Welcome back to another episode! Today, it’s a pleasure to have Corey Peterson, the Chief Kahuna of Kahuna Investments, return to the show. Corey specializes in multi-family apartment investments, offering investors consistent cash flow and long-term growth. As a bestselling author and host of the Multi-Family Legacy Podcast, Corey brings a wealth of experience to the table.
In this episode, Corey discusses the challenges of managing properties remotely, highlighting issues such as theft and inflated vendor prices that can lead to financial losses. He emphasizes the importance of accountability and vigilance in property management, addressing the impact of theft on expenses, revenues, and property valuations. Corey also shares strategies for buying distressed properties and securing deals at a discount, as well as the significance of focusing on familiar markets while diversifying investment portfolios.
Through education and transparency, Corey attracts passive investors seeking to build wealth and achieve financial freedom through strategic real estate investments. Tune in now to gain insights into overcoming property management challenges and unlocking the potential for financial prosperity with Corey Peterson!
HIGHLIGHTS OF THE EPISODE
00:23 – Guest Intro: Corey Peterson
01:21 – Challenges of managing properties remotely
02:06 – Theft and inflated vendor prices lead to financial losses
06:03 – Accountability and vigilance are essential in property management
08:00 – Challenges of property management: The impact of theft on expenses, revenues, and valuations
12:07 – Buying distressed properties and securing deals at a discount
24:15 – Focusing on familiar markets and diversifying
30:19 – Passive investors are attracted through education
If you found this episode substantial and want to dig deeper into real estate, or maybe you want to discover better investment opportunities, be sure to check out www.tempofunding.com.
CONNECTING WITH THE GUEST
Website: https://kahunainvestments.com/
Linkedin: https://www.linkedin.com/in/corey-peterson/
Instagram: https://www.instagram.com/kahunacashflow/?hl=en
Full Transcript:
Intro: Welcome to the BigMike Fund Podcast. Where you learn about advanced wealth building strategies from real estate investing to creating massive ROI and securing retirement profits. So pour yourself a cup of coffee, grab a notepad, and lean in. Because Big Mike has got the mic. Starting now.
Mike Zlotnik: Welcome to the BigMike Fund Podcast. I’m the Big Mike, Mike Zlotnik, and today it is my pleasure and a privilege to welcome back Corey Peterson. Hey, Corey.
Corey Peterson: What’s going on, Mike?
Mike Zlotnik: I’m good. How are you? I was gonna say Mr. Big Kahuna, Kahuna Investments, right?
Corey Peterson: That’s it. Yeah, Big Mike, dude. It’s always Big Mike. That’s what I love about you. My, and my best you know, spasiba, bajasta. I’ll tell you, it’s been crazy out there, my friend. It is a crazy time set we’re in and The last time we talked, we talked about a lot of stuff, but man, I, I am people are your, are either your biggest asset or your biggest problem. And especially when it comes to property management. It’s been crazy. It’s been crazy.
Mike Zlotnik: Still. I think last time we talked, I remember you were pulling in property management in house. Yep. So are you having in-house challenges? What’s, what’s going on? I know it’s hard to manage properties. Yeah. Especially if you’re managing properties in Atlanta and you’re sitting in Phoenix.
Corey Peterson: Most of my team is in the East Coast anyway. So like, even though the owner lives here all my team and regionals and stuff for in the East Coast, but doesn’t mean that we don’t have our issues. And I think these are issues, whether you self manage or not. Right. And it’s called theft. I just watched a show on the other day talking about how Walmart is all their self checkout lanes.
They are downsizing the self checkout lanes because they’ve realized too much theft is happening and that it’s much better to pay for a real person, right, to check them out than to have, because they’ve, people have gotten smart. They’ll, they’ll take a little card and act like they’re doing something and go beep.
So it makes the sound, but they charge 75 cents to pack a bubble gum or something, right? And theft is one of your biggest issues that you’ll ever have and it’s hard to detect at first But it always leaves a really good trail And what i’m talking about is a lot of times these these your staff your property staff your property manager Usually the one in charge they don’t make a whole lot of money as to what people make right?
So, you know an average property manager is making 65 75 85 at the top end, right? You No, Mike, they can go and let’s say you need I need to power wash my property, right? They may go and say, Cory, you need to power wash your property. I’ve got a bid. I’ve got a bid, Cory. I’ve got two bids. I have three bids.
