January 16, 2016

JF1232: From Subsidized Housing To Multi-Millionaire Investor with Edna Keep

From nothing to $47 million in real estate using other people’s money. Edna tells us how she has been able to own so much real estate without investing much of her own money. Hear how she got her start, and what she did along the way that took her business to another level. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Joe Fairless: Best Ever listeners, how are you doing? 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 of that fluffy stuff.

With us today, Edna Keep. How are you doing, Edna?

Edna Keep: I’m doing great, Joe. How are you?

Joe Fairless: I’m doing great, nice to have you on the show. A little bit about Edna – from a single mom at age 16, living in subsidized housing, to a multi-millionaire real estate entrepreneur… She has purchased over 47 million dollars worth of real estate using other people’s money, so we’re gonna stay focused on that, certainly.

She’s based in Saskatchewan, Canada. With that being said, Edna, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Edna Keep: Sure. As you already mentioned, my background – I kind of started when I was 16 years old, I had a child and it kind of limited some of my options, like a lot of people said. I was also a C student during school, so I never went on to university or anything like that… So our claim to fame is we’ve been able to purchase 437 doors, or 47 million dollars worth or real estate, using other people’s money. I think that my biggest ability to be able to do that is my background as a financial advisor for 15 years.

Joe Fairless: Okay. Let’s start with the financial advising and then we’ll work our way into the real estate, because it’s related… How did you get into that without a college degree, and then how did you achieve success in that field?

Edna Keep: Well, I actually started studying to be a financial advisor part-time while I was working as an office administrator. Years ago you were able – in my province, not everywhere – to get into studying and even working at it part-time without having a degree. So I studied and then I got my designation, which was certified financial planner, all while I was working at it part-time.

Joe Fairless: And then you mentioned your background with that is what helped you become the real estate investor that you’re at now, the level you’re at now. Can you elaborate on that, how that helped you?

Edna Keep: Sure. We took our training through the Rich Dad education group, which a lot of people do, and it was excellent; we learned so much. And I just started working at it, and we had set a goal of having 50 doors in five years, we thought. $5,000/month, which is kind of what we were led to believe, if we could get $100/month cashflow per property, we could have our $5,000/month goal. We were able to do that in 18 months.

How it came about is people just started asking “How did you do that? We’ve been doing this for three years, we can’t get that.” I realized then that it was my ability to talk to investors that I’d been trained on for 15 years raising capital for mutual funds. And we talked about it a little differently, but really the big thing is getting to understand what your clients are looking for, what your investors need, and I think most people in the real estate world – and even now because I train on it – a lot of people think “Well, why would people give me money to buy real estate?” Well, it’s not just them giving you money; you’re providing a very valuable service, and that is helping them get into real estate without them having to study it for years and years, taking a lot of the risk for them.

In our case, what we do is we partner with our investors. So we bring them in, partner with them, and they’re silent investors, but we know how to make sure that we talk their language. A lot of people think in real estate that if you tell the returns that we’re able to get, that every investor will be all over it, but it’s not true. Investors are more concerned with getting their capital back, they’re concerned about the return OF their principle before they were able the return ON their principle. And it’s like anything, if you start talking 25% returns, it scares people off.

Joe Fairless: Agreed. And with the first 18 months, because it sounds like that’s where you were able to really establish your track record in real estate… You said you were bringing in at least $5,000/month in real estate. Can you elaborate on what you purchased and how that was made up?

Edna Keep: Sure. Our very first purchase was actually a condo. We were quite fearful when we started. We were scared of tenants, and toilets, and just about everything. So when we were going around shopping with our realtor, he took us to some rental properties that actually had just been condominiomized and told us they were for sale… And it just so happened that my oldest daughter had just moved into one of them, so I said to him “Is that one for sale?” He goes, “Yeah”, and I said “Well, I’ll take that one then, because my daughter is a tenant and I know she’ll be a good tenant.” [laughs] So that took a little bit of the fear away.

We ended up buying the one right next door, because Donna had got to know the couple right next to her, and they lived there for 17 years, so we were thinking “Oh my gosh, there we go – we don’t have to worry about two tenants. They lived there for 17 years, they’re not going anywhere. So that was kind of our start, and we got that to happen.

Then our third purchase, which was really where other people’s money started coming in – we were able to talk a lady into leaving the down payment of the property in with the property. We got what was called “cash back at close”, I don’t know if you can do that anymore. Then we paid her an interest rate. So we talked to her two or three different times and really liked the property. She was still working on it; we wanted to make sure we got it, but explaining to her what a vendor take-back was, which is really partial vendor financing, and how it could work to her advantage, it made sense to her, so she invested in her own property, and we still own that property today. We make over $1,000/month on that one property. It’s an uptown duplex. The payment is less than $400/month, I think taxes are $50; all the utilities are separated, so the tenants pay them. So that property alone got us $1,000/month.

