Kyle left his full time job just eight months ago (as of this recording) and already closed on his first multifamily syndication. He started out in real estate like many of us, working full time and buying single family homes. Hear how and why he was confident in leaving his job, and what it took to close on his first syndication. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“Real estate is a team sport” – Kyle Mitchell
Kyle Mitchell Real Estate Background:
- Managing Partner and Co-Founder of Limitless Estates
- Recently closed on his first multifamily syndication in May of 2019
- Based in LA, CA
- Say hi to him at https://www.limitless-estates.com/
- Best Ever Book: Best Ever Apartment Syndication Book by Joe Fairless
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TRANSCRIPTION
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, Kyle Mitchell. How are you doing, Kyle?
Kyle Mitchell: I’m doing well, thanks for having me on, Joe.
Joe Fairless: Well, I’m glad to hear it, and it’s my pleasure. A little bit about Kyle – he’s the managing partner and co-founder of Limitless Estates. Recently he closed on his first multifamily syndication, in May 2019. Based in Los Angeles, California. With that being said, Kyle, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Kyle Mitchell: Yeah, absolutely. Thanks for having me on. What we focused on is value-add multifamily out in the Arizona market. In fact, about 18 months is when we first found multifamily and got started educating ourselves; I left my full-time job about 8 months ago to pursue this full-time. As you mentioned, we’ve just closed on our first project, a 42-unit property out in Tucson, Arizona a couple months ago.
Joe Fairless: Well, you’ve got a lot of exciting things going on. Congratulations on the closing. So you said you focused on multifamily 18 months ago… What were you doing at the time as a profession?
Kyle Mitchell: I was a regional manager for a golf management company. I oversaw about 20 million dollars in revenue, and had about 250 employees. You can think about our company kind of like a third-party property management company; municipalities would hire golf management companies to come into their properties and manage their facilities for them.
Joe Fairless: Okay, got it. And your role specifically within that was what?
Kyle Mitchell: I was a regional manager [unintelligible [00:03:37].12] general manager. So I oversaw the operations of the golf courses, and the day-to-day business.
Joe Fairless: Okay. So let’s talk about you leaving your job eight months ago to focus on, I imagine, this, full-time… Correct?
Kyle Mitchell: Yes, correct. I’ve always been an entrepreneur at heart and I’ve always wanted to leave my full-time job, and I’ve just been waiting for the right time to do it, and find the right vehicle. And about six years ago I got started investing in single-family homes, and much like many people, I learned I can’t scale as quickly as I wanted to… And that’s when I started looking into multifamily.
Once I found multifamily, I fell in love with it, I fell in love with the business model, and as soon as we felt like we had enough of an investor base, enough knowledge and a big enough network, I decided to leave and pursue this full-time.
Joe Fairless: Oh, okay. Let’s talk about the single-family stuff, so we get a full picture of your real estate background. What single-family properties have you purchased?
Kyle Mitchell: I have nine single-families; they’re all out of state. Some in Arkansas, Chicago and Ohio area. I bought them all turnkey about 4-5 years ago. At that point, I was just trying to get some passive income while I had my full-time job. Then, as I mentioned, I quickly realized it’s tough to scale, especially with turnkey, so I decided to become more active in the multifamily syndication space.
Joe Fairless: Okay. Do you still have those nine single-families?
Kyle Mitchell: I do, although I am trying to dispose of those. They do cashflow, but right now I wanna put that capital to work in multifamily.
Joe Fairless: Okay. So are you trying to sell them as a portfolio, or just one-off transactions?
Kyle Mitchell: [unintelligible [00:05:13].14] them in three different markets, so basically I have two in Arkansas, and I’m trying to sell those as two; three in Ohio, trying to sell those together, and then the four in Chicago. So three different portfolios. But if I get an offer, one-off and I’ll take those as well. Unfortunately, those have been kind of my worst deal. I bought them turnkey, and at the time I thought they appraised; they did appraise, but it’s looking that they’re worth less than what I purchased them for… So I’m having a little bit of trouble selling them, so I might have to take a loss on them.