All different names of companies, but it’s all companies they either own or they’ve created fictitiously to go out and and you know, it’s 10, 000 to power wash the property. And so we just caught somebody, we just got somebody on the take and, or, or it’s either they’re that bold and they create their own company and they submit an invoice.
Which we’ve seen or it’s the opposite of, it’s the good old boy. Let me call Johnny Corporation Company HVAC Company. I’m going to work out a back door deal. I’m going to give him all the business. I’m going to let him charge the top dollar and he’s going to give me a kick back on the back end. See that a lot too, right?
And So how do you stop it? You’ve got to watch it like a hawk. And so we had to let go of original because she wasn’t watching his property. And so once we jumped in with my other, my other team and we started looking at it, we’re like, Oh, what is this? And then you start the questioning. It’s like the Spanish inquisition, Mike.
And once you turn up the heat, cracks start to form, my friend.
Mike Zlotnik: Well, thanks for bringing it up. I certainly understand the challenge and you know, I, I gotta be careful how I put it. But my observation is, like you said, it’s a business, it’s a tough business. The property managers don’t get paid a lot of money.
And there is a natural inclination that they’re looking to make some more money. Around what they, they, they do their work and some of them wind up either, like you said, recommending their family vendors at the highly inflated prices. Or completely outright. So so how do you solve it? I mean, you have to know what jobs are needed.
You need to know what things cost, right? And you got to have some kind of controller who can go back and approve
Corey Peterson: this particular one. We had two failures. Yeah, this was a two failure process. One and we do have a order of operations. So an invoice, a higher invoice needs, there’s a certain different approvals, right?
But You know, it’s only as good as the people that actually look at the numbers. And so what we were having, we had a regional that was just mass approving stuff for that, really looking at it. She was she always said she was busy and, and my accounting team is the first ones that brought it up.
They’re like, Corey all your other regionals, you’re getting feedback, you know, Hey, you need to turn this back in. This is not right. And there’s a lot more dialogue. And so when someone’s just turning in stuff with, with no comments, it’s a red flag, so that was the first red flag was. Flew up by my accounting department.
Then we go into look, then we find, okay, well, the reason they’re not doing a job, right? So we’re like, that’s not good. We ended up letting that person go. And then we keep going down the rabbit hole and you find a whole silo of, well, that’s wrong. Right. And I’m like, you know, I feel like we caught it early, but still you know, there’s probably, I don’t know exactly how many, you know, thousands or tens of thousands of dollars went, went out the door in the wrong way.
And I can’t prove it all yet, but we’re, we’re now auditing or doing a kind of a forensic audit on all of it. And we’ll find it and then we’ll hold them accountable if they truly stole, right? And and then we’ll send it as a message to everybody else, right? And at the day, you, you, you just got to hold your team accountable, watch every dollar.
And that’s really the job at this point in this market economy. We talked about it last time, but you’ve got to watch everything. Yeah, watch your heart
Mike Zlotnik: during the period of time when everything is inflated, it’s easy because the inflation drives prices up. So if you come up with a, with a higher price is this really the inflation or is this. Artificially create inflation for sure. You know what, what things cost in this environment and the prices are changing because of the inflation.
Corey Peterson: We’ve also started working like rules of thumb, right. Or like cost of thumb. Right. So because we’re in different markets across a decent spectrum we’re starting to say like, okay, here’s the good pricing here.
And then like we communicate all this and use this data for our buying power. If one property is getting appliances for 500 bucks or four. 150 bucks for this one thing, and that’s the cheapest. How come they’re all not getting it? Let’s go and make a master. Here’s the exact model number and make sure we streamline that process a little bit throughout the deal.
But Mike We are multifamily apartments still take so it’s just a lot of work. No one says they want to be in the property management business. I mean, I’m an owner operator. I happen to have to get into the property management business because when I looked at the waters, they’re all sharks. You know, and it would seem much worse doing it on their dime because it’s even, it’s compounded that same theft’s going to happen on their dime too.
But at least on my dime, I think I can catch it faster, which I feel like we did and you know, and have more. More visibility into everything that we’re doing, Mike, because in this new economy that we’re in, it really is about watching everything you have to watch everything, every day, and you have to demand, you know, like, excellence and accountability to all numbers, because anything less than that is going to lead to the cart of apples falling.
