Listen to hear Kenny Wolfe share how he purchased 35 properties for 5,000 units. Kenny was focused and determined from a very early age to create financial success. He's not only helping others build wealth. He is also passing on these tools and strategies to the next generation, starting with his kids!

Table of Contents:

• Where To Listen To The Podcast
• A Top-Notch Guy With Fantastic Reputation
• Build Wealth Outside Your Backyard
• Build Wealth in Diversified Asset Classes
• The Age When You Dream to Build Wealth
• Go Out and Perform
• Getting Rid of the Limiting Beliefs
• The Smartest Way To Do It
• A Great Way to Learn How to Build Wealth
• How to Reach Kenny Wolfe

A Top-Notch Guy With Fantastic Reputation

Darin: Kenny Wolfe grew up in Denver, Colorado. His father was in the oil and gas industry. He traveled quite a bit, both domestically and internationally as he was growing up.

Kenny knew he was destined to build wealth even at the early age of seven or eight. Looks like he's passing that on to the next generation. He’ll share the story of his 10-year-old daughter, who already purchased her first rental property.

Darin: Just a little background on how I know Kenny. As many of you know, I got started in multifamily investing about three years ago. When I did that, I was focused on learning, so I was reading a lot of books. I was listening to a lot of podcasts, and I started going to conferences and meetups. Then I happened to go to one of Kenny's.

He has a meetup in the Dallas market. I went to that and I met a lot of other passive investors at that meeting. It's a very well attended meeting, so I don't even know if we talked directly at that meeting. I met other people and he's got a fantastic reputation.

So I went and set up a follow-on meeting with him at his office and we met together. He's just a top-notch guy, so I'm very happy to have him on today and for him to share his journey.

A 28 Years Old CFO

Datin: Just to start, can you give us a flavor for how many properties and how many units you've invested in?

Kenny: By the end of the year, we'll have about 5,000 units and then we've done 35 properties.

Darin: That’s crazy. That might be the most I've had on the show. 35 properties, 5,000 units, that's amazing. You've been busy for sure. I read your book, so we'll talk a little bit about the book throughout this as well.

You've got a meetup, and you've got a conference that you're co-branding with. You wrote a book, you've invested in a ton of properties. Before you got into real estate investing, what was your career path?

Kenny: Actually, I graduated from Baylor University with an Economics degree, which is worthless.

Darin: Come on, you can tell us what's going on with COVID.

Kenny: Well, I got that down on a theoretical basis. Anyway, I went to night school, and got my MBA. I also landed an entry-level accounting job at an oil and gas firm. That's what was on my track early on, accounting for the oil and gas business here in Dallas, Fort Worth.

Mostly fracking and shale development here in the Barnett Shale. I quickly grew up in the ranks of that. Then I made CFO at 28 years old for a startup company out in Shreveport. So got junior ownership in that deal and then parlayed that into multifamily real estate.

Darin: I graduated from the University of Rhode Island, went with Pricewaterhouse, got my CPA. Started out as an accountant as well, and I still know a lot of people in that financial world. You said you got promoted to CFO at 28 years old.

Winning a Scratch-Off Lottery Ticket Every Month

Darin: I know a lot of other successful people that were recruited out of the big six into private industry. They started making more money, got promoted to controller, CFO. What I saw was most of them would buy the bigger car, the bigger house, and keep on that track.

Not all of them are particularly happy with where they're at, but they make great money so they feel trapped. Being a CFO, I'm guessing you were making pretty good money for a 28-year-old. What did you do differently that allowed you to make a shift at some point?

Kenny: I drove a Taurus for way too long. That was a big piece to it and then we bought just your standard house. It was just my wife and I and our daughter at the time, so we didn't need a big house. We were making pretty good money. It was like winning a scratch-off lottery ticket every month on a consistent basis.

My wife and I thought we're not going to blow it on BMWs and Tahoe's and all that. A huge, huge house that we don't need. This is a once in a lifetime opportunity. Sock it away and then do something big with it. Design our life around that, using that money to work for us.

Darin: I mean, that's critical. You planned for it. You knew you were going to make some kind of change and you socked away a bunch of money. That's something you have to do is you have to plan to make that next shift. And it sounds like your wife has a similar mindset to you that she was on board with that.

The First Out of State Acquisition

Kenny: Yeah, she's great. She's a down to earth Texas girl, so I was very fortunate to land one of those.

Darin: Another thing I remember about you, I got involved three years ago. You’re probably one of the early ones. You live in the Dallas market, I live in the Dallas market. The Dallas apartment market is hot. It's been hot for the last three years.

You were one that seemed too early to say, "Hey, I'm not going to chase this with everybody else. I'm going to start looking in some other markets." Help us understand how you formed that decision and what markets you went to.

Kenny: I called it early, but I felt Dallas prices were high four to five years ago, or getting high. So I was a little early on that call. I looked at a map and what's the closest, next biggest city I could drive to? It was in Oklahoma City, so I went up there, toured around. On the way back it was like, "If I'm willing to drive three hours one way, so really six hours in a day. Why don't I get on a plane for this?"

We're here in DFW, we've got an American Airlines or Southwest as a hub. It's easy to hop on a plane. That really opened up the map. Our first out of state acquisition was in Colorado Springs, Colorado. We went to Oklahoma City, and then Ohio, Columbus, and now we're in Cleveland as well.

Darin: How did you break into those markets? The broker community, typically, they want to know who they're dealing with before they award deals to you.

