JF2328: HighSchool Vocational Class to Real Estate Developer With Kevin Palka

Kevin Palka Real Estate Background:

Click here for more info on groundbreaker.co

Best Ever Tweet:

“Find a partner or mentor to work with you on your first project” – Kevin Palka

TRANSCRIPTION

Theo Hicks: Hello, Best Ever listeners, and welcome to the Best Real Estate Investing Advice Ever show. I’m Theo Hicks and today we’ll be speaking with Kevin Palka.

Kevin, how are you doing today?

Kevin Palka: I’m doing fantastic, Theo. Thank you for having me.

Theo Hicks: Absolutely, and thank you for joining us. A little bit about Kevin—he is the CEO of MVP Equities, a multifamily real estate developer. He has 18 years of real estate experience, and MVP focuses on acquiring land, entitle, develop and build. Based in Vienna, Virginia. You can learn more about Kevin and his company at https://mvpequities.com/.

So Kevin, do you mind telling us some more about your background and what you’re focused on today?

Kevin Palka: Sure, I’d love to. So my background is at 45 years young — I started in the construction industry when I was 15 years old. So I’ve been living and breathing the construction industry a large portion of my life. I started out as a carpenter’s helper at 16, building houses. I was fascinated with stick-building and wood and just cutting things and putting things together. I was the kid that always took things apart and tried to put them back together and just had a technical mind. So I just always had a natural draw to the construction industry and real estate mentor.

So I began my career just working through the trade, through high school. I was fortunate enough in high school where we had a vocational program where we actually built a house off-site. So every Tuesday and Thursday, we would get bussed off-site and go build a house that we auctioned off for charity, and that was the start of my career. And my carpentry teacher’s son was a homebuilder, so he actually saw me working on this house through school and decided that I had a knack for framing and building houses, so he hired me on during the summers.

So I eventually just kept building houses and working in residential construction, graduated high school and then actually went to school in upstate New York, and got my master’s degree in construction management and then just focused into and fell into commercial construction, and just basically worked my way up through different companies and project management roles, superintendent roles, so being on-site and traveling, and just working on various job sites, and that transitioned into multifamily.

So I had a long, extensive background in doing residential single-family, then went to multifamily and a mix of commercial as well, which got me through the first 6-7 years of my career. I eventually decided in 2002 to move to the Washington DC, Virginia area since it was a dream of mine as a kid to build high rise condominiums or high rise buildings and apartments. The Washington DC market was a very strong residential and multifamily market, and it just provided an opportunity for me to work for a development company at the time, back in 2002, all the way up to 2008 when the big crash happened. And from that point, I had put under my belt several large-scale projects ranging from $100 million to $200 million projects, 15 story buildings, things like that, that just had a lot of mass, in urban areas around Washington, DC. So it provided a lot of experience for me, a lot of growth, I learned to do some larger-scale projects and just really fine-tuned my skills.

And as 2008 came in, the crash happened and I got laid off, that’s when I started my own company. So in 2008, Asset Construction Services was born as a general contractor builder, and we worked in, again, Northern Virginia, Washington DC area, throughout the metro area, building commercial spaces, multifamily spaces and a little bit of residential here and there.

Ultimately, I just got back into development over the last 2-3 years from 2017, all the way up till now and we’ve developed several different multifamily buildings, as we established a healthy balance sheet to use as equity in our projects. And within the last three years, MVP Equities was born and spun off of that as a sole development company.

And right now, our business plan is to build, develop and acquire – or in the reverse order, acquire, develop and build – about 500-700 apartment units per year. And currently right now, that’s what we have in our pipeline. We have a 224-unit projects in Richmond, Virginia, that’s in permitting. We’ve designed that project with an architect firm, we get it entitled, meaning getting the permits, and then we obtained the financing, and then we work with other contractors, usually third-party GCs, on projects of this size, to build it for us as we construction-manage, and just execute the project as a whole and get it to stabilization.

We also have a 500-unit project in Charlotte, North Carolina – same process. We’re currently in rezoning, and out raising capital for it, syndicating and getting these projects to permit stage, so that we can execute, close on the loans and build the project. 500-700 units a year is our target, and that’s currently what we have, and it’s going really well.

