Epic Real Estate Investing - Higher Rewards | 1072

Episode Date: July 7, 2020

This Tuesday, Mercedes is joined with Cathey Kuo, a commercial real estate broker and an investor since the age of 15! Tune in and find out Cathey’s journey from a teenager growing up in poverty to becoming a 31 years old real estate ace who runs not only her portfolio but runs a portfolio for her family, as well! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. So you want to be a real estate investor, but you don't want to do the work. If there were only a way where someone else could do it for you, now there is. Tune in here each and every Tuesday on the Epic Real Estate Investing Show for Turnkey Tuesdays with your host, Mercedes-Torres. Hello and welcome, welcome to Turnkey Tuesdays brought to you by Epic Real Estate Investing. My name is Mercedes-Torres. I'm the Turnkey Group. girl, and I am lucky enough to be partners in crime with Mr. Matt Terrio, the guy who created

the epic real estate empire. I help busy professionals create passive income through real estate investing so they can retire even sooner. With that said, this show was created to share tips and real life, real estate experience so that you too can create passive income in your world. So if this is your first time here, glad you made it. If this is not your first time here, welcome back. So let's talk about the deal of the week because last week's deal, I will have to say was a deal of the century. It was such a great deal, but it was a little bit different than what I normally offer. Now, this was three units.

It was a triplex. in the Quad Cities, specifically Rock Island, Illinois. And it was a unique property to Cashflow Savvy because I am huge on three-bedroom units. And if they're multifamilies, I like them to be two units. But this was a unique property because of the three units, one of them was a two-bedroom, one bath, one of them was a one-bedroom, one-bath, and the third unit was a studio. Now, the only reason I went for that deal was because it was located on an amazing block. It was, I'd have to say when it was purchased, it was the ugliest house in the neighborhood,

but when we purchased it and rehabbed it, it just brought it to life and created amazing returns. So the sales price for that property was $145,000, and it collects a total of $1750 in rents combined with all three units. Now, taxes were a little bit higher than I like. They were $2,600 a year. That's normal in Illinois. And it's normal for a triplex. But despite the fact, that property produced a 13% cash. on cash return. So stellar deal. Congratulations to Leslie and Rick of Southern California,

who are in the process of closing that property, should be closing in about two weeks, and you landed a sensational deal. So congratulations on locking that deal up. So let's jump into the show. This week, I decided to do something a little bit different, but not so different that you wouldn't be able to relate to it. See, my guest this week started off in real estate when she was dirt poor and she was only 15 years old. She shared her parents struggled financially and they were looking for a way out. They knew that there was another way of doing things and being that they weren't immigrants, they just decided to just go for it. So they decided to dive into. to real estate investing.

And they were doing this from the Midwest. Actually, they were East Coast. They were on the East Coast. And, you know, they said themselves, they had no money, no experience, and they had no idea what they were doing. They just needed to do something different because what they were doing wasn't working for them and the family. And being foreigners, my guest parents just would pay.

her up after school and they would drive around the city. We call that driving for dollars. But that's how my guest learned how to do real estate, specifically real estate investing. Now, fast forward to 15 years. She now runs an entire portfolio, not only for herself, but she runs a portfolio for her family as well. So ladies and gentlemen, without further ado, I'd love to introduce you to Kathy Kloh. Kathy, are you there? Yes, I'm here. Great to chat with you.

Welcome to the Epic Real Estate Investing Podcast, Trunkey Tuesday. I hope you are off to an amazing Tuesday. I was so thrilled to be connected with you. And I wanted to invite you on our show because your story, your situation, your upbringing and how you ended up where you are today is so inspiring, not only to myself and to women, but just in general to minorities. So I wanted to bring you on board and just so you can bless us with your story, your knowledge, and your presence. So without further ado, tell me a little bit about you. Aw, you're so sweet. I'm a lot to live up too, but I'm basically, I am a commercial real estate,

broker and an investor. I'm based in Las Vegas, Nevada, and I've been here about six years now. I started from New York City. I started my career there, and we started investing out there as well. So definitely an East Coast girl and got that work ethic. I think that definitely helps bringing that to the West Coast. But yeah, right now I currently oversee a portfolio of about 80,000 square feet in Las Vegas. We do still have one property left in the East Coast in Bridgeport, Connecticut. that one is mixed use residential and retail, but we sold off most of our other stuff. We had multifamily there. We had like a bunch of different properties, commercial.

