Are you looking to diversify your portfolio? Ryan McKenna makes a point to invest in people first, then the deal. He's been a general partner in over 65 syndicated real estate transactions for over 15,000 units and is invested as a limited partner in over 100 deals. This guy is always looking for new ways to diversify his and his investors' portfolios. He's invested in multifamily, mobile home parks, senior living facilities, ATM's and crypto. It all started by learning how to invest with other people’s money (OPM) from his college buddy's dad. If you're interested in learning more about OPM investing or want some help finding good investments that fit your criteria then listen to this episode and learn how Ryan did it!

Table of Contents:

• Where To Listen To The Podcast
• How Curiosity Leads You To Invest in People and Asset Classes
• Invest in People With the Goal To Scale in Multifamily
• Why a Passive Investor Moves to the Syndication Space
• The Biggest Risk to Investors When They Invest in People
• The Whole Inflation Story
• How to Structure Your Deals
• Why It’s Worthwhile To Invest in People
• The First One To Invest in People Reaps the Benefits
• How to Reach Ryan McKenna

How Curiosity Leads You To Invest in People and Asset Classes

Darin Batchelder: Ryan McKenna played baseball in college, and that led him into real estate investing. His buddy's dad was a multifamily syndicator, and Ryan picked his brain on how to get into the industry. One thing led to another, he's now invested in over 15,000 units. Ryan has a curiosity that leads him to invest in new asset classes. Once he gets comfortable, he brings those investment opportunities to his investors.

This is actually the first time that we're going to be speaking and I'm very interested in the conversation. Ryan is very experienced in the space and I see him all over social media. I’m so interested to hear his take on the industry. With that, how many properties and how many units are you currently invested in?

Ryan: As a general partner, we're over 15,000 units and that's roughly 65 syndicated properties. As a limited partner, that number is even higher. I've invested in all of our deals that we have a general partnership on. That number's over 100 as a limited partner. I truly enjoy passive investing. It's something that's changed my life and I invest in a lot of different things.

The value-add multifamily is really the main driver in most of my portfolio as a general partner and as a limited partner. I love this space and there's so many great opportunities out there. We keep growing, even though we had a really phenomenal year in 2021 and we sold off 14 properties. It was a great year, but we keep adding more.

A Baseball Player and Real Estate Investor

Darin: I saw from your bio and I see it in the background, three bats. You played ball at Arizona State, so you’re a baseball player. My son was a baseball player through high school, but college ball is tough. It's competitive.

Ryan: It was a dream to play at Arizona State. I remember when I was 12 years old, I wrote my goals down on a piece of paper. That was one of them, to play and get a scholarship to Arizona State. At the time, that was the school. They produced more Major League baseball players than any other Division 1 school. I wanted to play with the best and never thought a kid from Elgin, Illinois would get the opportunity, but I did.

It was just an amazing experience. I've learned a lot going through the program, just the discipline, the determination, the work ethic. All that is what I've taken into the business world. It's really helped me thrive. So, a great experience there. It didn't end the way I would've wanted it to. I ended up getting really sick at the end of my sophomore year, got diagnosed with ITP. It’s a blood platelet disorder, very similar to leukemia or lupus, and it pretty much ruined my baseball career.

I was out for a year, did a medical redshirt. Doctors told me, "You'll never play baseball again." This was probably the most devastating news I've ever had to take in my life. I'd worked ever since I was 12 to get to Arizona State University and be on a platform where the next level is professional baseball. I played with 16 of my teammates that went on to play in the major leagues.

What It Takes To Chase a Dream

Ryan: Not to say that I would've made it, but it would've been nice to go out trying, versus having to literally walk away. After I was diagnosed, I did a medical redshirt and had a very risky surgery. I was able to rehab for a year and come back, and finish up my senior season. But I had to walk away on my own terms at that point, just because we didn't know healthwise how this happened, why it happened.

We just felt like at the time, my health was more important than trying to chase a dream. So I had to literally give it up. It was in those moments where I was sitting in the hospital bed, I was like, "All right, what am I going to do with my life?" Because I always wanted to be that athlete that was successful, did well, and made good money. But then, I was smart about it and invested in various things. That's really where I got turned on to investing in syndications.

The Rich Dad Poor Dad book by Robert Kiyosaki, I recall reading that while I'm bedridden in the hospital. Things just fell into place. This was like my backup plan, but now it's going to end up being my plan A. I was able to come back and finish up the last season on the field. It was in and of itself nice to finish up, with the doctor saying, "You will never play again." And just what it took to get back on the field. It looks like my reference to baseball in this whole syndication business, being a passive investor, you can make pro-athlete money doing this.

The Driving Force To Invest in People

Ryan: I felt like it really had some similarities to what I wanted to accomplish in life, the lifestyle I wanted to live. It's been a driving force for me to really take control of something that was out of my control. It was a tough hand. I like to say, life threw me a curveball and I reacted to adversity. Some will get knocked down and not it up. I just said, "Hey, we'll keep moving forward." God has a different plan for me.

Darin: A few things there. One, listeners are mainly either passive investors or syndicators looking to scale. You said something that may be glossed over, but as a 12-year-old, you wrote down your goal. That imprinted in your head, and it drove you from the age of 12 to get to where you were actually playing ball at Arizona State. So for the listeners' benefit, I would say, you need to write down your goals.

You need to believe that you can achieve them and then have that be the driving force. There's a lot of people that want to get into this industry, into multifamily. But they're scared or they analyze things to death and they just can't pull the trigger. While you're bedridden, you took your plan B and turned it into your plan A. Did you go right from baseball to multifamily or did you have a career step between?