Build Wealth Outside Your Backyard

Darin: A lot of other investors that are in different markets know they don't want to invest in their backyard. People in California or New York know they want to invest somewhere else. They don't really know how to build that relationship and how to break into those other markets.

Kenny: How I always coach people is when you look into a new market, find the management companies first. They're going to keep the brokers honest. I've got a lot of broker friends, but they're there to sell you something. So the management companies, you need to find the right one. They’re going to run your property for you since you're not in town. You've got to really sift through them.

I always tell the story of Columbus, Ohio. I’d never been to Columbus but I knew it was a great market. I’ve been reading the Berkadia annual multifamily magazine that comes out in January. I love that thing, I look forward to it every year. At that point, five, six years ago, they still had not surpassed their 2007 per unit, per door prices.

The demographics were great. It was just a consistent 2% to 3% population growth, since 1860 something, when I did my research on that. And so rent growth was there. I got on a plane and went to Columbus. Before I hopped on the plane, I interviewed two management companies up there that do B or C class multifamily.

I liked one more than the other, interviewed them there on site. Then that afternoon, I didn't tell them, I picked four or five properties around Columbus in different parts of the city.

Breaking Into the Market

Kenny: I went to visit, unannounced. That way, you can see what it looks like when a new resident shows up. It also told me what areas of town I did not want to buy into. I could mark off whole swathes of the city. The next day, I met with a few brokers up there as well.

It's a little easier if you have unit count somewhere else. But it's still a little tough to break in because you're the crazy Texan buying in Columbus, Ohio. Our first deal in Columbus was only 120 units. For us at the time, that was kind of a small deal.

After we bought that 120, six months later we were buying a 216 unit A-class deal for 65 a door up there. That really snowballs. It seems like every new market, we have to buy a smaller 100, 150 unit deal, just to break into the market. Once you're there though, it really snowballs.

Darin: In your book, you mentioned a little snippet about fishing. That sounds like it's something that you hold dear. If there's too many fisherman fishing in the same place, find someplace else to fish. That's what you basically did here.

Kenny: We like DFW. We're actually working on a few deals now to put under contract. The reason why it's starting to make sense on those is because the interest rates have fallen so much. We're actually trading up into some pretty high end A class stuff.

It's trading at the same cap rate as a C class here, basically. I'd rather buy a brand new A class or a high end A class at a 3% interest rate or below, at a 5.5% cap rate than a C class.

Build Wealth on a Solid Reputation

Kenny: It changes, so we are buying here in Dallas, Fort Worth still. You've got to change your strategy if it's getting overbought on the B and C space.

Darin: It makes a lot of sense. Talk about reputation, because when I came into this business, there are some names that bubble up. Yours was one of them that has a solid reputation. For followers that are just getting into this space or want to get into this space, talk about the importance of reputation. How do you go about building that reputation?

Kenny: Reputation is everything in multifamily, it's such a small world. Everybody knows each other, it's a very small world. As a matter of fact, they're just being straight up with people and not trying to nickel and dime them on a re-trade. Word gets around very quickly, around the community, of who you do business with and who not to do business with.

When we're buying a deal, I've never re-traded a deal that we've put under contract, unless it was something. One, they were hiding on purpose. Two, it was like a roof or a foundation issue that no one could see from the ground.

When buying a building, we don't go in and ask for a re-trade for the parking lot or exterior paint. You don't want to be known as a re-trader in the community. Then, always closing, too. Every deal we've put under contract we've closed.

Darin: That was an important point. I was coming at it from a different angle, but reputation is with the broker community, with sellers. You have a reputation that you're going to close, you're going to do what you say you're going to do.

Be the Guy They Want to Work With

Darin: You're going to perform, you can raise the money, all of those things. Then there's the reputation with limited partners in terms of raising the capital. These limited partners, they talk to each other. They go to these meetup groups and they might be a little bit on guard when they're talking to the syndicator.

When it's just the passives that are talking, they're open about who they like working with and who they don't. You want to be one of the guys that they want to work with.

Kenny: That's a huge deal. We keep our minimums low on purpose. A lot of folks, our beloved colleagues have pushed their minimums to 75K, 100K. We've kept ours at 50K. We know up here that if we perform for our investors, they're going to tell five of their friends. We can grow exponentially if we obviously make our current investors happy.

Do everything we can to maximize their return, stay in constant communication. We do monthly updates. I'm passive on a hotel deal and we get quarterly updates and it drives me nuts. A lot can happen in 90 days. We do monthly updates. We're pretty active on social media. When I was in Cleveland yesterday on a property, I did a Facebook post.

They could follow us and see what we're doing there at our properties up there. It's that constant communication that investors really want to see. There are always curveballs to every deal. I shouldn't say every deal, but most deals there're curveballs. We all project them to go in a straight line up, sometimes it's more of a rollercoaster ride.

Build Wealth in Diversified Asset Classes

Kenny: As we go through the business plan, if there are things we need to readjust, then we always have a plan. We present that in our monthly reports to the investors.

Darin: Not only did you go into different markets, but you decided to diversify into other asset classes as well. In addition to your focus on multifamily, you've also added additional investment opportunities. Talk about some of those.

Kenny: We started buying triple net and double net commercial properties about three years ago. We’ve formed those under a fund and we buy multiple stores. In a few weeks, we'll add the 15th store that we own across the US in various markets.