So right now here, it's all straight commercial office and retail. I love it. I love it. I love it. And I wanted you to share that because I think it's really, really important that you dive into what you're doing now, but I really want to know about the road. So tell me, how did you? start real estate investing. Where did that come from? Sure. So for me, it's a unique story, I guess.

Like, I started, you know, I grew up dirt poor. Honestly, like people kind of, I think people see me now and how young I am and where I am in life and think like I was born into this. I had a silver spoon growing up, but that is totally not the case. Like, we were dirt poor, you know, ramen noodles, like dollar frozen pizzas kind of poor until I was probably in like junior high high school when we really really delve into the investing side of the business. And kind of similar to your story, honestly. Like, we started a lot with, like, these creative deals. There were some owner financing involved.

There were some creative lenders. And using very, very little capital, essentially, like, we built up this portfolio. And I was there every step of the way. Like, my mother would drag me after school. Like, you know, and I wanted to just hang out with my friends and just, you know, I'm a teenager. I was like, why did I have to go underwrite properties and drive around in circles and look at 20 properties to figure out which one. a viable investment. I'm like, I'm a teenager. But in hindsight, of course, hindsight's

2020, I appreciated so much because I got such a head start on that and I was brought up with that mentality and learning how to underwrite things from that perspective since I was a teenager. So, yeah, I appreciate it now. Not back then, though. I love it. What an amazing story because, I mean, I have an eight-year-old and he's learning about cash flow. I mean, his mom and dad are about real estate and cash. So he doesn't have a choice. But what were you looking at when you were 15 years old? Because you look like you're 25. So when you were 15 years old, like what were you looking at? What was your mother telling you to concentrate on if you guys were dirt poor and you guys had no money? Sure. Yeah. So like, I mean, right now I'm 31. But Asian no raisin. Thank

goodness. So this is like 16 years ago. But we started off with really small like condos and co-ops. And back then, honestly, you could get them for like under 100K in New York. And people were like, yeah, so we could get them from like the condo and co-op board sometimes. They're sometimes developers. The per unit price, the per unit cost essentially was a lot lower because you would buy a portfolio. But of course, we were starting out. We couldn't afford 10, 15, 20 units. What we did in terms of getting creative was we utilized our network. And it was like, we went in on this one deal. It was like my aunt got a few. units and my uncle got one unit and you know we got a few units and so the per unit was significantly

less when you buy an entire portfolio yeah yeah so when you started and you talked a little bit about creative financing because you didn't have money so is was that the creativeness that you brought in other family members because they had a little bit of capital or what was creative about your first deal yeah so um there's yeah a lot of times you know we'd bring in different family members and kind of go in a portfolio together, things like that. But other times, it was just leveraging relationships. So, for instance, I mean, this isn't our first deal, but this is part of how we really built up our portfolio out in Las Vegas.

We leveraged our relationships with Taiwanese banks. So at the time, this was like, you know, bottom of the market, we took over this property with about 40% occupancy. And as you can imagine, most traditional American banks were like, no, like that rate, that income ratio, that NOI, that cap rate, like, doesn't make. sense. We would never lend on that. So with Taiwanese banks, on the other hand, they led more on experience and that like relationship that you have. And they knew we had a track record. They knew at that point we were already in the investing game for a number of years and they've seen what we've built.

And so we were able to lend on this property and, you know, build it up from 40% to 90%. So that getting creative, I think, is realizing that if five banks say no, you could probably, you know, look for another five. I think a lot of people hit that roadblock on their first and they're like, I can't get a, it's like you might have to pay a higher rate. You might have to pay more fees, but what's the risk of not doing it, you know, or what's the cost of not doing it? Yeah, I say that all day long. What does it cost you for not doing ideal? What does it cost you, you know, to not get creative or not think outside the box? And what people fail to remember is that a real estate deal is just an understanding between a buyer and a seller.

And as long as the buyer and the seller agree, whether it's with creative financing or buying financing, there still has to be an agreement. And some people just think because they can't get a loan with the bank, they think that, oh, they can't do a deal. And that's so far from the truth because you and I started with no money at all. We had very, very little money. And we had horrible credit. So, you know, I say that all the time because nothing's impossible in real estate.