Mike Zlotnik: It’s under performance, I mean, theft, inflates expenses and then ultimately it, it, it, you know, deflates revenues and NOI and valuations and the whole thing, the whole project can, can be significantly impacted by a theft because things traded on multiple of NOI. So if you expect,
Corey Peterson: but I, but I have a little goal. I have a, I have some upside though. I have some good, I have some good stuff right, though. Like there’s some, there’s some good things that in this current market that, like for the student housing side. In my right markets, right, where it’s closer to D1 and bigger schools, our leasing velocity, pre leasing for this school year versus last year, is about 20 percent up, right?
We’re, we’re, we’re about 20 percent ahead of where we were at last year, and we’re getting probably a six to seven percent increase in rents, which is pretty good.
Mike Zlotnik: That’s interesting. So some sub markets. Where I guess supply is limited, demand is strong the pricing continue, the, is around inflation and, and speed of, of leasing seems to be going well. That’s great. That’s great.
Corey Peterson: This is only for students, it’s in, it’s in student and it’s in bigger D1 schools, right? Some of my smaller tertiary markets for school student housing. We’re getting only a 3 percent increase, right? Just a normal 3 percent but in my bigger schools where the demand and that’s kind of what you’re seeing as a consolidation of student housing going away from the smaller state schools to the bigger ones.
The bigger ones keep getting bigger and there’s demand there for certain and and we’re getting rent increases very well. And, the only thing that’s the biggest factor right now is cost of insurance. Insurance across the country is
Mike Zlotnik: no joke. Hundred percent. How bad is it?
Corey Peterson: Hundred, 200.
Mike Zlotnik: 100 to 200. Is it on average or certain markets?
Corey Peterson: Certain markets. So if you’re anywhere close to water from the Gulf, Georgia, right? Yes. Yeah. I got one property in Pennsylvania that we went from 130 to 300.
Mike Zlotnik: And that’s Pennsylvania. This is not near the water. This is not a hurricane.
Corey Peterson: This is crazy, right? And I’m like, what is it? What gives, right? That one had a, a, a certain specific problem with it, but I’ve got properties in Iowa.
I mean, just a normal, no loss runs, no problems, almost a hundred percent increase. I feel like, right. Or at least 75.
Mike Zlotnik: Well, the insurance industry is seeing massive inflation and You could almost say that all insurance companies are a cartel and they all decided to raise rates at the same time. Who knows, right? But that observation has been extremely painful.
Corey Peterson: It’s been, anybody that’s on the buy that we’ve bought in the last three years, we are, that is carving and cutting into our performa and our profit 1, 000%. Now going forward, all of that’s kind of priced into the new sales. Right, because when you go buy a new property, they already know, and it’s already usually on their P& L now, right, by this time.
Mike Zlotnik: So on the new purchase, what are you doing right now? Are you seeing any great deals? Because basically, the industry is commercial real estate, specifically multifamily. is in distress. The whole, it’s the whole sector is, is, is in tough waters and because of the interest rates, just to say, to say the least, then you add inflation costs on construction and then you add insurance costs.
Corey Peterson: So I’m only shopping REOs right now, right? I’m only in the REO bank on stuff. Yes. You seeing already a lot of bank cold stuff. Just, just closed on one in January, right? I bought it for 7 million three, 268 beds, 120 units, right. Well in Columbus, Georgia, Southwest of Atlanta. At Georgia State University, it’s a student housing property.
I already own in the market. So I understood the market very well And the one thing about georgia that I like is they have a their state lottery They have what’s called a hope program which allows you If you make a’s and b’s in high school You can get your college in a state school paid for and i’ll pay for their tuition So that gives mom and dad money for the housing Yes,
Mike Zlotnik: so it’s a student housing as a specialty. And if you’re getting near some of these schools and the students get, I guess they get. Is it a scholarship or is it a special program that pays for the housing?
Corey Peterson: It’s paid, their lottery is set up to fund this program.
Mike Zlotnik: Oh, so Georgia Lottery raises money and it pays for, I guess, folks who have done well and they have
Corey Peterson: If you make A’s and B’s in high school, you can get your state If you go to state college, it’ll pay for your tuition.
Mike Zlotnik: It’s like a merit scholarship. If you, if you do well, the, the state provides a scholarship like fund.
Corey Peterson: That was great. The, the lottery, it’s a beautiful program, right? So that’s why we’re in this market, right? Because we’re like, it keeps the quality of people coming in. That’s they’re getting free housing or free And then mom and dad just pay for the housing.