Ryan: I had a career step in between, but I also had to benefit. One of my teammates’ father was an apartment syndicator. They were buying properties in Phoenix, at the time, I was doing my medical redshirt.

The Apartment Syndication Business

Ryan: I got to become pretty close with him, see what he was doing, and learn the business. So I knew about the apartment syndication business back in the early 2000s. I knew how lucrative it was, I saw it happen with a lot of successful entrepreneurs. They were able to acquire these portfolios, all the benefits of why we invest today, the cashflow, the equity upside, the great tax benefits.

One thing that I thought was really important too, was the ability to control your time and to have what you do be more of a lifestyle. That's really what I saw in this, in my teammate's father. He had a very successful syndication business; he still has it today. He's been able to coach his sons in different sports growing up, and he's been able to have a flexible schedule. But he's also done very well financially.

He’s doing something that I told myself, "That's the business for me. That's something I want to get into." I'm super passionate about real estate investing. The syndication had everything that I ever wanted in a business model. It's fun and I work with great people.

The combination of having someone who was like a mentor, who would actually send me books, we would talk about the various deals. I knew at some point that that's where I ended up wanting to get to. And I had a couple of different careers in between. I had a really nice offer when I graduated to go work for a serial entrepreneur trying to launch the next Facebook. It was a great experience. I learned a lot about growing and scaling businesses there. Then I got into our family's business.

Invest in People With the Goal To Scale in Multifamily

Ryan: I was third generation working with my dad for about five years. Always it was doing the side hustle, trying to get ahead and invest. So I started investing in real estate back in 2006. It was mainly single family with the goal of trying to scale into multifamily. But as one of my side businesses did really well, I had enough money to start deploying into multifamily syndications. In a period of three years, I was able to invest my way out of the corporate world. I launched McKenna Capital to really help others do the same. So I took the route of being a passive investor in syndications and creating enough cashflow or passive income to give myself that freedom and flexibility.

Darin: There's more syndicators out there today and there's more education platforms, whether it be podcasts or blogs or books or YouTube videos, to teach you how to do it. But look, I'm 51 and I didn't get involved until four years ago. I didn't even understand syndication, what it was and how to do it. It was scary even though I had the capital. But it takes just one person. You were fortunate that you met one of your teammates’ father who was a syndicator.

From the father's perspective, not a lot of next-generation people are interested. There are probably a lot of teammates that were just interested in baseball and chasing girls and didn't take the time to try to pull out the wisdom out of him. So I applaud you for doing that because that propelled you forward. So talk about being afraid. What was it like doing your first passive deal and your first syndication deal?

Invest in People and Grow Your Wealth in Real Estate

Ryan: When I did my first one, I would say it was a little nerve-wracking. You're like, "All right, I'm going to tie up this money for a period of years." But when I got to my first deal, I was more excited than afraid because I had done a ton of research. I had read probably every book out there on real estate investing and growing your wealth through real estate syndications. And I felt like I was ready, and it was more or less just having some money to get started.

As I was building another business, I had a lot of capital tied up. But then when I exited, I had enough to really just deploy and I knew right away what I was going to do. I actually went invested. My first five deals were with my teammate's father in his syndication business. So I got really good exposure. I knew who to go to and how I was going to invest.

From there, I started investing with other syndicators because I knew how important diversification was. I wanted to invest in different markets. Plus, I also knew that eventually I wanted to get into the syndication business. I wanted to see how others were running their business and the type of deals they were putting together. It's a great way to learn for anyone who wants to get into this.

Being a passive investor, you get to see how others are doing it and how these deals work. You get to diversify into some great investment opportunities. So I’m being actively involved today.

Invest in People Because Syndication Is a Team Sport

Ryan: I still love passively investing.

It's a very therapeutic type of investing because you get the same benefits. But you don't have a lot of the headaches that most people will say real estate can bring them. It's something I'll do for the rest of my life because it's fun to see it grow and accumulate. Then you start to get the snowball effect after several years of investing. It's just cool to build it, and also build it with others.

I look at this like a team sport with syndication, we're all in this together. We're all working towards achieving the same goals. We are all on the same team. It's just a fun business that you can do.

Darin: I've been part of a number of different industries. When I heard about this team sport and people working together and experienced guys helping the new guys, I was a little skeptical. Like, "Is this for real?" Typically, the guys that are on top don't want to share their secrets. That's my experience in other industries at least. But here, there's so much partnering that goes on.

I've found it to be a reality that 99.9% of the people that I've met are really genuine and want to help the next guy. Who knows? Maybe not three months from now, but maybe two or three years from now, you may end up partnering with that person. So people don't like to burn bridges, they like to help one another. It makes the industry a really great place to work.

The Relationship That Matters

Ryan: I would totally agree because I've been in other industries too. There's just a different feeling about the syndication space in general and people who you might say, "Oh, they're a competitor." But you come together and you start doing deals. Maybe you end up buying a property from them and there's that relationship that matters. You just never know, you don't want to burn any bridges. That's something in life in general, if you could treat people well and always be respectful. You never know when that call is going to come or when that person's going to reach out. If you have a good relationship, it's going to be a helpful start.

Darin: When I got into it, I just started investing passively. I thought to myself, the senior syndicators, the ones that have experience, the ones that have been around for a while, why do they even want my money? They already have their investor database, they already have their network of people. Why would they even want to work with me? Now, I found that not to be the case. Maybe you could expand if you had that similar experience, and why do senior syndicators want to work with new people?