Theo Hicks: Kevin, thank you for sharing your background. So a few follow-up questions… You mentioned that, really, the main reason why you got into development was because of your schooling and your knack for building things, and I was just wondering – do you feel or do you find that development has other advantages over buying existing properties, or do you think both are good strategies? Or do you just do development because of your background? Or is there another reason why you chose development over buying existing properties?

Kevin Palka: Well, that’s a fantastic question, Theo. And my answer would be it’s been in my blood to build new. We have a background in renovating as well, but from the standpoint of building new – because when I moved to Washington DC, I got very conditioned to build new projects. So it’s more along the lines of it being in my blood, starting with a new canvas; you get to paint the picture, you get to design it, you’re not stumbling over somebody else’s path… Not mistake, but just challenges that you face when you get an existing property.

So we just love the challenge of building new. We think that the talent that we have and the ability we have to not only understand the construction process, but the development process as well… And where we add value is we’re just very good at getting the best and highest use of the piece of dirt to maximize its value, not only from a monetary standpoint, but to improve the neighborhood that we’re building in. And that’s a large part of why we pick certain projects, is they are in up-and-coming neighborhoods, and they are transitioning and helping transform that neighborhood to be a little bit better.

Theo Hicks: Okay. So another question, since you have a lot of experience with construction management, obviously it’s what you’re masters in, and it sounds like you’re using third-party GCs for your deals. So other people who are doing massive construction projects, or something as simple as having a contractor help you flip a house or do renovations on your house. What are some tips you have on managing those contractors? Because we’ve all heard the horror stories of paying a contractor and never hearing from them again, or the contractor not doing great work. So kind of what advice do you have for people big and small, some kind of universal advice for managing contractors to make sure you’re getting the most out of your money?

Kevin Palka: Yes, it’s a great question, and then like you said, it can apply to flipping a home all the way up to a large project. But my advice would be, as cliche as it may sound, is do your homework. And breaking that down is one, interview the contractor, and really, really get to know them on a personal level, and visit their past job sites. Go look at their works, see what they’re doing, touch and feel their products, speak to their previous clients or who they’re currently working with; that’s a big one. There’s no better reference than their current clientele. So if they dance around that, that’s a sign that you shouldn’t probably work with them.

Ask for a qualification statement. There’s a document that you can get online called an AIA A305, and it basically lists out the qualifications of the contractor, from financial strength to previous project history, so you have a paper trail of what they are committing to and what they said they have done. So investigate that, do your homework. When you do start the project, meet with them weekly, take meeting minutes, take photographs. You can’t just leave your contractor on an island and expect the project to be done, or trust that it’s going to be done. You have to be there, you have to show your face, you’ve got to have a presence. And when you have a presence on the job and that people know that they’re being held accountable, you usually have a higher chance of success. So doing all that homework will definitely help your chances of success and helping you have a successful project.

Theo Hicks: And then transitioning to funding… Do you mind walking us through how you did your background, do the same thing, but tell us how you fund your deals, how that has evolved, I guess, since you started your own company in 2008?

Kevin Palka: The funny thing is, when I started my company in 2008, I had cashed in my 401(k) – or what was left of it – to start my construction company. We really just needed a little grindstone, as they say; just really hustled and saved money and built up our balance sheet over a period of a good 9-10 years. And what that did was it established a track record for us. Really, people saw what we were doing, and then they looked at our previous history with my previous employers, and they saw that long project list that I had accumulated over 15-18 years, and knew that we could perform, knew that we could execute. And then when we started going out and doing a development deal again, which back in 2017, when we put that hat back on, we started raising money through friends and family, we started just getting the word out there… I’m a mover and a shaker. I love to meet people, I love to be in front of people, shaking hands and just introducing, and just one thing leads to another. And we actually did a hard money loan on one of our first projects. And that guy who gave me the hard money loan actually invested in my project that I had after that. And that just set up another slew of introductions and it snowballed into just a bigger project with traditional bank financing. He had a huge relationship with some of the national banks, some of the local banks, that got us really good clean financing, and it helped us im, put in some equity; he brought in another partner, we raised some more equity and it just really snowballed into people just executing on that project, that one being a success and now to where we are today. We’ve actually just accumulated more and more investors by doing webinars, podcasts; we started a 506(b) fund to raise money from accredited investors. So we’ve gotten really legit with the way we do it.