Yeah. You did mention something that really caught my attention and you said, you know, you had the relationship with a Taiwanese bank. So you had a relationship with a banker. And at the end of the day, that first deal that you did was because of a relationship. Yep. So tell me about in your business today, what is, what does relationships mean to you for real estate. I mean, I think relationships are so important. You know, I still do a lot of buyer and

tenant rep. And a big part of that is because of the relationships I have. So as an investor, a lot of people kind of think I'm crazy to do this, to be honest. I mean, everyone kind of knows on the real estate world, like, you make a lot less on the commercial leasing side than you do on the investment sales side. And they're like, why would you invest your time and effort into doing this deal when you can be making, I don't know, five or ten times the commission if you were to focus on just the investment side. And part of that is relationships because I think helping people and paying it forward and like genuinely caring about people is so important.

Like all my business now, you know, whether it's like the clients I have, the clients that a lot of the clients I refer to my agents. And even a lot of the tenants that we got now are through referrals. Like our tenants love being here and they love referring their colleagues, their vendors, or suppliers. And so I think just building that trust and showing people that you're credible, you know, actually care about people and really getting to know them that that's so important.

Real estate in general is a relationship business, whether you're on the landlord or the broker side and I'm living proof of it, essentially. So I definitely think that's important. You are living proof. Now, you started with residential real estate you share. And as you know, cash flow savvy specifically focusing.

on creating streams of income, specifically passive income through real estate investing. But you made the switch from being an investor that did single families or condos and co-ops to now you're only commercial. So back in the day, I'm sure you were cash flowing because the way you were buying, it sounds like, you were cash flowing? So what happened? Were you actually cash flowing? And then my second question is, what happened that you switched from?

that to commercial. Sure. So in New York, you know, in the beginning, I think we were, but in New York, it's really just crazy. I remember we had this one property. It was, there was a lot of rent-controlled units on there. So basically in New York, when it's rent-controlled, I think you can raise like two, three percent a year maybe, something like that. The government regulated essentially.

And they tried to raise our other things, like they tried to raise our water, our real-state taxes, you know, like everything by about $30,000. to 40 percent so just basic numbers you don't need to be good at math like income goes up two to three percent expenses goes up 30 to 40 percent you know and so soon enough you're like I'm underwater I'm barely or I'm barely breaking even you're lucky if you break even at that kind of pace when the expenses grow you know like 10 X what income does and what legally is allowed to do so for us it was just like after a few years like this doesn't make sense given the local regulations and how much our expenses are going up with the utilities and the taxes

and everything else. Got it. It was kind of a no-brainer to just exit out of that. Now, I know you did a 1031 exchange and then how did you end up doing commercial deals? How did you fall into commercial real estate when all you were doing was residential? Sure. So I personally actually, so I, you know, I started my career, I guess, as a teenager kind of underwriting properties from the investor side, single like family residential condos and things like that. But I went to college for real estate.

I studied real estate. So it was one of the few business schools in the country that offered a real estate program at the time, Zickland School of Business. And so I stayed in New York to do that. And right after college, I went through CBRE, the largest commercial real estate company in the world. So I went through what they have is called a wheel program. And it's essentially like a rotational trainee. You get to learn every aspect of it from investment sales to consulting, which is essentially financial analysis to their corporate services to office leasing and retail leasing. And so I was very fortunate to start my career that way and learn everything on the commercial side.

And then having experience that, I was like, I love this. Like residential, like, I didn't love it. You know, I did it because I think it was just like I grew up with it. I knew it. But I was like, I didn't really enjoy it, to be honest. So I personally love the commercial side. I love helping business owners. I love seeing people bring their dreams to fruition.

And that's what I love about commercial. And that's really why I still handle these small deals, as a lot of people say, and why I still help small business owners. Because I think helping and being a part of that process of seeing people bring their dreams of fruition is just so fulfilling. And yeah, I could make 10 times the income, but it's not the same feeling, I guess, that you get. I absolutely understand you on such a level that I can relate. So one of the reasons I invited you on the show is because I get a lot of our clients that come in and they always want multifamily, especially our newer investors, because the logic behind it is, well, if I cash flow with one single family residence, why wouldn't I be able to cash flow with a 14 unit building? It's more doors.

It's more rent. It makes more sense. And you and I having a conversation, you kind of shared, well, commercial does a lot. always cash flow as well. So I want to take a moment to kind of share that experience what that has been for you and how cash flow is limited in the realm of commercial real estate. Sure. So I mean, it just, I think it depends. So with multifamily, I think that, you know, it's pretty similar to single family or condos or townhouses where you can lease them out pretty fast. With straight commercial, you can cash flow, but it's high risk, high return.