Ryan: They always want to bring in new capital. I've seen that someone who solely focuses in one market, their investor base after they probably do three or four deals in that market, those investors likely want to diversify outside of that market. If they're solely focused on one market and they don't have something else to offer, you need fresh capital coming in. That's what I see where people want to diversify.

Growing Your Investor Base

Ryan: It's good to maintain those relationships because as you bring in new capital, all of a sudden those earlier investors may have had a little breather. They've been on to invest in some other deals, then they come back and invest again. It's just this perpetual cycle that happens. You always want to be open to growing your investor base because you never know who you can count on from time to time. The more you can attract, the better the position you're going to be in as a syndicator.

Darin: Those are great points. I would add to that, that over the years, the per-unit prices have gotten higher. The deals have gotten more expensive to buy so you need more capital. Another thing is that I've seen people come into this. Learn about the syndication market, fall in love with it, and pull a bunch of money out of the stock market. Then they diversify into 5 or 10 different deals. After a year, they're tapped out. Like, "Uncle, I don't have any more capital. I have to wait until the first deal turns, and goes full cycle." Some of these deals go three, four, five, six years. That's another reason why syndicators are always looking for new investors to add to the mix.

Ryan: They are also scaling up likely with properties. Maybe they start class C, then go B, then A. Those properties cost more and there's more capital needed. So that's another reason.

Darin: I had one senior syndicator that was on the show. He said, "We got to the point where we had so many people that wanted to invest. If I kept doing C deals, then I'd be closed out in a couple of hours."

Why a Passive Investor Moves to the Syndication Space

Darin: In order to satisfy the needs of his investor base, he started to go up to B’s and A’s. The deals get more expensive and require more capital and so he can get more people into the deal. Talk about your first syndication deal. What was it like going from being a passive investor to moving into the syndication space?

Ryan: It was a little nerve-wracking because you just don't know what to expect. You hope that things work out the way that you were anticipating, but I also am a believer that you have to take action. You're never going to have all the answers up front. You might know 90% of what you're getting into, but that 10%, that's the gut feel that you got to go with. Trust that you're going to be able to make it happen. It was a smaller deal, which again, most people start that way. But it was a confidence builder, it was able to get one done.

It was actually in the self-storage industry. And I personally invested too, and at that time, I had been sharing enough with people in my network what I was doing, all the deals I was passively investing in, that it was mainly friends and family that I went to and they were ready. It wasn't just like, hey, overnight, I got a deal. They'd heard me talking about what I was doing for months on end.

We started small with one and then just built off of that. I was really happy to see it work out even on a small scale. But then, each one got a little bit bigger and I was constantly sharing what I was doing with people in my network.

Partner With Good Investors Who Know How To Invest in People

Ryan: I just saw a high level of interest and I knew there was something there. It was just a matter of sticking to it and grinding it out. Also, just trying to partner with good people, good investors, and it just made the experience go that much better.

Darin: I love what you said, telling people what you do. Listeners, you need to do that. Tell people what you're doing. Whether you're going to invest in your first passive deal or your fifth passive deal, or you're going to syndicate your first deal. If people know that you're learning, you're getting involved, and you're having positive experiences, then they're more apt to want to invest with you and partner with you. So make sure you tell people what you're doing.

Ryan: I actually went and reached out. I put a list together of 250 people in my network from LinkedIn, just coworkers, friends, and family. Then I reached out to all of them and said, "Can we meet up for coffee or a quick call? I just want to share what I'm doing." This was just a very simple outreach. There were only about five of those people in my network who said, "Nay, I'm not interested in getting together, catching up."

So I had 245 people that I was able to share what I was doing with, before I even had any sort of deal. It was just like, "Here's what I'm doing on the side passively." The level of interest was extremely high. So that's how I had it. A little network to start with, of people, when I did have some deals, I could share with them.

Invest in People With the Right Attitude

Ryan: It was all based on just tapping into people that I felt like there was this kind of relationship with them. I said, "If you came across something that you really believe in, I hope you would reach out to me and tell me about it." That was the attitude I had and it was never a sales pitch. It was just like, "Here's an opportunity that I learned about that's impacting my life in a positive way. I care enough about you that I want to just sit down and share what I'm doing." That was the approach all along.

You could feel the energy in the room and people being like, "Yes, keep me in the loop. Share what you're working on and share that experience with what you've got in the pipeline." So it started from that. It just continued to keep growing over time.

Darin: I'm sure that meeting with all those people, you learned a lot. You learned the questions that they have, their concerns, and what they are investing in now. What's the leap for them to go from that to this? All of that is huge. The other thing you said was, use the word opportunity. That's so key. Some people really get caught up in that. They want to get into the syndication space, but they're afraid of the capital raising side. They’re looking at it from the standpoint of, "I need other people's money," and it's not that. It's an opportunity for you to help grow their capital. They don't have to do it. You can just move on to the next guy.

Is It a Good Fit?

Ryan: Most people, when they learn about it, they can come to their own conclusion very quickly whether this is a good fit for them or not. I will say most realize they're like, "Yes, this is better than what I'm currently doing." Then I would say about 90% of our investors have done multiple deals. It grows into a strategy of where they're like, "Yes, there's not really a better place to put my capital when I can diversify and do it in that manner." So it's one of those, and then it just starts spreading. Then those investors want to share it with people in their family or their coworkers.