We’ve also worked with different relationships with debt and equity brokers that helped us come in and just open doors. Some of the national players have gotten involved with us just to make introductions and source equity for us, source debt… And just bringing in the right people to really guide us and help us so that we do it in the right manner, we do it according to all regulations of the government, the SEC, and making sure we do everything properly and just having the right counsel in that respect. So just a large networking that we built over the last 3-4 years, it’s really got us in a good position right now, and we think we’re going to be able to execute rather efficiently with all our capital stacking.

Theo Hicks: So from 2008 to 2017, during that eight to 10 years, there was no money raised at all, it was just your own personal money that you saved up?

Kevin Palka: Correct. We were just using our own funds at that point.

Theo Hicks: Alright, Kevin, what is your best real estate investing advice ever?

Kevin Palka: My best real estate advice ever is to either find a partner or a mentor or coach to work with you on your first project. That will definitely help you flatten that learning curve, and really let you learn a lot quicker from somebody that’s been there and done it in the trenches.

Theo Hicks: Okay, so a quick follow-up question on that. So let’s say I want to do a development project, I want to do a first deal and I listened to you in this podcast and I go, “Alright, I need to get a partner or a mentor,” how do I get that person on board with my deal? And again, you can say that it’s not possible either, but let’s say I’ve not done deals before. I have a W-2 job that I’m working, and I want to get into real estate; how am I able to get that person on board? Do I pay them? How does that work?

Kevin Palka: What I would recommend is for some people to network through local events. For example, in our neck of the woods in Northern Virginia, there’s a program called GRID and they have a local meeting with mentors and coaches in real estate, individuals that actually often market that they will partner with you. You can go to those meetings, start to get to know people, start to get introduced… There’s guys that we know, for example, that have government IT jobs that are doing their first two or three-unit, four-unit condo flip. So they get involved with an architect, the architect makes some introductions… And offer to partner. You can just start networking with other professionals and offer a joint venture, a 50/50 ownership structure; or if you have three people, a third, a third and a third.

It’s really just getting out there, shaking hands, getting to know people. Get out there and go to events. Obviously, in COVID right now, it’s a lot more difficult, but everything’s gone virtual. So you can do it from the comfort of your home now. Do your research and find out.

I’m a grinder, I go out and just look online and I just don’t stop until I find what I need. So real estate is not for everyone, but you’ve got to have that passion, you’ve got to have that grit to be able to go out and find what you need. So just getting out there and shaking hands, or anybody can reach out to us, and if we know somebody, we’d definitely be happy to point you in the right direction.

Theo Hicks: Alright, Kevin, are you ready for the best ever lightning round?

Kevin Palka: Let’s do it.

Theo Hicks: Okay. First a quick word from our sponsor.

Break: [00:17:06] to [00:17:54].

Theo Hicks: Okay, Kevin, what is the best ever book you’ve recently read?

Kevin Palka: This one’s awesome. So I read The Road Less Stupid, believe it or not. The Road Less Stupid by Keith Cunningham. It’s a book for any entrepreneur, real estate, whatever business you’re in that gives you amazing advice on how to look at your business strategy; no matter what you’re doing, whether it’s real estate or something else, it gives you amazing outlook on how to really break things down and make really good decisions and think about things. He focuses in the book about thinking time and spending the time and really thinking about what you’re doing. So I highly recommend it.

Theo Hicks: If your business were to collapse today, what would you do next?

Kevin Palka: I would reach out to all my current mentors and coaches that I have and current partners that I’ve worked with, and just because I love my business, I would want to rebuild it. And I would surround myself with people, because when a man or individual is alone and working by themselves, that’s their lowest level of temptation management. So you want to be surrounded by people, you want to be encouraged, you want to be re-coached and you want help. And other than that, I would go and help [unintelligible [00:19:01].29] shelters for dogs and things like that if I really changed careers.