When we first started, we were taught if you can get $50 to $100/door, buy it; all day long, buy it if you can do that. So we bought a couple more like that after that, and then we bought a 24-unit. So in one purchase, we basically doubled what we already owned, and that’s how we got to our 50 doors in 18 months.

Joe Fairless: How much were the first two?

Edna Keep: The first two were 129k. You know, it’s funny that a person still remembers… There’s other properties we bought I don’t remember what I’ve paid for them anymore, but those first two – 129k. And you know, in the market that we were in right at that time, Saskatchewan had a really big boom between 2002 and 2010. We bought that in 2007, and within the first year we were able to refinance – or at the end of the first year, because we got a one-year mortgage… We were able to refinance and pull all of our money out of those deals, too.

Joe Fairless: How much did they rent for?

Edna Keep: When we first got them, they offered a rental pool, which was another thing that kind of made sense to us, because we were such newbies and we were scared of being stuck with these all by ourselves… And they were offering $700/month rent. I found out that my daughter was actually paying $740 rent, and I thought “You know what? We’re not gonna go in the rental pool; we’re just gonna collect the $740/month rent ourselves.” But that went up very quickly, and we’ve actually had those units rented out as high as $2,500/month when they were furnished. Right now they’re not furnished just the way that things are going in the market. They’re both two-bedrooms and they rent for — one’s at $1,400 and one’s at $1,200.

Joe Fairless: How do you know if you should furnish or unfurnish a condo?

Edna Keep: You know, that’s a good question. At the time for us it was, again, 100% about the market demand. There was a lot of employees moving into the city; the city was expanding a lot. There was just a need for it. People kept asking “Hey, do you have any furnished units?” and we went “Yeah”, and then we made them furnished.  [laughter]

Joe Fairless: Smart. Because clearly, the rent discrepancy is incredibly large with furnished versus unfurnished. Did you buy the furniture or did you rent it?

Edna Keep: We bought, because we found that going on Kijiji and different places like that, we could get some really nice leather furniture, which is what we like to have, because then you don’t have to worry about cleaning them all the time; you just wipe them down.

We found that we could get some really nice leather furniture for way less than if you bought it brand new, so that’s what we did. Then we would buy the beds brand new, because we always thought that that was important… But that’s what we did – we saved ourselves a lot of money. We could maybe furnish a two-bedroom place like that for $5,000.

Joe Fairless: Let’s talk about 47 million dollars worth of real estate… You said it was 437 doors, which is approximately $107,000/door. So those are higher price point units, relative to at least what a lot of people buy. What’s the business plan with a unit that is worth 107k? Are you buying it for roughly that amount, or is there a different business plan in place?

Edna Keep: Well, we’ve been buying now for ten years, so some of them were less and then some of them were more. The very first apartment building we bought, we paid $75,000/door. Right now, the average apartment building in our sweet spot, which is kind of the older buildings,  -1968 to 1980 – are selling around 120k to 150k/door right now. So it just kind of shows you what’s happened over the last 10 years.

The prices that I give you – some of them have increased a lot, and some of them we’ve purchased just in the last couple years, and our markets actually dropped a bit in the last couple years, so I just value it at the same price we paid for it. But our business model is we go in and we’re always looking for undervalued buildings that give us an opportunity to force appreciation, either through rent increases or renovating so that the properties are back up to more modern, because a lot of people just let their buildings run down.

Then the other key when we’re working with investor capital is to do that as quickly as possible so we get the investor capital back to them, and then we can use their money all over again.

Joe Fairless: You cash them out after a certain period of time, or are they long-term equity owners with you?

Edna Keep: We give them equity ownership, but we still try to get their money back as quickly as possible, because we don’t share in cashflow until the investors are fully paid out.

Joe Fairless: Got it. And what type of structure do you have in terms of when you enter, just the overall preferred return or ownership split, things like that?

Edna Keep: Our general MO is 60% to us and 40% to the investors. That’ll change up or down, depending on what our hold time is. For example, right now we’re working on one where we know we can get 75% of their principle back at the end of the first year, so we’ve only offered 35% ownership out to the investors. Because even after they get all their money back, they maintain their ownership, their cashflow, their equity appreciation, all that sort of stuff, and then of course, their profits if we sell. So yeah, a lot of it will depend on what our plan is with the building.

Joe Fairless: How do you get 75% equity back after the first year?

Edna Keep: We’re buying in some areas that the builder went in and built some really nice condo units expecting to sell them as condos, and he wasn’t able to sell them. Instead of renting them out — well, he started to rent them out, but he did a terrible job. It was really a case of a builder trying to be a manager; they didn’t know what they were doing, they were just kind of looking to stop the bleeding, so they were moving people in, charging them $800/month rent, brand new buildings, covering all the utilities, and they were just hurting.