That network effect, that organic growth is really cool to see. People are sharing something that they believe in. They put a lot of trust and faith into someone, and to see them go out of their way to continue to bring more investors into this. A big part of this whole industry is creating awareness. I still believe 99% of the population out there doesn't even know what a real estate syndication is, nor do they know how to get access to one.

It’s a huge opportunity. So it's like my mission and I just want to spread the word. I don't care what someone invests in, I just want them to know that there's these other great opportunities outside of Wall Street that are available. It's worth doing your homework, your due diligence, to see if it's something that might be a good fit for you.

Darin: I completely agree. I didn't get involved until I was 47 and I was around wealthy people. I’ve never had anybody offer me an opportunity to get into a private syndication.

The Secret Handshake

Ryan: It used to be like, you had to know someone at the country club. You do the secret handshake and, "Oh, by the way, here's the deal." Whereas now, with things going more online, it really opened up the floodgates to share more education around these types of syndications, what they're all about. There's still a huge opportunity there, but probably in the last 5 or 10 years, I've seen it explode. The number one common thing I get from most investors which you alluded to a little bit is, I wish I would've known about this 10 or 15 years ago.

Darin: I do too.

Ryan: I’m growing my net worth too. I always say, yes, I knew about it, but I wish I had more money to invest back then.

Darin: That's the flip side. The young guys don't have the money, the people that are older, they didn't know about it. So how would you answer this question? I got this when I was doing my coffee meetings. This is more geared towards the people that I met. Some of the people that knew multifamily and invested with a bunch of syndicators, they know the business. Their questions are different from the ones that are in your personal network. They're like, "I don't really understand this thing, but I know, like and trust you." What's the biggest risk do you see in these real estate syndication deals?

Ryan: I don't worry that much about an investor losing capital from the standpoint of buying value-add real estate that is already profitable from day one.

The Biggest Risk to Investors When They Invest in People

Ryan: The day we take it over, there's already a cash flow stream associated with it. We're going in and help enhance that revenue through capital expenditures and help try to optimize some of the expenses. I know it's possible, there are no guarantees.

The biggest risk to an investor might be if your capital's tied up. You should only be investing something that you just assume that you're not going to see anything for five years. That's the hurdle you have to get over and get comfortable with. If you are, then the ride will be much smoother knowing that the likelihood of things working out are very high.

It’s just around knowing what you're getting into. There's a difference between someone who buys stock and when they want to cash out or they need the money, they can sell it and get it in a few days. It's very liquid. Understanding that these are illiquid investments, there's a lot of great attributes and reasons why the deals are better from that standpoint. You don't have that emotional reaction when the stock market goes up and down. Like, "Oh, I got to cash out."

It's like a quarterly to quarterly basis. You get rewarded for that staying power. Also, you should do your homework with who you're investing with. I tell investors, we look at so many deals and the numbers all start to look the same from deal to deal. Just that, you have the return or the going rate. The most important aspect of the deal is the people behind those numbers.

Why You Should Invest in People Who Are Good and Competent

Ryan: If you can get that part right, and you invest with good people, surround yourself with good people, you're going to end up doing very well in the long run. At the end of the day, that would probably be the biggest thing. If you can get that part right, you're going to be in a good place.

There's going to be risks, there's going to be unknowns. But you have to have belief in that team that when something comes up, they're capable and competent. They're going to be transparent about how they handle that because not everything's going to go perfectly. Knowing who you're investing with is huge. For new investors, there's that trust, that comfort level, because they're essentially putting money with you and your company. They're hoping that you're going to generate a nice return for them. You just never want them to do something that they're uncomfortable with or that they feel forced.

It's just that approach and that type of psychology around feeling comfortable with the team. Having a track record too is important. You can show, “Here's what we did in the past.” There's no guarantee that you’re going to do this in the future, but at least they know it's not your first rodeo. You at least have a high likelihood of having success.

Darin: Those are all great points. I really agree with everything you said. If I’m a passive investor, I would start with the market, like what market do you want to be in? The second piece is who the people are that you can invest in. After the people, it's looking at the deal.

Why Someone Would Invest in You

Darin: People that are new in the industry, it's difficult for some of them to really understand. I see a lot of deals too. Almost every deal has the same forecasted return profile. People are very important to me.

Ryan: It's a relationship business.

People are going to make their decision with people they know, like and trust. That's a huge portion of why someone would decide to invest with you or not.

Darin: Have you lost on any of your deals?

Ryan: No, we’ve had deals that have been behind.

Darin: I put you on the spot because I didn't know the answer. But I had another guy who's invested in over 40 passive deals and I asked him that question. I said, "Have you lost on any of your deals?" He said, "No, Darin. I haven't lost capital on any of my deals." He said, "There's some deals where they project this cashflow. I got less cash flow or maybe I didn't get any cash flow until it sold, and then I got a gain.

Sometimes the business plan may have been five years and there was a hiccup. They had to hold it till seven years. But then when they sold it, they still had a profit." That's a fantastic track record to have some 40 odd deals. You're invested in over 100 as an LP and not lose your capital. Capital preservation is huge in these deals.

One of the risks that I talk about to people I'm close to is, I have another business that trades loan portfolios between banks. During the great recession, 2008, 2010, where I saw people get hurt was when the loan came due in a terrible economy. I'm sensitive to the term on these loans that are on the deals.

The Conservative Piece

Darin: You can't get a 30-year fixed-rate mortgage on these big multifamily deals. They all have some type of balloon feature, which just means that the loan comes due. A lot of people are doing bridge loans today and I get that they're very attractive. As long as you can do the value-add in the year or two, you're fine. That's the piece that I'm a little bit conservative on. I'm okay with having a floater and a cap, but I want to know that there's a longer term than three years.