Mike Zlotnik: So it’s not too bad. Overall, they can afford
Corey Peterson: works, right? Yeah, it’s still, it’s still works to workable program. But we bought this 1 and our interest rate. Mike was 8. 7%.
Mike Zlotnik: Is this, is this a floater? Is this a variable right there?
Corey Peterson: No, no, we, we definitely didn’t want to do that. We did, it’s a Stan Corbett, it’s a CMBS loan 8. 7 percent, right? Yep, yep. It feels high, but I guess It is high. Mark it. It was high but it was market and but the property still Cash flows and a cash flow is pretty good because it was a bank owned asset
So that so this is me I like you got to buy the pain right now and find the deals because there’s a lot of people out There’s a lot of deals that are coming and I think even more coming in that reo sector Now the only barrier to entry is I bought this off auction. com Right, so I was in a bidding process that I won and in 48 hours, I had to put down a million dollars, right? So you gotta have liquid capital ready to go, right? And then you have to close in 30 days and you get you can have an extension that you can pay for, for another half a million and get another 30 days.
So I, I actually paid the half a million. I got 60 days to close. You don’t get an inspection. Right. You get a property condition report, which is pretty thorough, but still your PCA is only as good as you look, you know, truly look at the details and we did still get to go to the property and ask a lot of questions to the staff and stuff, but they didn’t let us do it a true due diligence on all the units. But so that’s why you’re buying it at a steep discount, right?
Mike Zlotnik: How much of a discount did you get? What do you think?
Corey Peterson: At a price for 8. 4 million, right? And it was for 7? Bought it for 7.
Mike Zlotnik: So 20 percent discount, something like that. That’s, that’s pretty powerful because the devaluations obviously correcting significantly and you bought it at a discount on as this basis by buying through an auction process and sort of not sight unseen, you kind of. We still have a chance to do.
Corey Peterson: Yeah. And I was already in the market. I already owned a property right next door. So I knew this property really well and I knew the market really well. So I felt like I had a, I was able, I, there wasn’t a whole lot of, but there’s only four bidders in the auction. And so yeah, I actually bought it a lot.
I was willing to go up another, Half a million to 600, 000. And but the bidding stopped. So I was like, well, I’m going to hit the button and bid on myself. So I was like, nope, we’re good. But through that process, though, I mean, I learned a lot. And that was where my eyes become a little more open to there’s more deals like this.
You’ve just got to go find the right, banks and I’m trying to get now into instead before it goes into the auction. Let me like cabbage crack at it before that Let me just make you an offer and and prove that I can close right? Why wait for it to go to an auction house?
Mike Zlotnik: Well, the general thesis if you can get something like a short sale where the property is you know The owners are failing and you can pick it out for the bank approval and bank Does the bank really want to take it or are you a lot of times they don’t?
Corey Peterson: Yeah, and mike this probably was 95 percent occupied You
Mike Zlotnik: That was actually surprising that the project itself is not in deep distress. It doesn’t sound like it’s in deep distress.
Corey Peterson: It’s not at all, dude. I’m, I’m, they put new roofs on it. They rehabbed it.
Mike Zlotnik: How did the bank wind up taking it? What happened?
Corey Peterson: So here’s the story. It was actually in receivership for seven years. Which is very weird, right? And the only reason they it was is the property manager She had worked for this bank for a long time And she had kids she goes I need to stay put for four to five years So I can get my kids all the way through high school Her kids graduated in may her last kid And they put it on the market did the whole thing and then the auction closed in December and so that’s how I picked it up But she managed it for that seven years and it was just it was a weird deal But that’s why I had the full story on it and I knew
Mike Zlotnik: This is this is this is a bank hold property for a significant amount of time and the bank somehow Stayed in the business of property ownership Or having this lady manage the property or something.
Corey Peterson: Yep. Yep, but I even then I still think there’s there’s lots of deals like this now. Because the the banks are they they’re in spots too where I think they have that they’re having to do renovations that the bank had spent a Significant dollar renovating this property and expect and to keep it that long The the problem was it’s a smaller property School for this particular reason why I think I bought it for so cheap is it’s not a d1 school It’s a smaller school, right?