Joe Fairless: Okay. Let’s talk about the 42-unit. When you said that “We got focused on it 18 months ago”, or introduced to it – who’s “we”?
Kyle Mitchell: We is my fiancée, who’s my business partner. She still has a full-time job, but she helps with raising capital.
Joe Fairless: Okay. The 42-unit that you two purchased – were you two the only general partners in the deal?
Kyle Mitchell: When we started out, yes. We tried to do it on our own. We had a little bit of trouble raising capital, and a little bit of trouble actually with the lender, so we had to switch lenders last-minute and go with a Fannie Mae loan… So we had to bring on two other partners to help sign on the loan and raise a little bit of capital on the side.
Joe Fairless: Okay. Let’s get into the specifics of the 42-unit. How did you find it?
Kyle Mitchell: Well, by driving the market. We look in the Arizona markets. We live in Southern California, so what we would do is every other week we would drive down to Tucson – it takes about seven hours, so we leave at [2:30] in the morning, get in around 9 or 10, and on the way we would call brokers and tell them we’re gonna be in town and asking if they had anything available.
It so happened that one of the brokers just got the listing that morning, hadn’t toured the property really themselves, and asked if we wanted to tour it… So we were the first ones to take a look at it, and as soon as it went to market, we had basically already put our offer in. So we had about a three-week headstart, and about a week later we got it under contract.
Joe Fairless: How many times did you do that seven-hour drive prior to purchasing the 42-unit?
Kyle Mitchell: I would say at least ten, and we still continue to do it. Sometimes we fly out of here now, but we were out in the market every other week.
Joe Fairless: Okay. And what are you doing in the market every other week, now that you have a property?
Kyle Mitchell: We’re just meeting with brokers, telling them about that property; we’re also meeting with potential investors, local people, and just trying to get to know the area a little bit better. When you’re dealing with out of state, you don’t know all the areas of the market unless you’re driving it and spending some time in it… So we like to do that, and then we’re buying brokers lunches, coffees, whatever we can do to build better relationships.
Joe Fairless: So you got it through a broker… What was the purchase price?
Kyle Mitchell: 1.65 million.
Joe Fairless: Okay. And total equity you raised was how much?
Kyle Mitchell: A million.
Joe Fairless: And I imagine, since it was an agency loan, you raised the cap-ex budget from the equity from the investors, right?
Kyle Mitchell: Correct. Closing costs, around 600k, and then we raised another 350k or so for the renovations.
Joe Fairless: And what are you doing, renovation-wise?
Kyle Mitchell: Full paint job, changing out the doors… This property specifically has sliding glass doors, believe it or not, so number one, it’s a safety issue, and number two, the doors just don’t work very well, so there’s a lot of maintenance that has to be done on them. So we’re replacing them with full wood doors on there, changing out the railings, and rebranding and re-signage. We’ll add a small little dog park and a barbecue area.
Joe Fairless: And you bought that in May, so… Very recent. What have you learned so far, after about a month or so on the property?
Kyle Mitchell: That the residents just have not had communication with the previous property management, so we’re bringing someone in there and spending time on the property, and they’re really loving the feedback that they’re getting from the property management, someone on site.
We’ve also learned that we’re able to get the market rents that we were hoping for after renovations, prior to renovations. That’s good news.
Joe Fairless: Excellent. Yeah, that’s great news. Congratulations on that. What is the rent bump that you’re looking for, or you have been achieving?
Kyle Mitchell: About $125, plus an additional $35 for RUBS.
Joe Fairless: Yeah, good for you. How long is the loan? When does it mature?
Kyle Mitchell: We’ve got a 12-year Fannie Mae loan, three years interest-only, fully assumable, at 4.2% interest rate.
Joe Fairless: And when do you plan on exiting out of it?
Kyle Mitchell: It’s a six-year exit plan, but obviously, if we’re able to exit out of it a little bit sooner, depending on the rents that we’re gonna get after renovations, it’d be great to exit out of it in about year two, or do a refinance.