So we actually got those buildings under agreement for sale, and what we were able to do with them, because the builder is in trouble and we kind of have a middle man who’s helping out the guy who invested with the builder, helping them out getting them sold… So what we do is we go in and we work on the appreciation of the building. We get it fully-tenanted at good rents. He was renting them at $800-$850/month; we’ve got $1,200-$1,250/month, and they’re paying all their own utilities. Sometimes we’re able to furnish those units, and then increase the rent to $2,300-$2,400/month.

So that’s our sweet spot. We know we can do this so fast it’s unbelievable. But we found out through just talking to the local people that a lot of them didn’t even know they were for rent. They thought they were only for sale, because that’s how they started out being… So once we started marketing properly, it only takes us a year to get everything up and running and smoothly running, and we’ve done it in a few different areas already, with the same builder.

Joe Fairless: So instead of selling the condos, you’re renting them.

Edna Keep: We’re renting them, yeah.

Joe Fairless: But what’s the big liquidation point where you’re able to return 75% of the original money that was invested?

Edna Keep: Well, because of the price that we’re able to buy them for is a lot less value than what we’re able to finance them for, once we get them full. In one case, Joe, there were three rooms rented out of twelve in one of those apartment buildings.

Joe Fairless: Wow. What are you able to buy them for per unit?

Edna Keep: They were built in 2014, so they were almost new, so we paid $127,000/door for them.

Joe Fairless: And what did you rent them for?

Edna Keep: The unfurnished ones go about $1,200-$1,250/month and they’re all two-bedrooms, and then if they’re furnished, it’s anywhere from $2,000 to $2,500, depending on demand.

Joe Fairless: Okay, so you’re renting them – let’s just say it’s unfurnished – for $1,250/month, and you buy them for $127,000… So how do you get the 75% of the money back after year one?

Edna Keep: The very first building that we did this with, when we bought it we paid 1.54m, and it was appraised at finance at 1.9m, so that’s how we get it back so quickly.

Joe Fairless: You’re doing a cash-out refinance.

Edna Keep: Yeah.

Joe Fairless: Got it. That’s what I was missing.

Edna Keep: Well, it’s not exactly a cash-out refinance, because we’re buying it under an agreement for sale, so we buy it at a certain price, we increase the value, and then we actually finance it for the first time with an actual lender. The agreement for sale is still a financing term, it’s almost like a vendor take back; they’re holding all the financing until we can get it to worth the value it should be.

Joe Fairless: With the structure — and I know it varies, it sounds like, for deal-to-deal, depending on what the deal looks like… You do 60/40 in a lot of cases; 60% general partnership (you all), 40% limited partner investors… Do you take an acquisition fee or asset management fees or anything like that?

Edna Keep: We will do a small acquisition fee upfront just to kind of keep everything running, but we pay a property manager to manage; we don’t do the management ourselves. But we don’t take a management fee during the time of the hold… Once the investor is fully paid out, that’s when we get our share of cashflow and all that sort of stuff. In the meantime, we’re kind of building up our sweat equity.

Joe Fairless: Makes sense. And what’s the acquisition fee typically?

Edna Keep: Generally, 1%-2%. When I’m working with my students, what I tell them is “You’ve gotta make it work for you.” At the beginning we didn’t take any acquisition fee because we were making good money and it wasn’t a focus. Our focus was long-term wealth. But here we are, ten years later, the whole long-term wealth is totally taken care of, so now we focus more on giving away higher ownership to our investors and taking the acquisition fee upfront. So I tell everybody “It’s your choice. If you give away more of your deal, you can charge a higher acquisition fee, and if you wanna own more of it, then charge less of an acquisition fee.” Generally, anywhere between 1% and 2%.

Joe Fairless: What is your best real estate investing advice ever?

Edna Keep: Take action. There’s so many people out there that take all the classes, and all the classes, and all the classes, and go to all the events, but they never actually pull the trigger… And you know, you can’t be successful 100% of the time; there’s always gonna be mistakes, but you don’t take them as “Oh my gosh, that was a mistake!” That was a learning opportunity. And just keep moving forward.

So educate yourself – absolutely; work with a mentor if you can, and then take action.

Joe Fairless: You mentioned earlier raising capital for mutual funds helped you understand what people need and how to have conversations with investors… What are some tips that you can give to the Best Ever listeners as it relates to raising funds for their projects?