But it’s a gem of a school because I was already in the market and I was filling up my property Even during covid at 85 so I already knew the market was strong And so I already had I truly had an inside track But anyways, my whole point is this though is I think there’s just more deals. Like there’s just a What I’m seeing on the marketplace is all the FAP rates and the third party or the bridge loans are, are coming due.
And a lot of them, some of them are going back to the bank, buddy. A lot of them are going back to the bank. Yeah. Yeah. That, so that More than you think.
Mike Zlotnik: Yeah, that’s the the driver of of some of these foreclosures is wanting maturity’s cliff right maturity when the loans mature and the banks Don’t want to hold the paper any longer and the borrowers can’t repay
Corey Peterson: but they’re also being flexible too So I see a lot of that going on too No one wants to have egg on their face So everybody’s trying to make deals because they already know the situation that we’re in what i’m really Interested in, Mike, is cost segregation. Are they, are they going to extend it or get bonus depreciation to go back to a hundred?
Mike Zlotnik: Probably I don’t have the insight, but you probably heard it’s in the Congress and Congress
Corey Peterson: and I would like to see that happen. And I’m really interested to see what happens in the next 7 months, 10 months in this election cycle, because I don’t exactly know where we’re going to go.
I think there’s a lot of uncertainty. No one knows where we’re going to go.
Mike Zlotnik: Yeah, it’s a, it’s, it’s, it’s a, it’s a year of obviously election year and lots of volatility related to that.
Corey Peterson: But I like to buy in that stuff. This is where I’m like, I like to buy. I, I, I feel like that when there’s confusion, usually that’s going to be like, think about, you’re watching Warren Buffett take a lot of money out right now. He’s getting liquid. There’s a lot of things happening.
Mike Zlotnik: Well, people are gearing up for a lot in the streets for great deals. And the fact that you found somebody already people are saying it’s still going to be at a later point in the year, maybe even next year, because the banks have to actually foreclose these properties.
So a lot of the deals that are being discussed right now. But I, I have heard other people using auction sites and when the banks are pushing them to sell, that’s the way they, they want sold. They want certainty of execution. They want fast. And the opportunity is beginning to happen. No, no argument.
Corey Peterson: Yeah. So if that’s the case, then just having, you know, you got to go get some money and have it ready and have it stacked. And they’ll be able to quote, you know, have a team that can get it done quickly. And with that scenario there, you can pick up some decent. Decent deals which is kind of you know, and how many deals do you need a year for us?
Like if we do one or two good deals Three good deals. That’s it. I don’t need to do any more. I’m not in a in a rush But I definitely don’t want to get left behind right because i’m trying to dollar cost average all my bulls crap that I bought Two or three years ago that i’m getting my ass
Mike Zlotnik: Yeah, let’s talk a little bit about that So the 21 22 purchases have been a lot of them are just off shape So what are you seeing?
What kind of corrections? I mean i’ve heard valuation corrections 30 40 percent in phoenix atlanta Dallas. Well, Dallas was not as bad, but Austin, Houston, a lot of massive corrections. These properties are underwater in essence.
Corey Peterson: We’re buying, we’re trying to buy in Phoenix. I’m in Phoenix and I’ve never been able to buy in Phoenix. But I think I could buy now. I’m, I’m like, I’m trying to buy in my market because things, those corrections are real. Yes. And, you know,
Mike Zlotnik: what percentage are you seeing? Is 30, 40 percent about right?
Corey Peterson: I think, I think it’s no, I think it’s a little high. I think it’s closer to 20, 25, right? Now, if you go into the tougher markets where, where I don’t buy 30, 30%, right?
35. I, I wouldn’t buy in those markets. Those are Maryville tougher areas in Phoenix, right? North or mid city. I’m trying to buy in what’s called East Valley, which is the path of progress products, probably 2000 ish, you know, 2000, 2005 built stuff. And, but in that market, it’s. You know, there’s some discounts, but they’re still not heavy because we like we still are building stuff all over the place and it’s not going to stop just because for Phoenix.
That’s the 1 thing they have going is we still have Californians coming in like crazy. Mass access from that state, and then you have still the East Coast states that are cold where it’s, but the only challenge is we don’t always have permanent residents. We get a lot of residents for six or seven months.
Mike Zlotnik: Yeah, I hear you. So, but you’re seeing discounts, you’re seeing potential opportunities, you’re working to get these deals and, and that’s the thesis in this environment. Really only two interesting opportunities. One is deep by just got to find them. And of course you’ve got to pick your market. And the fact that you are choosing to work certain cities and towns that you know, well, is, is, I mean, it’s important.
