pretty narrow because all I ever knew of real estate was that you go out and you become a landlord. Even in multifamily, I was like, “At least I’m going to buy 50 units at a time. I’m going to own and manage them and do that.”

Luckily, you have people coming into your life at the right time. I had a good mentor come in and teach me about syndication. He said, “That’s not the way to go. You need to be thinking about syndicating so that you can go buy bigger and better assets, then you would be able to buy on your own, and you can also diversify a little bit more.” What I do now to build a business around is bringing people in to invest alongside me and taking down bigger properties than any of us could do on our own.

 

What have been some things that you have learned along the way that you would say, “This is something I didn’t know that I wish I knew earlier on?” As you started to buy multifamily assets and you said, “We’re going to bring the people in and raise money,” what’s something you wish you knew earlier?

It’s easier to buy and run a 200-unit apartment than it is a 20-unit apartment from every perspective like management The hardest thing with smaller apartments is it’s difficult to find good management. That’s where a lot of people get sideways. If you’ve got something above 100 units, the good management firms will look at it. They’ll want to manage it and you can have people on site. From a debt perspective, it’s a lot harder to finance a 20-unit than a 200-unit.

When I first started getting into real estate, it’s crazy that it’s easier to get a $20 million loan than it is to get a $200,000 loan, and it’s the same amount of paperwork.

There are economies of scale in buying larger in every step of the process.

That’s something that if you are looking to scale up, which the theme of this show is. There is golden ticket number one, go bigger sooner. It’s the same amount of work or less than.

Go bigger sooner and it’s easier. It’s counterintuitive.

We’re finding people who are going the other way. I’ve interviewed a lot of people on this show who are saying, “We’re staying under that 100-unit because there is less competition there.” They’re finding a niche in it. What they’re doing is they’re taking three 40 units within a 5-mile radius of each other and using one property management company for three 40-unit properties. Even there, you have to have a strategy and get them all relatively close together in order to make sense.

We’ve implemented and deployed that strategy too. It works. You can build scale through multiple properties as long as they’re geographically fairly close. You can have one management team managing them in a pod structure. You have your management team and maintenance team for X amount of units and you can still get that scale. That has worked. I do that in Indianapolis. I won’t go to a new market and buy a 50-unit because it’s going to be alone on an island, but if it’s a market where we already own properties, then we picked up a 29-unit, probably pick up another 27-unit that we’ve been looking at. If you already have the infrastructure in place, it makes it possible.

You really have to be focused on building your credibility and showcasing your expertise before you actually ask people for money.

You’re not adding any to your administrative burden.

A huge lesson learned from me was when we bought 30 units. We thought we were going to get more and we weren’t. We do now, but we didn’t for about a year. That property was alone on an island. We had management issues. We had issues finding maintenance people. The revenue has outpaced all of our expectations but the expenses have also been higher than we planned on pro forma because we’ve had to go to Sherman Williams and have them do the paint because we didn’t have another option. I learned my lesson there. You don’t want to own 30 units on an island.

What would you do differently in that scenario? Would you just not buy it? Could you have been more strategic and had other properties lined up in the pipeline that would have helped add to that portfolio and economies of scale? What would you do differently there?

It’s tough to say I wouldn’t buy it because myself and all of our investors are still going to make a lot of money when we sell it. It’s still hitting our preferred returns. Everything has been good because the revenue grows and the other things that we’ve done on the property with other income have outpaced the expense increases. It’s just that the expenses have been higher than we projected. The lesson learned would be in an ideal situation, you’ve got other properties in that market. You’re entering a market, buying a property that’s at least 100 units. You can have management on-site and can be the hub in your hub and spoke model. You can acquire the 30s and whatever around it. That would be the ideal situation but at the same time, it’s all going to work out.

Tell us a little bit about some of the steps you’ve taken. What were some strategic first steps you took out of the gate? You said, “I’m going to do multifamily investing. I am going to buy an X market.” How did you get the first deal done? What were some pointed things, “This is what I did to get to where I am?”

You have to look at it from two angles. You’ve got to look at it from how do you get a deal and then how do you get the money to buy that deal. Even a third, depending on how you are going to get the debt to help you purchase that deal as well. When I set out, I’ve got a couple of great mentors and I went through a couple of formal coaching programs as well. You’ve got to educate yourself. That’s the first thing. You got to know what you’re doing because your brokers will know so fast if you’re a newbie and they can sniff them out.