Joe Fairless: In terms of the equity raise, what about it was surprising when you were initially doing it, and then you needed to bring on another partner to complete it?
Kyle Mitchell: Yeah, so the first time raising capital, you really get a peek behind the curtains of people’s lives. We anticipated that we’d be able to raise a million dollars, and we ended up raising 900k of that, but things happen in people’s lives, and it’s a whole timing issue. So whether someone’s having a baby, or someone’s out of the country for a month, or someone’s closing on another property so they need to show liquidity to the bank…
All these things come up where life just happens, and really when you’re raising capital I would say you wanna anticipate at least two times the amount that you wanna raise. If you wanna raise a million dollars, you wanna know that you have two million banked on.
Joe Fairless: What are the terms that you have with this deal, in terms of GP, LP, pref, all that.
Kyle Mitchell: We’ve got a 6% pref, 80/20 split, six-year hold, [unintelligible [00:10:43].29] 14% IRR.
Joe Fairless: Cool. What was your acquisition fee?
Kyle Mitchell: Acquisition fee was 1%.
Joe Fairless: Okay. So the acquisition fee isn’t something that you’re able to retire off of, clearly, but it certainly helps… But you left your job eight months ago, so how did you decide “Okay, I need to leave my job (or I want to leave my job, however it transpired) and I’m gonna make it on my own with this real estate investment career”?
Kyle Mitchell: Well, first, I have an amazing fiancée who is supporting me through this and said “Let’s do it”, and number two, I just feel like if you’re gonna go all-in and be one of the top players in the game, you’ve gotta go full out. That’s just something that I decided to do. Back when I still had my job, we were still coming out to the market and we were still competing, but I just don’t think that we were competing to the level that we needed to. We weren’t building the relationships we needed to, we weren’t networking as much as we needed to, we weren’t building our investor base as much as we needed to, and the only way to do that was to be full-time and to go full-out with it… So we just decided to take a leap of faith and go after it hard.
Joe Fairless: Based on your experience, what is your best real estate investing advice ever?
Kyle Mitchell: Get out of your comfort zone. If you’re not pushing yourself to places you’ve never been, you’re gonna be stuck in the same spot forever.
Joe Fairless: Well, you certainly did that, and also I’m sure you’re very thankful for your fiancée and her full-time job during this interim period.
You’ve got a 42-unit, and you have a couple partners… How did you find the partner who ended up bringing the balance sheet for the loan?
Kyle Mitchell: Through networking. We have a meetup group that we’ve had for about 14 months now, and I’ve met him through that group; we started talking, and ten months later he approached me and said that he’d be interested in possibly partnering on a certain deal. He had the balance sheet and the experience, so I called him up and asked him.
Joe Fairless: And how do you structure that with someone who brings that to the deal?
Kyle Mitchell: I think it depends on the deal and the person, but basically we gave him a certain percentage for signing on the loan for us. Real estate is a team sport, as they say, so there are several pieces of the pie and you’ve just gotta figure out what pieces you can add to it and where other people can add to that pie.
Joe Fairless: And what’s the range of equity that that person would get on a deal?
Kyle Mitchell: I’d say anywhere between 5% and 15%.
Joe Fairless: Knowing what you know now, now that you’ve completed your 42-unit purchase, if you were presented the same exact deal this week, I’m sure there’s something you would do a little bit differently than you did going into the 42-unit transaction… So what’s something you’d do a little bit differently, if presented the same opportunity this week?
Kyle Mitchell: I would have set up the team in advance, and not try to do everything myself. And then secondly, I would have probably better communicated with the lender what my plan was on the property, and the GP structure.
Joe Fairless: Will you elaborate on that? I should have asked some follow-up questions about the lender and the loan, what transpired with that…
Kyle Mitchell: Originally we were gonna go with a Freddie small balance loan, and we were gonna try and do the full raise by ourselves. We had an extension built in just in case we weren’t able to, but at that time I failed to communicate to the lender that we’d be adding GPs later in the game, so… Basically, with Freddie, they applied for the loan prior to that; they got to the point where it was too late to add on a GP, so we actually had to move lender and go with a Fannie Mae loan, and switch lenders completely.