Theo Hicks: Tell us about a deal that you lost the most money on, how much is lost and then what lessons you learned.

Kevin Palka: I’ve never lost money on a real estate deal, although we did come close. In 2007 we had bought a piece of property in Arlington, Virginia, and I did it with two co-workers, and we built a spec house. And then 2008 happened and we should have made over $100,000 apiece, we ended up making about $30,000 apiece; but we came really, really close to losing money.

What we learned from that was — we were a lot younger then, and just learning more about what the cycles are and paying more attention to other signs in the economy and what’s going on in the world, to be able to better make judgments about your timing and how you’re going to approach a project and how long you want to stay in it.

And the biggest project I’ve ever made money in was a project we did last year in Arlington, Virginia, called the [unintelligible [00:20:01].01] We had a significant profit on that, did very, very well, built a high-class condo building… And what I learned from that was just location, location, location. We were very close to Washington DC, it was about a two-minute drive here in the city… So that old saying holds true. So it was a very successful project.

Theo Hicks: Perfect. You’ve preemptively answered my next question, so I’ll skip that one, what’s your best ever deal, and move on to what is the best ever way you like to give back?

Kevin Palka: In my community church, we do a lot of volunteering work. My family, my wife and I, and our two kids, we do volunteering work for homeless shelters through our local church. We like to raise money for Catholic Charities, we like to raise money for Black Lives Matter… We do a lot of different stuff with different organizations to try and do our part and contribute to society. We like to donate clothes and toys, we teach our kids to do that, so that they understand that there’s other kids that need help, they need clothes, they need toys as well… So we try to pass that along to our family, to pass that along through our family and the kids, and definitely benefit others as well.

Theo Hicks: And then lastly, what is the best ever place to reach you?

Kevin Palka: The best ever place to reach us is to go to our website at https://mvpequities.com. Our phone numbers are on there, our emails are on there and you can schedule a call with me at any time.

Theo Hicks: Perfect, Kevin. Well, thank you for offering that, and thank you for joining us and for providing us with your best ever advice. So very succinct – I like how you just provided everything, boom, boom, boom, in a list. So we talked about, first, why you selected development over some other real estate strategy or buying existing properties. Really, it was just something that was conducive with what you wanted to do, what you liked to do, and with your background. So anyone who listens to this podcast knows you can be successful in really any real estate niche, so just pick one you like, and then do that.

Kevin Palka: Exactly.

Theo Hicks: The other one was about the construction management advice; I really liked this… So it was do your due diligence on the contractor, which involves interviewing them, it involves looking at their previous projects, it involves speaking with people that they currently work with and people that they’ve previously worked with, as well as doing the qualification statements (you said AIA A305). And then once you actually hire them, just make sure that you’re there, that you’re present, show up at the job site. If they know you’re showing up, well, they’re going to know they’re going to be held accountable, and they’re more likely to do a good job, as opposed to you just leaving them there for months and months on end.

You talked about funding and how it just kind of organically grew from you funding with your own money, kind of building and establishing a good track record, and then starting with family and friends. You said you got a hard money loan, that that person ended up investing, and then through that network you’ve met more people, and then now you have very professional webinars and podcasts, and you raise money from debt and equity brokers. And then once you get to that point, make sure you have the right people on your team, the right counsel, so that you’re raising money by the book.

And then your best ever advice was to find a partner or a coach, mentor for your first project. You can find them through local networking events; sometimes there’s people who are explicitly marketing that they want to partner with you. And then in order to attract them onto the deal, get them to help you with the deal, just do JV, give them half the deal, because half of something is better than all of nothing.

Kevin Palka: Well said.

Theo Hicks: You’re going to have to grind and get out there and be passionate enough to keep hustling until you find what you need, until you find that business partner, and be willing to do whatever it takes to get them onto your first deal.

So Kevin, I appreciate it; thank you for joining us again. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Website disclaimer

This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.

The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.

No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.

Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.

Oral Disclaimer

The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.