 

You got to at least learn how to speak the lingo and know what you’re talking about so you’re not wasting people’s time. It’s all a relationship business. From every aspect, it’s about relationships. It’s about building relationships with the brokers in the markets that you want to be in because they’re the gatekeepers for these deals for the majority, especially if you’re looking at bigger deals. You can do some mom-and-pop and direct-to-seller stuff but 90%, it’s going to be through brokers. It’s the same thing from an investor standpoint. The first deal that I went out to raise money for, I was a co-GP and partnering with some other folks.

I got half of my raise target. I only raised half the money that I thought I was going to because I hadn’t done the prep work ahead of time. You have to change people’s perspectives of who you are. I played football with them in high school or I was a fraternity brother in college or I was a coworker, even I was their boss. They didn’t know me as a multifamily expert. It’s very different to have a relationship where you can go out and get beers with somebody versus a relationship where somebody is going to hand you $50,000 of their hard-earned money to go invest in a property. You have to be focused on building your credibility and showcasing your expertise.

You need to start that six months before you ask people for money. I didn’t do that so I didn’t raise as much money as I thought I could. That was a big lesson learned. The other thing from a debt perspective is a lot of people overlook the lenders and think that’s a guaranteed quantity. You’ve got to treat your lenders just like you treat your investors. They are the largest investors in the deal. You need to build relationships with them. Therefore, if you build relationships with those three groups ahead of time, when a deal comes, you’ll be ready to take it down.

You said that you hadn’t done the prep work ahead of time to let your investors know and change their perspective on who you are. What did you do to change that?

I became a thought leader. I put myself out there. I got out of my comfort zone. I started a podcast. I started a monthly networking event in town. We’re doing a weekly podcast. I’ve been doing it for years. I started going and speaking at conferences. Those are big things that you can point to. In general, I began eating, sleeping and breathing real estate. If you’re talking about it all the time, you’re telling people about what you’re doing, you start to have success, and they’re seeing that track record, that’s what makes people interested.

You start to have those proof points of, “This is working.” A lot of my friends weren’t in on the first couple of deals. They were all like, “Let’s see how this goes.” Deal 3 or 4 was when all of a sudden, a bunch of people that I knew growing up and historically started coming in and said, “Maybe this guy knows what he is doing.”

You’re not just some random one-off deal. It’s like, “He keeps doing this a lot. That’s very interesting.”

The best thing is to have a track record of success.

The important thing when you’re first getting started is to have a track record of success. Everybody has to start somewhere. The important thing is if you don’t have a track record around business, you need to have a compelling story that relates your current or past experiences or successes, and how that’s going to make you successful in real estate.

That’s a great point and not one that’s talked about very often. It is that transition phase between, “I was super successful over here.” For you, it’s a super successful management consultant, but how do you then position that experience into why that’s going to help you. It’s almost like a job interview of sorts or a resume like, “This is why I’m going to be successful at that.” That’s an interesting mind shift. I liked that. What have been some surprises or pitfalls along the way that you’ve experienced?

We had gone direct-to-seller and we got a seller who was interested. We had an LOI in front of him. We had agreed on terms. Between the weeks that took from LOI for my attorneys to get that PSA done, a broker swooped in and gave the guy a value that was a hell of a lot higher than what we were going to pay him. The guy backed out. The broker took the listing, so we lost the deal just because we didn’t show up with the contract in hand ready to get that thing locked down. That was a big lesson learned for me. It was my second time going direct-to-seller and the deal is not done. It’s not even yours until it is under contract. LOIs don’t mean a whole lot. They’re good for coming to terms, but a deal is not yours until that contract is signed.

That’s brutal. I’m sorry to hear that. What would you do differently in that scenario?

I went back to my attorney and I was like, “This can’t take a week. What is changing? It doesn’t seem like a lot is changing.” You twist their arm a little bit and I said, “You’re probably right. You probably could have a boilerplate.” I got a standard contract. I show up on day one with the contract in hand, already signed by me and say, “All you got to do is put your John Hancock here.”