We did that really to provide a different risk and reward ratio with just constant monthly distributions to investors. Who we go after in those funds are high credit, publicly traded companies that guarantee the lease. We know we're going to get our rent, we don't have much appreciation most likely on those assets. But we're not buying it for that, you're buying it for the constant monthly cash flow.

Then about two and a half years ago, we jumped into development and I didn't know what I was doing. I bought the down-home lots myself, didn't take any investors, and built out the team on that. Now, we're working on an 88 unit ground-up multifamily development here in Dallas, Fort Worth. Then, we just landed a big redevelopment downtown office asset that we'll convert to multifamily as well.

Darin: One of the things you said was you developed some of these products to have a different risk-reward profile. I don't know if this is what prompted it or not.

Build a Reputation That Investors Want to Do Business With

Darin: You built that reputation and had more investors wanting to do business with you. Some investors have different criteria that they're looking for and different importance. They may be in a different part of their life. Was part of that prompted by the needs of the investors that you were working with?

Kenny: It's always about the needs of the investors. Multifamily is great, it's a great asset class, it's got a great depreciation. Once you stabilize it, fix it up, you can have great cash flow and some appreciation.

But for those that wanted to diversify and have that monthly stable income, triple net was the best way to go. Those that want the outlandish appreciation models, a little bit more risk. That's the camp that falls in the development and the redevelopment bucket.

Darin: I've seen some syndicators where they will try to satisfy that need of two investors by forming a couple of different LP classes. Maybe one limited partner class is a higher cash on cash. Maybe it's 9% or 10%, but they don't share in the upside.

Then the other limited partner class maybe has a lower forecasted cash on cash, but then they share in the upside. So do you do that as well or you focus on the different asset classes?

Kenny: We just focus on the different asset classes for now. We also do hard money lending. Those that want the low risk, 8% to 10% return, they fall in that camp. But we haven't done different asset classes in our multifamily stuff yet.

Darin: In the deal?

Kenny: Right.

Darin: The other thing you said was you set up a fund for the commercial deal.

Pulling Teeth While Building a Way up to the Front

Darin: Most multifamily deals, not all, the syndicators go out, get the deal under contract, they scramble. They have 60 days to close the deal and they do their equity raise in that process. They're presenting the actual deal versus investing in a fund. How is that looking into setting up a fund, how is that different from the multifamily?

Kenny: The reason why we do it underneath a fund is we're mostly buying single-tenant assets in this fund. It's a little similar to buying a single-family home. Honestly, I've never owned a single-family rental in my life. From what I hear, you don't want to own one, you have to own three.

If one's vacant, the other two can cover the mortgage for the third one. It was a very similar process, a way to de-risk buying these single-tenant commercial properties. They're great as a group because they pay constant monthly cash flow. That was really the reasoning behind doing a fund.

Then investors come into the fund and that fund owns several stores. The first fund was seven stores, the second one was eight. We're building our way up on that front. Jumping from multifamily to a new asset class, the triple net stuff was like pulling teeth on that first fund. It was tough. They all thought I lost my mind jumping from multifamily.

Doing that for seven, eight years, to jumping into the triple net. It was pulling teeth the first one, the second one caught on like fire at the end. We doubled the equity that we raised. Now that folks are seeing the monthly cash flow, they can put that in their portfolio. We're seeing more and more folks come over.

Build Wealth Out of Life Experiences

Darin: Let's go back a little bit. Where'd you grow up? Do you have brothers, sisters? Rich? Poor? Middle-class?

Kenny: I was born in Denver. So I'm a big Broncos fan, still to this day, even though it's a horrible season we're having this year. I lived there for eight years. My dad was in the oil business. There was a mass migration in the late '80s from Denver to Houston.

I lived mostly in and out of Houston, but overseas, twice, growing up. In junior high, I lived 16 months in Western Australia, which is awesome, in Perth. Three years of my high school was spent over in Cairo, Egypt. I speak a little bit of Arabic, enough to get around town.

Darin: You've done some traveling, that's pretty cool.

Kenny: Pretty great life experiences, I was very fortunate. Then I moved back to Houston right before my senior year, I was bribed with a used Mustang. And then I went to Baylor and then hated the summers in Houston, so I went to Dallas. It was not much better, but a little bit. Less humid.

Darin: Your dad was in the oil business, you started out in the oil business. There's a lot of people that make a lot of money in the oil business. It's very volatile. You've got incredible great years and then you've got these down cycles that can be very painful. Why didn't you just stay in the oil business, why'd you choose to get into real estate?

Kenny: The oil business is great, but it's also either feast or famine in that business. Actually my grandfather was also in the oil business as well, on my mom's side. I grew up seeing the feast and famine.

The Age When You Dream to Build Wealth

Kenny: You're at the whim of an internationally traded commodity. It’s not only how much you’re producing, but can you find it? How much did the Saudis find, too. It's always this feast or famine, you don't have as much control. Everything has a cycle, an economic cycle, but nothing like oil and gas.

Darin: When you were young, did you think to yourself I'm going to be successful?

Kenny: Absolutely.

Darin: Draw a picture of that. When you think back, how old were you and what did that look like to you?

Kenny: Even as far back as seven or eight years old, I knew I was going to be wealthy. At that age it was playing for the Denver Broncos and winning the Super Bowl and all that.

Darin: Quarterback?

Kenny: Exactly. I topped at about 5'11, so I wasn't quite tall enough to make it. But I always knew I wanted to be wealthy, that was always the dream. I'd be doodling a mansion and a fancy car all the time, even all the way back then. I knew I wanted to be wealthy and set myself apart from that. That was definitely a goal of mine early on.