You definitely want to do business where you understand don’t look for bright and shiny objects. Thousand miles away. We have no presence, but
Corey Peterson: I’m not trying to go to any more markets that I’m not already in, that’s, that is a good one too. Like if we’re not already in the market, we’re not buying. And the only one that I’m really not, I’m not in as Phoenix, but I’m like, I’ve always wanted to buy in Phoenix because it’s where I live.
It’s just been out of range because you always had to pay such a premium In performa to get those deals, even though long term they all work out most of the time, right? but you’ve got to condition capital a little bit differently in these markets because The reeds and all the big boys can overpay And they’ve got a lot lot longer term horizon than you do and they can they just they outgun you every time so but now Now there’s a little crack in the playing field.
So this is you, this is where you got to put your big boy pants on and say it’s time to go to work.
Mike Zlotnik: Yeah, I’m, I’m, I’m, I’m, I’m certainly I don’t want to use the word excited about the opportunities I had. But it’s like this, just like you, you gave example, you bought the property, dirt cheap, you put expensive financing on it.
And these are actually good things. Why? Because you got a discount on the as is basis. You bought it through an auction. Even though you’re paying high interest rates, when the interest rates cycle down, you can always refinance.
Corey Peterson: Sounds like a genius.
Mike Zlotnik: Yeah, exactly. So people need to be buying when there’s blood on the streets. That, that’s, that’s, that’s the, that’s the time and maybe it’s not happening in volume yet, but the fact that it’s, it’s, it’s happening, it’s a start of recovery. Hopefully you are you’re buying at the bottom or the start of the recovery where nobody knows if it’s recovery or not. Nobody knows if it’s still going to fall, right? But if you, if you get feel good enough today,
Corey Peterson: Yeah, well, that’s what I call dollar cost averaging at this point, right? Because i’ve learned that I can usually make money in in every market I just got to be able to hold on to my assets, right? So the ones that I bought two or three years ago Listen, are they perfect?
No, right? We’re barely some of them were barely cash flowing, you know Because like the 100 percent 200 percent increase in it all your expenses and your insurance and all in taxes have gone up Right, so We’re gonna keep on holding those but we’re like we’ll just push them and hold her instead of five years We’ll hold them seven, right?
So okay, we’ll get down the road, but right now it doesn’t look so great But we’re gonna keep raising the rents like we always do and just modeling and and going right? So, okay. I’m not gonna get home runs. Those are gonna be base hits now They worth you know, there were maybe doubles to triples Now they’re base hits That’s okay, but I’m buying stuff now.
I’m still buying and the stuff that are, cause you never know. And I, I’ve learned this. I never know which deal is going to kill it. I, the ones that I think I’m going to go kill it. I’m like, what the hell happened to that product? And then there’s one that I wouldn’t even think. And all of a sudden, you know, I have a property that in Yuma. Mike, I bought it for 9 million. Three years later, I sold it for 19.
Mike Zlotnik: Well, what you’re referring to is the basic rule of investing, diversify and the dollar cost average says diversify in time. And these lessons have been learned by investors in the last few years, diversification in time is just as important as physical geographic strategy, diversification, and at times you don’t know what’s going to be a home run or what’s going to be a strikeout.
Even now. You know, it’s like a great batter comes to the plate and they look like they’re gonna hit a home run but they they They swing big and they miss everything and then some skinny kid kind of Comes out and looks like he can barely hit a single or a double and boom before you know, the ball is out of here So yeah, it’s Yeah, I just, you just don’t know.
So the solution is to spread the risk among many, you know, baskets and do it that way. Now just a couple more quick questions. Capital raising, are you seeing challenges? So you, when you bought this property in January, did you have investors? You have to cough up all the cash yourself. You have to,
Corey Peterson: I always have investors. So man, I’ve been blessed. I will tell you, Mike, I have been blessed. I have a small army of small 100 to 300, 000 investors. I don’t ever have any big investors. I don’t have a million dollar investors. And so we’ve done a really good job in just cultivating that investor base, right? Just and always having a trickle of new investors come on.
And so like we wrote a book called trust, but verified for passive investors. And what happens is. We just keep that funnel going and we teach and show and passive investors what to look out for And then naturally start start attracting to us. So Just like you mike you’ve been doing it for a long time, too.