Edna Keep: First tip – show the investor how they’re gonna get their principal back before you start talking to them about the return on their money. Second tip, don’t talk too high. Sometimes we know we can make 40% a year on our return, but you tell an investor that who’s not familiar with what we do, and they’re gonna automatically say that that’s too high a risk for them. Go ahead and tell them a lower return and go ahead and deliver, because then they’re locked in with you for life.

The other thing is treat those investors like gold, and they will invest with you again and again and again. I see people make the mistake all the time of — if something is not going exactly right, they don’t report, and then people, because they know (they know what’s going on in the market, especially if it’s a market condition, which usually it is), they think you’re sticking the head in the sand and they all of a sudden start thinking all these terrible things are going wrong, when really a lot of times if you’re just staying in contact with them and letting them know what’s going on, then the trust is never broken. But if you ever break that trust, they won’t come back and your whole business model, if it’s predicated on that, it will never work; you’ll spend all your time looking for new investors.

Joe Fairless: What are some specific examples or ways that you treat your investors like gold, other than the most important thing, delivering on the projects? Any tactical things outside of the project that you do with your investors?

Edna Keep: Well, the reporting is a big thing. We report quarterly. Then once a year we get together in a group and we usually have all-day meetings for two or three days and back-to-back we’ll talk with specific investors, report to them live, and then have a dinner together where all the investors can hang out together. Birds of a feather like to flock together, and they like to know that there’s other people out in the world doing the same thing they are, which is really trusting other people with their money, and when you can bring them together like that, we find they really appreciate it.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Edna Keep: Sure!

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:21:22].07] to [00:22:10].02]

Joe Fairless: Best ever book you’ve read?

Edna Keep: Why Do A Students Work For C Students, And B Students Work For The Government, Robert Kiyosaki.

Joe Fairless: Best ever deal you’ve done that you have not mentioned?

Edna Keep: That’s one of my favorites! We bought 144 units all at one time, four apartment buildings, small town, 3,000 population, raised 1.2 million dollars (it was about 40k/door). Two and a half years later we refinanced out, had everybody paid back, ourselves and our partner, got a $75,000 acquisition fee, got our partners paid out in 2,5 years, went on to buy two more buildings. At refi, we each got a $400,000 payday, and we make 10k/month in cashflow.

Joe Fairless: What’s a mistake you’ve made on a transaction we haven’t talked about?

Edna Keep: We’re currently living through one. We bought one building and we paid the same price six months later when we bought another building. It was the same seller, so we had a good experience with him, but we went into a market where we were increasing our rents when we should have been decreasing our rents. We just missed that window, we weren’t paying attention good enough, and we ended up with a whole pile of vacancies all at once, so we ended up putting money into our deal, when we’ve never had to do that before.

Joe Fairless: Are you putting it in along with your investors, or is it just you, or is it just the investors?

Edna Keep: In the ten years we’ve been running, we’ve only ever had two cash calls, and they’ve both been market-related. One with a partner, who’s kind of in control of the money, so I didn’t have a say on it. This one, I own almost 50% of the deal, so I just went, “If I’ve gotta put in 100k, and I’ve gotta put in 50k anyway, I may as well just put in the full 100k, save my reputation with the clients and just ride it out.”

Joe Fairless: What’s the conversation like with investors during that situation?

Edna Keep: I just stay in touch with them all the time, and I’ve told them, I’m not really sure — lots of times we’ll get that building full, and then next thing it starts being vacated again. So our plan is we’re just gonna sell it. We’ve had it for three years, it hasn’t performed for us, so we’re just gonna put it on the block and sell it. We’re not gonna sell it at a loss, we’ll hang on to it because it’s not costing us any money right now, we’re breaking even on it, but we can’t get it to the point where it works like it should work.

Joe Fairless: What’s the best ever way you like to give back?

Edna Keep: I love sharing my knowledge with other people. We’ve been able to build a really nice lifestyle in ten years, and I love sharing that with other people, teaching them what we did, what worked for us. I run a mastermind and I have a couple programs, and I just love seeing the light go on for people going “I did exactly what you told me I could do!”

Joe Fairless: And how can the Best Ever listeners get in touch with you?

Edna Keep: They can reach out to me on my website, and that’s EdnaKeep.com. Or they can e-mail me at Edna@EdnaKeep.com.

Joe Fairless: Edna, thank you for being on the show and talking about your experiences, the lessons learned as you’ve scaled your real estate business and company, the way that you structure  deals with investors, the types of fees that are charged, as well as the types of opportunities that you’re working on, and what happens when things don’t go right, the cash calls and how do you approach that from a communication standpoint, as well as tips for raising money for projects for the Best Ever listeners, those three tips – one, show how investors will get their principal back; two – be conservative, and three, treat investors like gold and they will invest again and again and again.

Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Edna Keep: You’re most welcome, Joe. Thank you very much for having me.

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