Darin: Correct me if I'm wrong, but I think that it doesn't have to happen when you're a child. It happens for a lot of people when they're a child. They have that kind of vision that they've cast for themselves. If you're going to endeavor in anything like getting involved in real estate investing. Whether you’re starting your own business or whatever, you have to have that vision for yourself.

A Conscious Decision to Go After Your Dreams

Darin: You have to make a conscious decision that you're going to go after it and do whatever it takes to make it happen. There are some people that just let life push them around. They just happen to be in a career because they got a job and they did it pretty good, but it's not their dream.

Kenny: I think the world would be a much better place if folks did what they love. There are CPAs that love what they do, I've met a few. I really think it would be a better world if we did that. That's something I always wanted to do. I was trading stocks at age 15 on a dial-up computer, trading stocks.

At the time, we were in Egypt and I was trading stocks there over here in the US. I've always been a big fan of Warren Buffet even from that age. I started reading a lot of stuff about him and studying him as well. I've always had this entrepreneurial spirit.

He talks big about tap dancing to work, he loves going to the office, it's not really work for him. I didn't want to fall into the camp of just drudging through on the work side. You spend so much time at your desk, you better love it.

Darin: There are some people that grow up and they have that entrepreneurial spirit in them, and I did as well. There are other people that really have that in them. They want to try, but they don't have the influence. And they just can't get themselves to step over the ledge. That could be investing in real estate or it could be starting a business. It's hard, it's not easy.

Getting Charged up and Taking Risks

Darin: You have to plan for it. Financially, if you don't have the savings, it’s very difficult to make that shift and take that risk, but plan ahead. Life is all about getting charged up and taking some risk. The energy you feel when you're going after something you love is different than just waiting for Friday, five O'clock.

So part of my why is I'm looking for financial freedom like everybody else. My number might be bigger than a lot of people's, but it's smaller than a lot of people as well. The other part is by bringing guests on like yourself. We can inspire one or two people to plan, get educated, and then take action and try something.

I don't know one person that I've encouraged to go after their dream that did it. Who came back to me and said, "Darin, I wish I never did that." They may not have ended up in the same exact place that they were trying to get to.

Maybe, they have had to pivot to something else, but they're like, "Man, I'm so glad. I was going to start this business, that one didn't work. Now I started this other business that I would never have found if I hadn't started."

Kenny: Absolutely. You've just got to jump in. Right out of college, my wife and I bought a tanning salon in North Richland Hills. I call it her MBA because I already had one.

Darin: Her MBA?

Kenny: It cost us as much, but we learned a lot. I learned absolutely a lot about that deal and the biggest takeaway was to go big or go home. So that's why we started multifamily and skipped single-family.

A $50,000 Lesson

Kenny: We learned that lesson, it was a $50,000 lesson, but totally worth it in the long run. We’re able to set our sights. We never want to be bogged down in the day to day operations again, that sucks. It pointed out too that you can't grow as fast if you're stuck on the day to day.

So it really encouraged us to skip single-family and jump into multifamily, which in the long run, has been great. At the time it was a little nerve-wracking, but we learned a lot from it.

Darin: You think about people that go after franchises. Some people may buy one franchise and then they're in it and they're running it. They just bought themselves this job versus somebody else. Somebody who goes in with the mentality that I'm going to buy 10, 20 locations. Put competent managers in charge of it.

There are so many people, whether it be like yourself that own over 5,000 units, 35 properties, have a good reputation. Or other people that I've had on that own 1,000 or 3,000 units. A lot of people came from out of the country and started with nothing and built it up. Most of the people that I've interviewed have had some trip-ups.

I thought they're just overnight successes. Other people probably think that. You think the same thing about actors and actresses and athletes. They seem like overnight wonders, but they put in a lot of hard work to get there.

Kenny: To be an entrepreneur and go out, make your own money and feed your family – there's a risk there. You've got to perform, there's no option for failure.

Go Out and Perform

Kenny: You've got to go out and perform and some folks can't take that stress, it's just not in them. I think you can learn it, I think anybody can do it, but do you really want to? That’s the question. Can you do that in something that you're passionate about as well?

Darin: You just have to find a way. I started back in 2002 on a capital markets trading desk and I was in a training class for six people. This girl that was in my training class, she came over from another division of the bank. She was like a top leader, she was just killing it. And she said to me, "Darin, what are you going to do if this doesn't work?" I was like, "That's just not the way I think." I'm like, "What do I have to do to make it work?"

You've talked about all your deals. You go in with a certain business plan and most of them have something that you have to pivot. You’ve got to figure out and it’s a little bit of a challenge. You do what you need to do to make that deal.

Kenny: Yeah, you've got to commit and go for it. Sometimes you've got to burn the boats and just go for it, especially if you're starting out. My daughter bought her first single-family rental at the age of 10. That was about a year and a half ago.

She talked to me that summer. Going into that summer she goes, "I want to make some more money." I said, "Okay, what are your ideas?" She goes, "Dog walking or a lemonade stand." I told her, "You're thinking too small."

Teaching the Next Generation How to Build Wealth

Kenny: So I gave her the Rich Dad, Poor Dad book, the real one, not the watered-down kid version. She read that in about a day. When I came home that next day she said, "I'm going to take over the family business one day." I'm like, "All right, it's working."

Darin: Holy cow. How great is that?