That’s brutal. I love that though. Those are hard-learned lessons. If you’re reading this, it may save you from losing a deal in the future. I was wondering about that because it is unique in this industry how that is commonplace. Why do we even go through the LOI game in the commercial real estate space? I’ve never quite understood that because we don’t do that residentially. It’s like, “Here is your contract” and we sign and go. Why don’t we do the same thing in commercial real estate? Is that the path that you’re moving to now? Are you going to skip the LOI phase?

 

It depends. From a direct to seller standpoint, yes. LOIs are useful to come to terms with before going through the cost and effort to draft a contract. The reason you do the LOI is because you want to get those big things out of the way. Do you guys agree on the price? Do you agree on earnest money? Do you agree on the timeframe? If you don’t agree on those things and you put them all in a contract, now you’ve spent $5,000 to have an attorney draft a contract, but it was a non-starter from the beginning.

That’s where it’s useful. If there is a broker involved, that usually goes pretty smoothly. If it’s somebody that cares about their reputation in the industry, it goes a lot smoother. If it’s somebody that maybe it’s their only apartment they own, and they are not used to the process, that’s where I’d be showing up on day one with the contract and saying, “Let’s get this thing signed,” and keep the rest out on the back end.

Kent, I’ve enjoyed our conversation. I learned a lot about how you got started, the things you’ve done right and wrong. We’ve talked about financing, getting your lenders and brokers in place, and getting all your stuff set up for success. I’ve enjoyed learning about how you guys have kicked this off. Thanks also again for sharing some of the mistakes and hard-learned lessons along the way that you’ve learned. I appreciate that. Let’s jump to the final four questions. The first one is, what is one tool or resource that you find you can’t live without?

Calendly is the best thing that’s ever been invented. It’s made my life so much easier. It’s replaced probably half the hours for my assistant, just being able to schedule directly and not have that back and forth.

It ties in with practically everything. Most of those platforms do any more and that’s crazy. That’s a great resource. If you could help our readers avoid one mistake in real estate, what would it be and how would you avoid it?

We already talked about a couple of them. I’ll bring up another one that we haven’t talked about. Understand what a title company does because a lot of people don’t. I bet most people don’t read those title commitments that come back and read through them. There’s important stuff in there. We had a deal and we worked through it, but we found out after the title search that there was still a lien on the property from a loan twenty years ago.

A deal is not yours until the contract is signed.

The loan had been paid off but the lien hadn’t been taken off so there wasn’t a clean title. We had to work through that. Have we not have worked through that and not looked at that and just shown up and close, then it would have been an issue. Understand what title company does and make sure you’re reading those documents that they give you after they do the title search.

I’ve been part of at least two transactions where we bought the property and everything was paid off, but they never recorded it or never showed it as paid off even on the bank side. You’re still getting notices for accruing mortgage and interest payments. It’s like, “You guys already have the money. This was paid off.” You’re right. Title companies are invaluable on that front. Question number three, when it comes to investing in the world, what’s one thing you’re doing to make the world a better place?

A lot of what I’m doing now and the way I view giving back is trying to help people get started. I don’t have a formal coaching program or anything, but I spent a lot of time talking with folks that are trying to do their first deal. I’m trying to make myself available. I do monthly meetups. A lot of that meetups are folks that are trying to get started. I had a couple of people that catapulted my career and where I’m at. Because of those people, I am where I am now. I’m trying to give back in that way and try to be that catalyst for others.

Kent, if people want to get in touch with you and learn more about you, what is the best way to do that?

Go to KentRitter.com. It’s simple. You can see my podcast. We’ve got a blog and all kinds of investor resources. We got some new videos we’re putting up there. You can get to everything else from there. If you’re interested in investing, you can sign up there to get on our list.

Kent, thank you again for your time. This was a blast. I do appreciate it.

Thanks, Sam.

Important Links:

• Ritter on Real Estate
• Calendly
• KentRitter.com
• @RitterOnRealEstate – Instagram
• www.LinkedIn.com/in/kentritter

About Kent Ritter

Kent is a former start-up owner and corporate executive turned real estate investor and multifamily operator. Kent is on a mission to empower others to take control of their financial future, while making a positive social impact, by providing modern, affordable housing to America’s workforce.

Kent believes that good investing starts with education so he hosts a successful podcast, called Ritter on Real Estate, where he interviews the pros to teach you how to invest like a pro! Additionally, Kent hosts a monthly multifamily investing meeting in his home town of Indianapolis.