Obviously, with 30 days left it was a scramble at the end, but we were able to get it closed… And it worked out in the end. We ended up getting a 80 basis point discount on the interest rate, because the interest rates had lowered so drastically.
Joe Fairless: Oh… [laughs] That’s good.
Kyle Mitchell: It ended up working out, yeah.
Joe Fairless: Yeah, I’m glad to hear that. Who did you have as your point person throughout that process? Did you have a mortgage broker?
Kyle Mitchell: It was a mortgage broker, correct.
Joe Fairless: And how did you get to know the mortgage broker?
Kyle Mitchell: Through a podcast, and networking, and going to certain events… And we had built a relationship with that person over the last 5-6 months. I feel bad that we had to bail on that deal, because we had built up that relationship, but unfortunately, based on the situation, they were unable to help me… And by switching over with someone who the other GP had a good relationship with, we were able to get it closed.
Joe Fairless: Did you say you run a meetup group, and have been for about 14 months?
Kyle Mitchell: Right, we joined in on another meetup group; we were the second chapter to join, and we’re now eight chapters, and we’re about to go nationwide towards the end of the year… But we’ve been doing that for about 14 months; we have about 1,400 members in our group, and I also have a second one that I started earlier this year that’s more of a smaller roundtable for multifamily.
Joe Fairless: Oh, cool. How do you structure the second one?
Kyle Mitchell: It’s a roundtable, there’s only about ten people that come, and everyone gets to go around the table and talk. They’ll talk about their goals, what they’re doing in the next 30 days to accomplish their goals, what have they achieved over the last seven days, if they have any needs or wants, and any opportunities.
I like it because everyone in that group gets to speak, whereas at our other events, which are great as well, they’re more education-based. So it’s networking, but not every person gets to speak their mind and share what they’re going through.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Kyle Mitchell: Let’s do it.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Break: [00:16:05].20] to [00:16:54].12]
Joe Fairless: Best ever book you’ve recently read?
Kyle Mitchell: The Best Ever Apartment Syndication Book. I model my business after that book, and it’s working great so far.
Joe Fairless: Oh, I’m glad to hear that. What’s the best ever deal that you’ve done so far? Let’s remove the 42-unit — because that was your answer, right? Clearly, the 42-unit…?
Kyle Mitchell: Yes, it is. But it’s the only multifamily property that we’ve done, so other than that I don’t really have one.
Joe Fairless: Okay. Well, what’s your best ever single-family home purchase?
Kyle Mitchell: The best ever single-family home purchase is the ones in Arkansas. I like Arkansas because it’s such a landlord-friendly state. If you are late on rent, even one day, you can evict them… So – knock on wood, I’ve never had a late payment on rent in Arkansas.
Joe Fairless: What’s a mistake you’ve made on a transaction?
Kyle Mitchell: A mistake was buying turnkey rentals out of state, site-unseen, especially the ones in Chicago. I’m still dealing with those problems right now.
Joe Fairless: What’s the best ever way you like to give back?
Kyle Mitchell: Through our two monthly meetups, and then we also have a podcast, and we also host free webinars to help educate others in the space.
Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?
Kyle Mitchell: You can either give me a call at 562-833-5010, email me at kmitchell@limitless-estates.com, or check out our podcast, passive income through multifamily real estate.
Joe Fairless: Kyle, thank you for being on the show. Congratulations on the 42-unit. Thanks for sharing the lessons learned from the capital raise, as well as getting the right team members in place, how you and your fiancée have positioned your company to be at this stage, the seven-hour drives you two were taking, at least ten times, in order to get the transaction… And everything that you’ve got done to get to this point.
Thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.
Kyle Mitchell: Thanks, Joe. I appreciate it.