Kenny: Then she said, "I'm going to buy my first single-family rental this year." I'm like, "Okay, that's awesome. Go do it, go figure it out, but you don't have the money to do that." So she came with a business plan. She found the zip code she wanted to be in, in McKinney.

She‘d been getting one or two Exxon and BP stocks for her birthday and the holidays from my parents. She cashed that in, she had five grand to her name and that's it. What she did is create a business plan, found the zip code, pitched her grandmother. She knows I negotiate too hard with her to form an LLC that she owns a part of, to buy the single-family rental house.

What's really awesome is that she didn't hear, "No, I only have 5,000. There's no way I can buy a single-family rental, I'm out." It was like, "Go figure it out. If you don't have the money, make it a win-win for someone who does and there you go." So she has learned so much.

Actually, that property, they're about to do a cash-out refi probably in the next two, three months. She and her grandmother can pick up a second house with no more equity needed. So it's already snowballing.

Instilling an Abundance Mindset

Kenny: She's turning 12. It's that thing, too, as a parent, you want to start your kids out thinking that way, young. I've been taking her on business trips with me to these multifamily properties since she was five or six years old. Made her talk to the managers, pointing out, okay, this is not how we have make-ready, look.

This is what they should look like, this is what a bad roof looks like, foundations. A lot of it probably went over her head on those trips. But a lot stuck too, apparently, for her to go out and snag a single-family rental at 10.

Darin: The biggest thing is that you and your wife must have instilled an abundance mindset into her. So many people, that's where they get stuck. The people that are surrounding them tell them you can't do it.

People that want to invest in real estate for the first time like, "Ah, that's for other people." Friends and family, because they haven't done it, they don't know how to do it. But you told your daughter, "Go figure it out. There's a way, you've just gotta figure it out." And wow, that's going to change her life.

Regardless of whether she's in real estate, and financially. Just being able to put in her mind that she can make this happen. Then she went out and executed, that is amazing.

Kenny: Absolutely. I am always impressed. Have you heard the story about how Jerry Jones bought the Cowboys? He put it under a contract and didn't have near enough money, not even I think 10%. I forget what the number is, but he didn't have near enough money to buy the Cowboys.

Modeling How Successful People Hit Their Goals

Kenny: He signed a contract. But he knew he was going to figure out where the heck he was going to raise the money.

Darin: I did not know that and what a great franchise to own. Maybe not a great franchise record-wise this year. They're not playing so hot, but still a great franchise.

Kenny: It's those kinds of stories that newbies need to hear and read. I'm a big believer in reading autobiographies on business folk. That's like my favorite genre, which is weird for some folks. My wife thinks it's a little strange, but I love it. I try to read as much as I can on how these guys and gals put together their business.

How they grew from sometimes nothing. Sometimes inheriting 30 million, 40 million, 50 million and then growing it too much bigger. It's just a way to consume and model how these successful people hit their goals and dreams.

Darin: If you're a big reader, have you read the Sam Zell book that he came out with?

Kenny: I actually have not read that book yet.

Darin: You're going to have to read that one. It's called Am I Being Too Subtle? He's like the top real estate guy, billionaire from real estate. I'll just share one little story from that book. He graduated from law school, went to work for a law firm and he was in that law firm for like two days.

He's like, "I'm not going to be able to do this." So he went to the partner and said, "I'm going to have to leave. I'm not going to be able to do this." The partner's like, "What are you going to do?"

Getting Rid of the Limiting Beliefs

Darin: He's like, "I'm going to go into real estate." And he's like, "Well, why don't you stay in the office and I'll partner with you on deals?" So he did and then he started making more money than all the partners. He just started crushing it. Other people were like, "You're crazy. What are you doing?"

And then they're like, "How do I do that?" He took a risk. That is very important, modeling after other people that have done it. I'm sure you have a lot of people come to you and talk to you about how to get into space. I've talked to a lot of people that reach out on Instagram and stuff. Some of them it’s mindset.

It's like they don't feel they either have enough money, enough of a business track record. Some limiting belief that's going to stop them from doing it. Just setting people up to say, "Look, everybody is deficient in some way or shape." Maybe some people have money, but they don't know how to do it.

Maybe some people know how to do it, but they don't have money. Put them together and you've got a good partnership. Man, so good. Let me talk about your book. Why did you decide to write a book?

Kenny: It's always been a goal of mine. I've had a table of contents for probably four years now. You know what, I just committed. I said, "Okay, I've just got to do it, knock it out." So I did that.

Darin: Who was the first person that you told like, "Okay…" Because, once you tell people, it kind of puts you on the hook.

Build Wealth by Making Money Work for You

Kenny: My wife. I said, "I'm going to write a book." She's pretty good at holding me accountable for what I put out there. So that was it, and I'm working on book number two right now.

Darin: So this book is called Investing In The Dream: How to Acquire Multi-Family Real Estate and Attain Total Financial Freedom. I just want to hit on a few of the things that I read in the book. Some of the things that came out of it. One was to make money work for you. Talk about that concept.

Kenny: You pick that up in the book, Richest Man in Babylon. That's always a good one for newbies to read. You've got to have your money work for you. If your money is not working for you, you're going to work until you die for somebody else. So you've got to make money while you sleep.

Warren Buffet's big on that mantra and I totally believe it. The other big piece is just to start. Whether you're making an extra 200, 300 bucks a month, okay, that's a great place to start. Now, how do you grow that to $10,000, $20,000 or whatever your goal is?

Darin: That's huge. When I ask people on the show how somebody gets involved with passive investing, people always say, "First get educated." That's very important. Listen to podcasts, read books, go out, and meet other people.