So just as an example, like the vacancy rate, you know, on residential, probably two to four weeks at most, you'll have a unit vacant. But on commercial, it's normal to have a unit vacant for six to 12 months. And so that's obviously your income. You have that huge gap, and that could affect your cash flow if your income's not coming in. We have a lot of vacancies. And if people, you know, just break their lease or if you go out same time and then on the other hand on the expense side of things the repairs that are involved aren't you know they're not capped a few hundred or even a few thousand dollars like the residential side on the residential side you can really mitigate those expenses with a home warranty policy or something

like that and any kind of major it's usually not that crazy on the commercial side we've had a lot of unexpected expenses that go in the tens of thousands of dollars so you need reserves in like usually in the six figures to be safe, like over 100K. Whereas on residential, I think, like, if you're going, you know, one to four family kind of stuff, a few thousand dollars is more than enough in terms of working capital reserves because usually your expenses don't outpace that unless it's like a really old building, you know, and so that's really the thing and come in expense side. So you've been on both sides of the equation.

You've had residential real estate and you've held it. and now you're holding successfully commercial real estate. So what has been the biggest lesson that you have learned not only in the buying and holding, but in the transition of going from residential to commercial? I think it's just the type of people you encounter is very different, you know, the way you do business with residential. You're obviously dealing with the general public. You know, you have to put things in the layman's terms.

keep it as simple as possible, that kind of thing. With the business owners, sometimes they like the numbers. I send them an Excel file. Here, this is your whole rent schedule. This is how the S-plates. This is what CAM breaks down to. Sometimes they want to see the operating budget, you know, of what the CAM, what does it include?

It includes, like, the parking lot maintenance, the HVAC, the fire sprinklers and things like that. They want to know what they're paying for versus on the residential side, if you want like, oh, this is your rent share, and this is your utility share and this is your maintenance share. They'd be like, just tell me my all-in cost. Like, you know, no residential person wants to know that, like, kind of the nitty-gritty. That's one of the things.

And then the other is really just that on the maintenance side, actually, I feel like with commercial, it's actually a lot more, like, it's a lot more lax. Like, it's a lot less hands-on with residential. I felt like, you know, I did so much work for a one, like, one condo unit or, like, one single-family home versus currently I oversee like the 80,000 square feet portfolio and it's nowhere near as stressful because you don't get those like 10 p.m. on a Friday night like my electricity went out or my kid flushed a toy down my toilet, you know, that kind of call and I'm like it's usually a pretty like most of the time any issues arise Monday through Friday and so that's the other thing

that I personally like like you know I work weekends all the time in the evenings but it's not like I have to be on call at 11 p.m. on a Friday evening. And, you know, it's nice to have that kind of division where people don't expect you. And they're surprised if you respond as opposed of being like, oh, you have to respond because I did this and I messed it up, but it's your responsibility. So I think it's that mutual respect that I really enjoy personally. Yeah. So how much commercial real estate, and you don't have to tell me in specific numbers, but how much in commercial real estate did you and your family had to achieve before you started seeing a comfortable cash flow? I don't know exactly, to be honest, because even, like, so even when we had this portfolio

right now that we do in Las Vegas, but initially it wasn't a positive cash flow. Like I said, it's based on occupancy, and I think that that's the other key difference. Like, I've noticed is that with residential, you don't need much effort to lease it up. there's always demand for housing. There's always demand for residential units. You can always find people to occupy, tenants to occupy, and it's so easy to replace them. But on the commercial side, what I realized is that it takes a lot of effort,

you know, and it goes back to that relationship thing. Part of it's relationships. Part of it is just being responsive. And I see so many properties here, honestly, that are still at 40, 50% occupancy, and they've been for five, seven, ten years, some of these. but then you realize why because when I first came out here I was like very confused why there are these buildings that are so empty but like I said I still help small business

owners and I still do tenant rep and the relationship is helping them as part of it the other part is seeing things from the other side of the table and I'm like calling on some of these properties they don't respond for three days five days and I'm like just to get availability and pricing I literally I call them I leave a text message I email them and I'm like I want to bring you a tenant can you respond to me? And so that's really what's interesting. It's just effort.

You know, it's just being responsive. And other times it's like, I'll find, you know, I'll go tour. I'll bring my client there. And they'll be like, that's great. I want to submit an offer. Let's sign the lease. And I won't hear back for four to five weeks. And I'm like, I submitted a written offer with proof of funds with everything with the lease

start date like two weeks out. And you can't get me a response. So there's things like that. I think it's effort. You have to really realize that. It blows my mind how, you know, some people complain about not getting things done. Yeah. And they complain about not getting things done because they don't do things themselves.