Now, is it is it easier right now? It’s not But it’s not absolutely difficult either
Mike Zlotnik: Well, if you find a deep enough deal, and you can demonstrate to investors, it’s a great deal.
Corey Peterson: I showed the deal to everybody, and then when I showed them that appraisal, I showed them the appraisal, and when we got done, they’re like, good, good job.
I was like, yeah, and we’ll probably get a cash flow, and we are cash flowing, and like every month now, we’re like, yep, this property’s doing exactly what we thought it would.
Mike Zlotnik: How much leverage did you get on the deal? I’m just curious, what financing? Sixty five. So 65 percent and that’s, that sounds about right.
That’s probably about maximum leverage you can get in this environment. The banks are not going,
Corey Peterson: it’s not an 80 20, right?
Mike Zlotnik: Yeah. Yeah. Yeah. You got a problem with debt service coverage ratio, right? You could interest rates as high and the banks want to be at the low LTV and the 65 percent is it loan to cost the loan to value.
Corey Peterson: Loan to value on that one ltv,
Mike Zlotnik: so they 65 percent loan to value and he bought a 20 percent discount. So you actually Got what loan to cost? I’m, just curious.
Corey Peterson: I don’t wouldn’t even know the numbers. I’d have to pull it up but but i’m happy with it, whatever it is, right because it’s working and again my app my Well, like this is a property that we’ll probably keep for 10 or 15 years.
So we’ll go through the next five years in this cycle and closer to whenever we see an opportunity to refi. And you don’t know what things are going to do, but we’re at eight, eight, six. So if it goes down to five, we’re printing money, Mike. We’re going to, that’s probably a 30, 000 swing and you know, that’s all profit.
And so our goal, because we, we raised it at such a high deal is when we do refi, maybe there’s 70 percent LTV money. I’ll be able to cash out all my investor base. With debt and give all my investors back to their principal and be done with that piece of it and still own the asset. And I think to me, that’s, that’s our ultimate goal as we, as we invest now in our properties is to have a call option or an exit button for the capital, because when we answer our capital, they’re out, out, right?
Mike Zlotnik: Well, you’re going back to the classic plan. So the classic plan from. You know, before we’ve seen 21 22 volatility, the market was kind of steadily climbing up. Here you bought deep, and you bought an expensive money. There’s only one room to go for here, right? The interest rates on a long term basis have to come down.
We just don’t know when, but they’ll have to come down. Unless the government prints, continues to print a lot of money, continues to cause inflation, then the interest rates can be sticky. But in general, If the COVID spending is coming down and we’re still going to be in deficits, but not as crazy as during COVID, then the interest rates should come down.
Inflation is sticking out, but overall, if things come down, then the interest rates will come down and The credit might loosen up a little bit so your LTV will go up your debt service coverage ratio will get better And then you might wind up doing exactly what you said do a cash out refi to repay all the principal and that that that’s that’s the good old plan what it used to be and now
Corey Peterson: It’s hard to find that plan and this is just one of those I think it’s going to pencil out just like that So we’re we were excited to find a deal that cash flows for the day.
We buy it without a whole lot of value add and, and, and like, I go back to the job, the job of a syndicator, right? One is the raise the money, but the other part in a race, I think the lowest cost, we try to raise cheap money. Mike, you know, my, my way I do it, it’s cheap money, right? But the other part is find needles in the haystack.
That’ll always be the real job to find good deals that make sense. You got to find needles in the haystack. You’ve got to look at a lot of deals and say no to finally be able to say yes. Most people are not willing to do the work, Mike.
Mike Zlotnik: Agree, you got to kiss a lot of frogs to define a princess, right?
Anyway Corey appreciate your wisdom Thanks for sharing. This is fairly fresh data So it’s very helpful to see your point of view how you’re serving the market the opportunities you’re seeing So thank you for sharing until the next time we’ll come back. We’ll do it again. We’ll give it some more time so thank you for coming on the podcast and tell folks once again, how do they reach out to the big kahuna?
Corey Peterson: You know the best way I’d love to give everybody the book for free. So if they text the word “Trust” to 480501127, my team will send that book to them for free. That’d be the best way or kahunainvestments.com. Come find us.
Mike Zlotnik: Thank you, Corey.
Corey Peterson: Thanks, guys.
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