I want to know that there's a five or seven or 10-year term so that if I can pay the mortgage, the lender can't take the property from me. That's where I saw people get hurt. I wasn't involved in any of those deals. I'm dealing with the banks that are buying the loans. That's when they came back and tell me, "Here's the problem. That property's cash flow is down and the loan's coming due. So the valuation is down and the sponsors don't have the excess capital to bring into the deal so they're not going to refinance it." So what's your take on that?

Ryan: It's always something to be thinking about and planning for. To have flexibility on an exit, whether that's to sell in a certain period of time or to refinance. I would agree that all the deals that we do, we at least want to see five years. Even if it’s a bridge loan where we have three years and then two one-year extensions because of all the decisions we're making, we never want to back up to the fifth year. Then be like, "Alright, what are we going to do?"

To Sell or To Refinance

Ryan: Generally, we're two to three years in. We're making that decision if we are going to sell or we are going to refinance to some long-term fixed-rate debt. I’m starting to see most deals are bridge loans with some floating debt with a rate cap. I am starting to hear talks of finding a high-quality asset and just locking in some low-rate agency debt. It all comes down to diversification.

You're probably not going to get as high a return as a value-add deal, but it's more conservative, it's longer. Maybe that hold period is seven years. You can still exit where you can, if you get a nice attractive rate that someone can come in and assume that loan. It's not a bad strategy, there's still a window.

We don't know how long things are going to continue to be as good as they are. We're starting to see a little bit of, alright, let's look ahead and maybe for some deals, that makes sense. But we're generally trying to put ourselves in a flexible position so we can make that decision well in advance. We can shift if we need to if the market or environment changes.

The plan is, we want to generate as high of a return as we can. We also know that there's going to be a day where the value-add multifamily, it’s getting harder to find really solid deals. There's only so much value-add out there. With cap rate compression, they're getting more expensive. I do see a little shift towards some class A more stabilized assets. Maybe try to lock in some long-term debt, certainly in a few years, that'll be more the norm than the bridge that we're seeing today.

The Whole Inflation Story

Darin: That plays into the whole inflation story too. Time will tell whether it's transitory or whether it's going to be here for a long time, coming. But if you buy a long-term asset like that, an A property that has a lot less maintenance and you lock in your debt, so your debt service stays constant. But then if there's inflation, that means the wages are going to go up and most likely rents are going to go up. Your top line could continue to increase year over year while your debt service remains constant. So you can get that profitability increase as time goes on.

Ryan: Yes, it's a balancing act for certain properties, but also looking at the environment. Three, four years ago, we locked in some low rate agency debt.

Darin: Then you get yield maintenance, so you can't sell it.

Ryan: We want to sell these fantastic assets, but we're going to pay a prepayment penalty of a million dollars or 800,000. It's like we didn't have that with the bridge debt and we could exit those.

Darin: There's pros and cons to everything.

Ryan: We thought interest rates were very low a few years ago and then they got even lower. Now, we're seeing a little reversal.

At the end of the day, you’re just trying to be as flexible and diversified as you can. You're just trying to make the best decisions that you can for everyone too. As long as it's cash flowing and you're growing and doing well, we don't have to sell. We just keep increasing ROI and that day will come, it'll happen. We wish we were able to do it earlier, but that's just the situation we're in.

Invest in People: Advice to People Who Want To Be Syndicators

Darin: What's your advice to people who want to be a syndicator? It's extremely competitive to win a deal today. How do they do it as a newbie?

Ryan: Before someone wants to get into the industry, it's helpful to become a passive investor first. At least know what these deals are all about. Because you can speak to your own experience when you're talking to investors about what your syndication is going to look and feel like. You don't have to do that, but it's going to be beneficial. It helped me out tremendously. That would probably be step one.

Figure out what market you are going to focus on. Who's going to be part of your team? In this business, you need a team. Maybe, start off by trying to add value to someone who's already in this syndication business. You might be able to join their team, help them out, and gain more experience that you could then leverage down the road for other opportunities that you might be pursuing. Trying to surround yourself with people who are doing what you want to be doing is also key. Try to find a way to add value to them. That would be my advice for someone just getting started.

Darin: I don't think you can win a deal in today's market, at least in the large-scale multifamily, unless you partner with somebody who has experience. There's too many people bidding on these deals. The broker and the seller are not going to pick you if you're a newbie and don't have any experience. But you could be a newbie partnered with an experienced guy and that works.

Why You Should Tell People What You Do

Darin: The other thing I would say is that when we talked earlier about telling people what you do. I've had some people come to me and they're like, "I just don't have the experience. I want to talk to my network, but I don't really know how to pitch them because I don't have the experience. How are they going to give me $100,000 to invest in a deal?" I'm like, "It's not about you, it's the attorney you're going to be using. Are they specialists in syndications? Who's the property management company that's going to be managing the property day to day?"

If you bring on a property management company that's managing 10,000 units in that market, all of a sudden they're like, "Oh it's not you answering the phone call." It's like, "These guys know what they're doing." Who are the lenders you're going to be using? They specialize in multifamily. That's part of the team that Ryan's talking about. You start selling the team, your partner, the attorneys, the lenders, the property management companies. Then all of a sudden, people are like, "Oh this guy's got it buttoned down. He's got a team." That's what he is referring to there.