If you have the capital, I would recommend hiring a mentor that can coach you along the way. What you just said is the last piece where people get stuck and you have to take action. At some point you have to actually pull the trigger.

The Risk and Reward Ratio

Darin: Through all the deals you've been involved in. All the deals I've been involved in, and starting businesses, you never have 100% information. You have to make that decision with the best information you have at that point in time. Then roll with it.

Kenny: Especially if you work more towards the development plays, that takes a lot more imagination. Knowing that okay, this is a great piece of dirt. Because X, Y, and Z are across the street, and the traffic counts and all that. As you go into more of the development side, it's more of that creative. You've got this vision in your head, a concept. If you're buying existing buildings, there's a little less creativity, but that can be a good thing sometimes.

Darin: There are more variables. When you're buying an existing property, you can analyze the existing cash flow. But with a new development you've got risk, like okay, how long is it going to take to build. If that gets extended out, you've got longer carrying costs. I've heard just recently that lumber prices shot through the roof for new development. In two weeks, they went up 24% or something crazy. All those factors are different than buying an existing property.

Kenny: That's why it's that different risk and reward ratio that we talked about earlier. It's a little spicier of a deal.

Darin: This is it, you had this in your book. Anybody that's involved in real estate and that's on social media has seen this quote over and over again. Don't wait to buy real estate, buy real estate and wait. You also talked about the long term investor and be patient. Talk about all those things combined.

Eliminate the Four Wealth Building Blocks So You Can Build Wealth

Kenny: So we still own our first syndication deal. It's 76 units. We've pulled over 420% out to investors.

Darin: You've pulled out already and everybody still owns the property?

Kenny: We still own the property. It's been a tax-free, 420% return so far to date. Now, when we sell it, obviously there'll be some clawback and some taxes to be paid. We bought that asset in August 2012. They've had all that money back, which still cash flows quarterly today. It's an awesome deal.

Up here we talk about the four wealth-building blocks, cashflow, principal pay down, appreciation, and number four is the tax shield. That tax shield to get that money back and snowball that into another asset or another project. It's a huge tool that folks need to take advantage of. If you're going and flipping houses, one, you're paying more taxes and faster. This is really going to slow down your ability to compound your gains.

Darin: That was your first syndication?

Kenny: Yep, 76 units.

Darin: If people are pulling money out, I'm guessing some of those people were like, "I like this Kenny guy. I'm going to reinvest what I'm pulling out back with him on another deal." Did you get a lot of repeat?

Kenny: Yeah, we do. We get a lot of repeat. Every deal on average so far, we've had about a 60% existing investor come into those deals. I wish it was higher, but these are very capital intensive deals. So if you put in minimums of 50 grand, eventually you're going to run out of money pretty quick for most people.

The Smartest Way To Do It

Darin: I don't know what the industry standard would be on that. What I've seen happen with a lot of people is they make this shift over into real estate. I was the same way. Pulled a lot of money out of the stock market and started investing in real estate.

But then, you put it in a bunch of these deals and then the business plan is three, four, five years. Your money is in those deals. At some point people get tapped out.

Kenny: So we try to do a cash-out refi' or some kind of capital event. It's because we're all long-term holders in the first two to three years of the asset. That way we return maybe 50% to 80% of their initial equity in that first two years, depending on the asset.

In that way, they can reinvest in other projects as well. We keep the asset so the cash flows and we have that tax shield for longer, for everybody to snowball their holdings.

Darin: The game plan is to buy the property, increase the value, do a cash-out refi' and then continue to hold the property?

Kenny: To me, that's the smartest way to do it. Now, I know there's some gurus out there that talk about why don't you just sell the deal? A good example is this, we just had a call, one of our investors wanted to have a meeting. We've got an asset in Columbus, Ohio, it's the one I talked about.

We bought it for 65 a door. So we paid 13.75 million for it and we've got multiple BOVs, two different brokers. It should be worth about 23 million, 24 million.

Infinite Returns

Kenny: We made a lot of money on that deal. Initial equity is 3.65 million, so we made a lot of money. We also have a $2.4 million prepayment penalty to that because of the low-interest rates. So I walked everybody through.

I said, "Look, if we just hold the asset and it does not appreciate anymore. Burning out that prepayment penalty and then also calculating the principal pay down to the end of that prepayment penalty. By burning off, it was like a 20% annual return. A very low risk, 20% annual return. So who would want to sell this thing right now?"

It makes no sense because of that prepay. Now I've heard other gurus out there say, "Oh yeah, sell it. Just pay the prepay and get your money out." But where are you going to beat a 20% low-risk annual return? I don't know where you're going to find that, because we already know the asset.

We know we've raised rents three times during COVID. Our collections are amazing. We know this asset already, so it's an easy 20% return just holding on to it.

Darin: That's when you get what they call the infinite returns. Once all the money's pulled out and you're still getting a return, that's the dream. So in the book you talk about momentum. Getting your first deal is the hardest.

Then from there you start building one on top of the other, on top of the other. Your daughter is about to do that, get her second house. Talk about that momentum and how that builds. How long does it take when all of a sudden you start saying to yourself, "Holy cow, look what we've built here."

A Fannie Mae for the First Acquisition

Kenny: Yeah, it's been a great 10 year run so far. Actually, I started out investing passively twice. Once in a value play to see the big fixer-upper model, here in town, in Arlington.