Like, no one's going to hand you everything or anything on a silver platter. Go out and get it and it'll make a difference in your world. See, that's why I connected you so well. You know, you've said something. that you captured my attention. With commercial, the big thing is high risk, high reward. You have little hands on, but you need a lot more reserves, where with residential, there's demand for housing, like to the extreme, there's never a shortage. You need lower reserves and a lower entry point. So you just summed it up in such a nice little nutshell because the

reality is when people are considering, well, I want to be an investor that creates passive income, but I want to start with commercial or I want to start with multifamilies, that's something huge to consider that hardly anyone breaks down in the manner that you have just broken it down. So thank you for simplifying it. Oh, no problem. You know, I do want to ask you since you've been on both sides of the fence again, what would you say has been the biggest challenge, the biggest eye-opening moment in your real estate investing career? Like for us personally or for like clients or something? For you?

For us personally, I think it's just realizing that I think nothing's perfect. You know, there's no perfect deal. So what I always tell people is opportunities don't go away. They go to someone else. And so if you hesitate, you know, time is of the essence. And some of the best deals we got were because, you know, we were just willing to work hard and work fast. You know, a lot of times there were other offers in. And the offers were honestly stronger than ours.

They may have been higher sometimes in terms of the offer price. They may have been more cash down or an all-cash buyer. But just us being like, you know, we're experienced investors. and it's like one of the direct example would be like in a portfolio, sometimes you can only see one unit. You can't see all of them because you don't want to bother every single tenant. It's too tedious. It's such a hassle.

But you just mitigate that. You run the numbers and you figure out like worst case scenario, I'm going to have to, I don't know, invest $10,000 per unit. Let me run my analysis based on that worst case scenario. And if it turns out better, then I'm, you know, I'm winning. But if you run a base. on that and you're like okay it works like I'm fine I'm fine just seeing one unit let's just do this let's get it over with so time is of the essence and take advantage of the

opportunities that come to your door stuff I think a lot of people mistake that they're like oh you're just lucky that you get all these opportunities I'm like I take advantage of the opportunity to do that come my way yeah absolutely you couldn't have said it any better opportunities don't go away they go to someone else yeah I mean that needs to be the board of the century. No joke. Kathy, if you were to share words of wisdom to a new investor and to give them some advice about buying and holding or taking their first step, what would be the golden words that you would share with that new investor? I think with new investors, I say this often, I'm like, you know, there's no unicorn of a deal. Like, think of it like you're dating,

you know, you're looking for your wife or your husband or whatever, you're not going to find the perfect woman, the perfect man. They might fit 80 or 90% of your criteria, and they meet your must-haves, and they don't have any of your deal-breakers. And if you find that, like, pull the trigger. Don't hesitate because you're going to regret it. I've encountered so many clients that are like, let's circle back on that,

you know, after seeing like 50 more properties or 20 more properties, like, that is definitely the best one. I'm like, I'm sorry, you know, it's sold. Like, we waited too long, and unfortunately there's that regret. And so it's kind of like the paradox of choice when you have too many options, I think. But it's, again, similar to finding your spouse, your mate, like, you have to realize that there is no such thing as perfection. Just figure out what your bottom line and what your deal breakers are and what your must-haps are. And define that clearly.

I couldn't have said it better myself, and I'm going to let it stay right there. Happy, I thank you so much for your time, your wisdom, your knowledge. You've shared a lot of really important golden nuggets, and I know that there's one lesson out there that it made all the difference in the world. So thank you, thank you, thank you. Thank you. I'm so happy to talk with you again, and I'm so happy to share. Yeah.

So excited. Awesome. Have a great day, Anne. Thank you for making it epic. You too. Thank you. Have you been searching for a lender that is knowledgeable, experience, and will actually talk with you about your financial situation? Well, we found them for you.

Ridge Lending Group is Epic Real Estate's exclusive lender. And not only do we recommend rich lending groups to our listeners and our clients, they are the ones that we trust with our personal loans. Rich Lending Group's CEO, Chaley Ridge, is not only a nationwide lender, focus on the needs of residential real estate investors, but she is a real estate investor herself. She spent over 20 years helping educate investors and has created wealth for over tens and thousands of families over the U.S. And she will do the same for you. If you want it done right, use Ridge Lending Group. Go to RichLendinggroup.com. Click on the Get Started tab and tell them I sent you, you, you will get individualized financial and lending education with epic love.

This podcast is a part of the C-suite radio network. For more top business podcasts, visit c-sweetradio.com.