Here's something that I thought. After getting my first syndication done, I'm like, "Well, you get your first syndication done. Then you know what you're doing and you just truck on." A lot of the successful people that I've met are always pushing themselves to do something that they haven't done before. That puts them in an uncomfortable position. Talk about an area of your business, your growth, where you had to get uncomfortable.

Diversification

Ryan: We're very comfortable with value-add multifamily. It's been our core focus since we started. As our investor base has grown and is very diverse, I'm in touch with a lot of our investors as far as what they're looking for. We had a segment that was willing to take on a little bit more risk for some higher upside and wanted to explore other alternatives.

So we started a few years ago getting into other asset classes beyond multifamily to help provide more diversification in a portfolio. There was education around that, so I did a lot of my own due diligence. I did a lot of my own personal investments in these areas to learn as much as I could.

I’ve tried finding really good partners in this space, just like we do in multifamily, and try to find a way to make it all come together. We just did a senior living development deal. We've done ATM funds, self-storage funds, and mobile home park funds. I recently invested in a Bitcoin mining fund. We’re looking at all the different asset classes as a way to provide great deal flow, good diversification.

A lot of the characteristics are very similar to multifamily. Nice cash flowing deals that have some value-add or equity upside play and great tax benefits. It’s uncomfortable when you're putting your neck and your reputation on the line for something that is new and different. People know you as having experience in the multifamily space.

It started again with one small deal and that was successful. We grew from there and then we went into another asset class, and another type of deal. Now, we've got some really unique opportunities that our investors love. They now pair them with multifamily.

Invest in People and Believe In Who You’re Partnering With

Ryan: As we see multifamily cashflow going down a little bit, there are other deals out there that can provide a lot of cash flow. As an investor, if you're looking at your overall portfolio, you can marry the two together. That makes a really solid deal where you got one with a lot of upside potential. Maybe not much cash flow, but then you got this other one over here that's very conservative, but high cash flow.

A lot of investors we see are making choices based on almost doing two investments into one. It's an area that I see growing very rapidly, especially with inflation and great value-add multifamily deals getting harder and harder to find. But there was a feeling of, all right, this is new. This is something we're exploring. We don't know it as well as multifamily, but we believe in who we're partnering with. We believe in these opportunities and these assets, and so it's all part of the journey, the experience.

The investors know we're in this together. We're trying to make the most calculated, educated decisions we can and no one has a crystal ball. By being open-minded to what else is out there, and listening to investors as far as like what they're looking for, that's really why we do what we do. I really try to keep up with the demand. Personally, I'm building out my portfolio and I like to invest in a lot of different things. It's fun to really explore and bring those new opportunities together. Then syndicate it with people who have an interest in investing in those types of assets as well.

How to Structure Your Deals

Darin: That was extremely smart. You actually got feedback from your investors, what are you looking for? Like a segment of them told you, "Look, we'd be interested in something a little different." Then you went out and explored and came back with something, "Will this work?" You already had the investors lined up. They're telling you, "We want some more diversification."

You talked about it earlier, diversification could be multifamily, "I've got enough in Texas, I want to go to Arizona." Maybe you go with a different syndicator when you move out of state, but there's also, "I've got enough multifamily. I want to do something else." If you just do multifamily, they're going to somebody else. That's very smart.

How do you structure your deals and how did you partner with these other asset classes? Do you do funds or do you do one-off syndicated deals for each one of your multifamily assets? When you invested and partnered with these other folks that had funds, how did you do that? Was McKenna Capital the investor in those deals, or how did that work?

Ryan: It's a little bit of everything. Most of the multifamily investments we do are single asset investments that we joint venture on. I'm very involved. A lot of those deals, I'm the loan guarantor on them as well. We put up earnest money on every deal. As far as the funds go, that is a combination of funds of a fund. Other times we've been the fund sponsor, the fund manager. We look at the deal overall and see, how does it make sense? What's the best structure?

Alternatives Outside Multifamily

Ryan: Sometimes it makes sense to have a larger fund or to do a fund of fund. We've been open to all, we've done it all. Each one has its own purpose for setting it up that way. Certain deals that I find more of the alternatives outside of multifamily are more in the fund structure. We've gotten very comfortable with that and it's been a great experience. That's probably the one where we've had a tremendous amount of growth in seeking those out, putting those deals together.

It's cool because we can leverage what we see out in the space. We have a really interesting deal that we put together that's short-term. It's 12 months and the cash flow is really high. That's a nice opportunity for people that want to just park money somewhere and not have it tied up for five or seven years. Maybe they don't know what it's like, or maybe they've already done that with 10 or 15 multifamily deals.

That's listening to investors, trying to get creative, and just through our network of who we know and what we know in the space. I talked to other people in the space from an operator deal flow standpoint multiple times a week. We're always building those relationships, even though we've got a full plate. We've got plenty of deal flow and opportunities, but you just never know. There might be one or two opportunities that you look at in the future. They're like, "Enough investors are asking about it." You're like, "Oh yes, I know someone." We were talking, maybe someday something might work out. It might make sense to partner on whatever it might be.

Invest in People Across Multiple Asset Classes

Ryan: That's something I take very seriously because that's what has given our investors something that is very unique in the space. We've been able to go across multiple asset classes, multiple geographies. Also within those deals, you've got short-term versus long-term, high cash flow versus big upside, no cash flow. Just being able to throw it all out there to the investor and let them choose what's most important to them based on their needs, goals, and objectives. We've been able to hit a pretty good approach with that. It's only because we've listened to what investors have been telling us and what they're seeing.