The second was supposed to be a yield play and I say that smiling because anyway, it was and it wasn't. But, to see two different models. Actually, that second deal was a Fannie Mae loan. That actually counted as my experience to get a Fannie Mae loan myself on our first acquisition.

Darin: You were a KP on that second deal?

Kenny: Actually, I wasn't a KP on that second deal, but they counted it. It's not black and white what they put in.

Darin: So you were a limited partner in that deal?

Kenny: I was an LP.

Darin: They gave you credit for it?

Kenny: Absolutely. I don't know how I did that, but anyway, it happened.

Darin: You called in some favors.

Kenny: Well, I didn't know anybody. 76 units, syndicated that after those two passive investments. I then bought a D class in Denton, Texas, 133 units. I'm one of those that's not afraid to say that we bought a D. We bought a few D's actually. I just bought a new D about three weeks ago.

We bought that asset for 34 a door and I can't tell you what we sold it for in January. I don't ding the buyer, but we made a lot of money per door on that asset. It's a deal where it's not going to cash flow for the first probably two years.

What Defines a Deal

Kenny: We've got to get our hands around it, fix it up, make it nice for the residents. Then do the cash-out refi, and eventually sell down the road.

Darin: Let me talk to you about that deal real quick. When you get into that deal, what's the occupancy and why do you classify it as a D? Does it just have a ton of deferred maintenance and low occupancy? What defined it?

Kenny: Going in, we knew it had foundation issues, pretty big ones. It turns out it was from a lot of broken sewer pipes, so that was a whole nother thing. But we had to lift four buildings with interior beams at the same time. Four buildings on that deal. Yeah, you walk in the asset, it's more of a feel of the demographic that's there.

It was the lowest rent and the last all-bills paid property in Denton. So I looked upside down. I mean, just doing the math, I'm like just rubbing backwater, $35 a month on each unit was massive, just that alone. We ended up rubbing that back plus all utilities by the time of it.

Going into it, it was rough. Half of it was on a chiller. We walked the units, there were a lot of holes in fists through drywall kind of deal. There was a three-bedroom unit that had 16 mattresses lined up against the wall. Who's living at this property, it definitely was a D. Denton Police knew that property and not for the right reasons.

It was one of those deals, but you go in and 34 a door. We probably put 8K to 10K a door into it by the end of it. It was a big heavy lift.

Build Wealth Out of Your Uniquely Painted Picture

Kenny: We probably replaced every piece of underground pipe in that six, seven acres. It sure felt like it. But then, in the end, we had this awesome NOI. Then on top of that, we had a great cap rate compression as well. It's actually the only deal I've ever bought off LoopNet as well.

Darin: That deal had to have been a bank loan, that was not an agency loan.

Kenny: I was able to convince Fannie Mae to give me a loan on that deal. It was a lot of painting the picture of the Taj Mahal of what we're going to do out there. So if you're new to multifamily buying, always meet the bank out there when they do their inspection. You can really paint the picture and no one can paint it as good as you. But yeah, painted the picture. It was 95% occupied.

Darin: Okay, so it was high occupancy, it was just very low rent, bad demographic?

Kenny: Very low rent. The economic vacancy was pushing 85%. So actually, collecting was 85%. We were right on that cusp. It was really that. Then Fannie Mae had also done our prior deal in Wylie of 76 units. It always helps that you have that little bit of a track record with them as well to pull that off.

Darin: You mentioned you got into two passives before you started syndicating. Would you recommend that to new people getting into the industry? To get into at least one passive before being a lead syndicator?

Kenny: I do. You learn better when your money's at risk, when you actually have your money on the line. It's also a way to see, like I did.

A Great Way to Learn How to Build Wealth

Kenny: On purpose, I chose a yield play and a value play. I wanted to see the bipolar business plans in multifamily. Also, I was coming from a totally different, you know, oil and gas. I didn't know how to operate a property. So I needed to learn, not just what each deal type looks like, but also who the players are.

Who are the lenders, who are the management company, who's going to run this thing, not me. It was a great way to learn on that front. Also, I didn't like how those two deal sponsors were reporting to the investors. I made notes of how to improve that and incorporated that into how our deals, and just soaked it up.

Before I wrote that first $100,000 check as a passive investment, my hand was shaking when I was writing that. That's a lot of money. A lot of money at the age of 28, doing that. My hand was shaking, I just let them know that this is my investment, it's also my education. So I'm going to ask a lot of questions. Monday through Friday, 9:00 to 5:00. I won't be too annoying, but this is my education too.

If you're not going to be okay with that then don't take the money. They took the money. So I asked a lot of questions and learned a lot by doing the passive route. Then, if you get on Fannie Mae loan, most folks think that you have to be a KP or guarantor. To get that experience for Fannie Mae, to be able to get your own Fannie Mae card. I'd also give that advice.

Making Sure the Money Moves

Kenny: Getting on a Fannie Mae loan is a great tool to help you get a Fannie Mae loan right on your first syndication deal.

Darin: You said a lot of things there. I felt the same way. My first syndication deal, a passive one was half of yours, mine was 50,000, but I was scared. It was the first. My other business, I trade large loan portfolios. I've been trading large loan portfolios for years and years.

One bank will wire the money in the morning, the other bank will confirm the wire. I'm always in tune with what's going on and making sure that the money moves from point A to point B. In this deal, I wired the money and I call the syndicator and I'm getting no response. I'm like, "Uh-oh." This was a well-known syndicator. I had had a lot of referrals, I had met them, had a great track record, but no response. No response to text.