A lot of these investors are very sophisticated. They look at a lot of different deals, a lot of them run companies or they're in venture funds. We try to ask them questions when we're on the phone because their businesses are very interesting too. What they're seeing and how they're dealing with certain economic events that may or may not be impacting or driving their business growth.

I try to still be a sponge. I'm still learning everyday and I love to hear about entrepreneurs, their story, and how they built their business. I had two of those conversations yesterday with two investors that run companies. It's like, "How did you get started? Tell me about just what you're doing today and what your plans are for your business in the next five years."

I get inspired by that. I've always looked up to people who had a bigger business or were more successful. I never looked at it as I'm jealous or I'm trying to compete. It was just, "I'm just trying to learn. I'll make it work."

The Approach That Works

Ryan: Whatever it looks like for me, I'll take the best of what I've learned, make it my own, and feel good about that. I always take that approach and it's worked well. The investors feel like, "You're listening, you're taking what they're saying into consideration." You are out there trying to make things happen.

Darin: That's the value that they're getting by working with you. You're going out and learning and building those relationships. Then you’re taking that and providing them with an opportunity. They could either jump on that opportunity or not. But if you didn't do that, they may not have had access to that opportunity. I've talked to a lot of syndicators that have thousands and thousands of units. I asked them, "You've done 10 syndications, why not start up a fund?" I get silence. When I talk to them about being afraid of doing their first syndication, they're like, "I was afraid of doing my first syndication. Am I going to raise the capital?"

But then they get used to it and they know the investors are trained. They know that they have an investor base that’s going to fund that deal. But it’s going to a discretionary fund where they have to raise the capital before they present the deal. I sense that there's some fear that, oh, this is new. What if I come out with it and nobody wants to invest? I already have a great track record, so that's a risk. Some syndicators are afraid to take that risk, but it sounds like you did it.

Ryan: I did it, but there's also a lot of upfront costs. In a lot of these funds, we don't earn any money until the investors make their returns.

Why It’s Worthwhile To Invest in People

Ryan: I'm outlying a lot, $50, $75,000 to get this up and running. Maybe a year later I might see some. So there is risk. You have to really believe that it's going to work. But you also have to know going into it, this is going to be worthwhile. It's not like I woke up one day and said, "I'm going to go start this fund." We're reading the investors, the industry, and the opportunities that are out there. The first one was very tough. It was a lot of work because you're on your own putting it all together. You're doing it in a different way.

You just have to be open and it goes back to just trying to learn and taking risks. I like to say calculated risks and just really believe and see it all the way to the end. You can do it both ways. I do like the direct investment still in multifamily. A lot of that, the value in exit deals, the 1031 exchanges. I feel like a fund approach. You might lose some of that, but I know there's pros and cons to both. A lot of the other alternatives, I see more of those in the fund structure. It makes things a little bit easier. There's a little bit more diversification for those types of investments.

Darin: Talk about the 1031 on the value-add multifamily. Of all the syndicators I've talked to, I've only had two that said they've done 1031 exchanges. One of them explained that it was extremely difficult because of all the paperwork associated with all the limited partners. The other one said that they do that exclusively.

A Huge Tax Advantage

Darin: There's a huge tax advantage to rolling it over, but it sounds like most syndicators don't do 1031 exchanges. They return the capital, the investors have their tax liability and then roll it into a new deal at that point. What's your take on that?

Ryan: When we're exiting a deal, that's the number one thing we're looking to do. We will try to do a 1031 exchange if the deal makes sense. A lot of times, you don't find a deal on the timeframe that's needed, but that's number one. We know the value in providing that to our investors. Plus, as a general partnership, most of our money's going to be made on the back end. We'd love a nice way to defer those taxes via 1031 exchange as well.

The beauty of it to an investor is that they get to choose. Do I want to participate in the 1031 exchange or do I want to cash out and pay the capital gains taxes on it? We've seen, we've had a high level of participation. About 70% of our investors have opted to do the 1031 exchanges. Probably about 40% of our deals that we exit, we are doing 1031 exchanges on.

But it is a lot of paperwork. It's a lot of gauging investor interest early on and then getting to the commitment. In some cases, we know the deal that we're acquiring or going to 1031 exchange into. Other times we don't and we just have to say, "It's going to be similar to what we are rolling out of. It's one of those leap of faith. We don't have the details, but here's the plan."

Why Do a 1031 Exchange

Ryan: Sometimes we get to know the numbers by a certain date and have everyone locked in. It can be a little stressful and you might not have everything all aligned, but it's just part of the process.

Darin: That's a great number. So 70% typically choose to roll over into the 1031. You need at least 50%, is that correct?

Ryan: It's usually 50% of the capital, so you could have a couple of big investors that opt for that. You also want it to be meaningful too because there's a lot of costs and work involved. But on some deals, you can structure it where you can actually do the 1031 exchange. Then depending if the deal's large enough, take in new investors in a separate LLC. You get to appease the 1031 investor with a great opportunity and then still bring it to your investor base as a new deal as well. We've done several of those where it's a combination.

Darin: Is there anything that we haven't talked about that you want to make sure the listeners know about? Either your company, the deals that you guys structure, the markets that you're in, or things that they should pay attention to and get involved in the industry?

Ryan: We covered a lot. One thing I will say that we didn't really go into too much detail on is, I'm also an investor. I've been investing in the crypto space for a couple of years now and I see more and more interest from just casual investors asking about it. I see a day where that is going to be part of the syndication space because that is digital real estate. There are passive income streams there.

There’s a Tremendous Opportunity When You Invest in People

Ryan: I invest a lot and I'm getting passive income, no different than I do in a real estate syndication. It is very lucrative, but it's still like the Wild West. It's not as mature as I would like to see, but we are exploring that space. I do see a day where the two come together and there will be syndications there. It's all about education and learning at this point. I do see that as a very attractive alternative asset area where a lot of money's going to be made. But, there's a lot more risk right now.

I plant that seed as something for an investor to just know and understand, or at least start paying attention. We definitely are going to have a run here where a lot of money is going to be made. There's going to be a tremendous lot of opportunity. It will complement what we're doing in real estate and in that syndication space.

I've been learning a ton because it's a fairly new industry and asset class. It's very fascinating too, but it's like what I do when I have free time. I enjoy that type of stuff and I enjoy further diversifying my portfolio. But I would mention as I've heard more people talking about it, it's something that I personally have been exploring. We definitely want to be on the forefront of what's to come.

Darin: I don't know that much about that. I'm curious and I need to learn more about it. People are definitely making good money in it. We talked about liquidity in these syndication deals.

Tokenized Syndications

Darin: I've also heard that down the road, these syndications could be somehow tokenized. You can actually sell out of your interest using crypto. That is interesting as well because then it takes away that negative. Or it could be a positive, but it saves you from selling at a bad time and being able to create the liquidity.

Ryan: That's a very important point and that's something that we've already explored. It's still a little ways out, but imagine if your investors had the ability to unlock some liquidity in all the limited partnerships they're in. That's the one biggest thing about being a limited partner. You can't really go to the bank because you don't own the whole asset and you can't borrow against it. And you can't get a line of credit, but if you can tokenize it, like owning Bitcoin, it's something I invest in.

You can borrow up to 70% of the value of Bitcoin in a tax-free loan to yourself for a few percentage interest rate. Do it without a bank, get that money instantly, and go invest in real estate, more crypto. Obviously, that's a high leverage point, but you could do 20%, 25%. That day will come where you're going to be able to do that with real estate. It's going to be pretty amazing for investors when that's available, but it's already available in the crypto space right now.

You can literally leverage, not sell your asset because when you sell something, you're going to pay taxes on it. Imagine you can acquire some high-quality assets. I would say I put Bitcoin there, and then never have to sell it. Or sell it 10 years from now, but you can borrow against it all the way through.

The First One To Invest in People Reaps the Benefits

Ryan: Fidelity just came out with this about three weeks ago. They're offering this to their institutional clients. It's becoming more and more mainstream. A lot of these early investors in Bitcoin who have made hundreds of millions or billions of dollars, they have not sold. They are just holding on to it. They're reaping the benefits of the price appreciation, but they're borrowing against it to go buy luxury homes, cars, and it's all tax-free.

It's pretty amazing. It gets me excited because there's more opportunity for investors out there. It's still very early, though. The combination of the two, you get your traditional real estate and then you get the digital real estate. It’s going to be pretty fascinating. They're going to come together and unlock so much potential and opportunities for many years to come.

Darin: What's the next big stretch goal for you?

Ryan: I feel like I'm stretching every day. I have a lot of goals, but we've been growing like crazy. We've been so busy. Honestly, it'd be nice to get a little bit more time back in my life. I've been running hard for many years, but it's something I'm super passionate about. Definitely on the top of the list, in the near future, it's a vacation home somewhere for my family. We would love to have a place to go and get away. That's definitely going to happen at some point, but that's something that we want to do. We think it's important to have some family time and have a place where you can unwind.

Invest in People to Close High-Quality Deals

Ryan: Certainly, I want to keep expanding the business. We don't need to be the biggest. I just want to do high-quality deals and keep up with the demand. But just doing what we set out to do from day one, just help as many people as we can in this industry and create more awareness around real estate syndications. It's very fulfilling when you can see these deals go full cycle. These investors, these people that you care about, they put a lot of faith and trust. To see it come back to them and they get so excited and they're very thankful, that to me, is worth everything.

Darin: It's a way of serving. You're serving other people and helping them grow their wealth. They all have different needs for that, whether it be retirement or college education or vacation home, whatever the case may be. So that's huge. What do you like to do outside of work?

Ryan: I love to be active. I like to ski, golf, and play paddle tennis. It's a winter league here, a sport in the Chicagoland area. Obviously being a big baseball fan, I like attending baseball games, sporting events. That keeps me active. I love the outdoors.

Darin: Skiing in Colorado or where do you go skiing?

Ryan: Colorado, I love skiing out there. I grew up skiing in Colorado with family trips and vacations. Utah's a nice area too, but primarily Colorado. We've got a few family resorts here in the Midwest that we'll take the kids to. That's a lot of fun, but there's nothing like Colorado. Having access to all the resorts and being able to ski, just some great places.

McKenna Capital

Darin: Ryan, if somebody wants to reach out to you, what's the best way for them to do that?

Ryan: They can just go to mckennacapital.com. It's our website. That's usually the easiest way to contact me. We've got our investor club, if someone's interested in staying up to date with what we're doing. I try to post on all the different social sites. There are links and access to the various sites on our website.

Darin: Well, Ryan, I appreciate you coming on the show. I can't believe you're GP in over 15,000 units. Also, it's very cool that you've diversified into these other asset classes and have listened to your investors and let them expand with your company. Listeners, I hope that you enjoyed that one. Until next week, signing off.

How to Reach Ryan McKenna

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