Finally, I called and they're like, "Darin, man, here's the deal. The bank that we use, I can see there's a $50,000 deposit, but I can't see who it's from. I won't know that until the morning." Once I knew that I was like, "All right, I feel better. I'll wait." I was still a little unsteady at night, but the next morning I got the email, "Hey, we confirmed your wire."

I use the same bank that they did and sure enough that's the way it was. So I told my passive investors ahead of time, "Hey, here's the deal. You're going to wire the money, I can't confirm until tomorrow morning." And that made them feel better. It was a learning lesson because I felt scared.

Build Wealth by Being Passive Versus by Being a Syndicator

Darin: I wanted to try to put them at ease. When you coach people and they say, "I'd like to get involved in a passive deal." Give the listeners advice on the best way to go about that.

Kenny: Before that, I always ask them, "There are different paths. Do you want to end up just going passive? Or do you think you want to try and be a syndicator in the future? Those two paths are very, very different."

You always want to start with the end in mind with your goals, especially on investing.

If you want to be a syndicator, I always tell folks to be passive in one or two deals, learn from it, especially if you're new to real estate. Even if you're coming from a single-family, it's a little bit different of a world, going from single to multifamily. But it's a great way to learn. You network, you really shorten the learning curve by jumping into multifamily.

There are a lot less mistakes you're going to make by going passive. I just flew back from Cleveland late last night, I had one of our investors tag along. He thinks he wants to be a syndicator. I don't do mentorship. We've got an unofficial active-passive program, TM. I got to trademark that.

Darin: That'll be in your second book?

Kenny: There you go, absolutely. I got to trademark that though. It's someone who believes he wants to be a syndicator. We've been doing this for years because it was the same way with me on my first passive investment. I asked them if I want to learn this, to be a syndicator, this is why I'm getting into it.

A Great Way to Learn for Investors Trying to Build Wealth

Kenny: We probably have one or two people in each deal that do that. This investor flew up with me to Cleveland. We toured the assets up there and then flew back. He got to smell, see, touch what a C class asset looks up there. We've got a very big redevelopment deal in downtown, what that looks like as well.

It was a good learning experience for him I believe. Not everybody wants to be a syndicator after they go on those tours a couple times. Like, "Okay, I don't know about that." But it's a great way to learn. You've got to know that one way or the other.

Darin: You said it before when you got into those two deals as a passive. It helped form the style and the communication style that you were going to implement afterwards. There are so many different syndicators and they communicate in so many varied ways.

To say, "You know what? I like what this person's doing. I don't really like this, I'm going to communicate a little bit differently." By getting involved in a passive deal, that helps form your mind. Not only on the monthly communication but also initially when you're putting together the investor deck.

You're pitching the deal like, "Would I describe it the same way? Would I present it the same way? Or would I have a different slant on it?" So I think that's great advice. Hey, you mentioned in your book that you ride motorcycles. Do you still have a bike?

Kenny: I do not have a bike at the moment. But I do get to hop on my uncle's Harley every summer up in Ohio.

Travel and Learn From the World

Kenny: We go up there for about a week or 10 days. So I still get to have fun.

Darin: I love to ride, I do not have a bike either. It seems when you get into the family world, it's something that a lot of men give up. I was going down to Austin to meet with some other real estate investors that ended up being guests on the show. And I was like, "You know what? I've been wanting to ride for so long."

I just went out and rented a big, huge Harley and drove from Dallas to Austin and just coupled the business trip into an adventure. It was great. Maybe sometime we'll have to get out and figure out a way to ride together. What else do you focus on outside of work? What do you like to do?

Kenny: We like to travel, our family. I made Platinum on American in 2020, so I kept American afloat, alone. That's for business but also for travel too. My wife and I went out to Aruba at the end of July. It was an awesome time to go because it was 20%, 30% what it usually is for tourists. We had the whole island to ourselves.

Darin: I went to Aruba once, it was really windy.

Kenny: It wasn't that bad. It’s the end of July so it wasn't too bad. It was warm, but that's what happens at the end of July.

Darin: I tried windsurfing.

Kenny: Yeah, windsurfing. There were a few out there. I saw a few of them out there on the tip there. We like to snorkel and scuba dive, so we like to hit up the Caribbean and do all of that.

Build Wealth in a Collaborative Industry

Kenny: We like to travel with the kids, too. Growing up, traveling, I got to see a lot of the world and a lot of different cultures, how other people live. It's important for kids to see that as young as they can.

Darin: You've definitely been a leader in the space and have a great reputation. I look forward to continuing to learn and watch you grow. This business is great.

People ahead of you help the next guy, that guy helps the next guy down. It's a very collaborative industry. People are partnering with different people on different deals. I appreciate you spending the time with us here today.

Kenny: Thanks, Darin.

Darin: So if people want to reach out to you, what's the best way for them to get a hold of you?

Kenny: We have a YouTube channel, we put out a video every Thursday, noon Central. Just Google Kenny Wolfe, or go on YouTube and put in Kenny Wolfe, with an E at the end. The best way to get in touch with us is to go to our website, wolfe-investments.com. If you want to get on our email list, hit the big red subscribe button. It’s in the middle of that home page and we'll get you on the list.

Darin: Look, guys, this guy has a great reputation, learn from him. Get his book, attend his meetups if you're in the Dallas market. He's got a conference that he co-brands that’s in a number of different locations. Check out his website. Again, Kenny, appreciate it. Listeners, I hope you enjoyed that one. Until next time, signing off.

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