Are you looking for a way to create competitive advantage and/or want to learn why multifamily is a good real estate inflation hedge?

Kim is an expert when it comes to multifamily syndication. She and her team at Exponential Property Group have closed on 22 properties and currently have over 4,300 units under management. They are always looking for ways to maximize investor returns and have experience in both buying and selling properties. Listen as Kim shares how they gained their competitive advantage and what she thinks of multifamily real estate as an inflation hedge.

Table of Contents:

• Where To Listen To The Podcast
• Exponential Property Group
• The Challenges in Scaling Up
• Contributing to Society Through Multifamily as Real Estate Inflation Hedge
• The Future of Multifamily
• A Give and Take Business
• The Bigger Purpose
• Multifamily: A Sea of Blue Suits and a Real Estate Inflation Hedge
• A Good Place To Be
• How to Reach Kim Radaker Bays

Exponential Property Group

Darin: Kim Radaker Bays lives in the DFW area. She's been purchasing value add multifamily properties for over 10 years. Not only did she create a company called Exponential Property Group, focused on acquiring and rehabbing value add multifamily properties. But she and her team expanded their capabilities to include an in-house property management company, their own materials company, a construction arm, and the latest is an arm that does signage and embroidery. She and her team are always looking for new ways to become more efficient, gain a competitive advantage, and maximize returns to investors.

So, just a little bit about how I know Kim. So, Kim, if you're not familiar with her, she is a rockstar, especially in the Dallas area. She runs a company called Exponential Property Group. When I first started getting involved about three years ago, I listened to you on Old Capital Podcast. I was very impressed, reached out, and we ended up doing a face-to-face. Then I invested 100 grand with Kim and her group, and I've been very, very happy with the way they run things. So, very happy to have you on here today. Thank you very much.

I typically start by asking how many properties and how many units are you currently invested in.

Kim: So, currently, we have 11 properties and just under 4,300 units, but that's a moving target at the moment. We've got a couple of properties under contract to sell and are looking for some more. So, we've sold 11 properties previously. So, over the past 10 years have purchased 22 properties. Still own 11 of them as of today, and so that's about 7,600 or so units over time.

Kim’s View on Rehab

Darin: That's crazy. So last year or so, I've been focused on the podcast and co-sponsoring some deals, but I remember when I got involved three, three and a half years ago, and when I was around chasing deals, I would go into these properties for comps. And I'd walk in, and it got to the point where I would walk in and I'd be like, "This is an Exponential property." You guys do such a phenomenal job with your rehab, and so you just kind of feel it. I'd be like, "Who's the owner?" and you'd be like, "Exponential." I'm like, "I knew it." You just did a phenomenal job.

Kim: Red chimneys. There's an awful lot of red chimneys on our properties.

Darin: You do a great job. So, talk about that. From a rehab perspective, I'm in a multifamily mentorship group, and I'm just going to ballpark. People focus on value add deals, syndicating deals, and the rehab is typically in that $3,000-$6,000 per door range. I see you guys. You guys spend more money on the rehab and really change things up. Whenever I walk in to the office, the office is always super, super nice. So, talk about your guys' view on the rehab.

Kim: Sure. So, I mean, we probably don't actually spend a whole lot more than other people do. But we're able to probably get a little bit more done for the dollars that we spend because we do a lot of it in-house. So, we are a vertically integrated company. So, exist multifamily is our import arm of the business. We import and then also have direct distributorships with things like Trane for our air conditioners and GE and Frigidaire for appliances. We're able to cut a lot of the middleman costs out of a lot of those pieces either through importing stuff or having the larger relationships where we buy in large quantities in order to do that.

Vertical Integration

Kim: So, I'm actually at the warehouse today over here. Had a couple of meetings this morning. So, at the warehouse today and doing that. It was really fun. We actually had our investors out last Tuesday, and they got to come see the warehouse and see some of the behind the scenes pieces that contribute to the success of the properties by having all of that here.

Darin: That's fantastic. Yes, and you talked about being vertically integrated. I talk to a number of syndicators that some of them have gone that route, vertical integration. But for most syndicators, that means they're bringing the in-house management, the third-party property management, they're bringing that in-house. But for you guys, you guys have three arms. You've got the syndication arm. You've got the bringing in property management into Exponential, and then you also have a materials arm, where you're actually going and sourcing out all the materials that you're using for the rehab.

Kim: Sure. It's actually worse than that, too.

Darin: It is?

Kim: It's serial entrepreneurs. So, we have all of the construction team that's all in-house as well for all of the interior renovations, and then we also have a graphics company that does all of the signage and branding pieces. We can embroider shirts and do all sorts of other things. Laser engraved mugs and print the big monument signs and build the stuff. Some of the tools that we have there also enabling us on the material side to start getting into actually building the cabinet fronts when we want to replace cabinet fronts on some of the properties that we've acquired recently.

Different Ways To Earn and Use Multifamily as Real Estate Inflation Hedge

Darin: That's awesome.

Kim: Got some partnership now with a granite fabricator that can custom do the granite for some of the units that we're doing as well.

Darin: That's amazing. I'm a first syndicator three years ago, and small deal, not bumping up against you, 76-unit deal. But when it came time to purchase some materials, I loved your backsplashes, and we were buying directly from you. So, you guys not only source for your own deals on the materials side, but you also will sell to other syndicators or other developers. So, that's a whole separate company that they're sourcing for you guys, but they're also sourcing for other people as well. Are you doing the same thing on the construction and the graphics company side?

Kim: The graphics does sell to third parties. The construction, we haven't done a whole lot of third-party because we have always just kept our crew really, really busy internally. But we definitely have some of our friends that have asked us to probably take on some of the renovation for you. So, that's something that we're considering on a third-party basis. But it always is based on time allowed and what we have to work with. And really having the construction in-house is the thing that makes the biggest difference. We've tried working with GCs on several different occasions.

The Challenges in Scaling Up

Kim: As we've been growing, we're like, "Oh, we're not going to have time to do all of this ourselves. We should scale up. We'll bring in a GC. " And every time, it just turns into a mess. Interiors are really hard. There's just a lot of moving pieces to manage and a lot of the flow and the scheduling and how to do things and what to check on and whatever else.

Most of the GCs just don't have the project management and systems builtin to really run those efficiently. So, the first time we tried to use a GC was on the second property that we ever owned. Because we were going from 77 units to 244. We're like, "Oh, we're really going to need extra help and whatever else." Six weeks into the project, there were 38 units that had been started. None of them had actually been finished.

Darin: Holy cow!

Kim: They weren't actually using genuine Sherwin-Williams paint. They're using a color match. So, none of the buckets of paint actually matched each other at all. We couldn't touch up the walls, had to repaint a bunch of units. So, anyway, we brought that back in-house again and just have scaled it up from there, but that is the big piece. It's just really coordinating, getting everything to show up at the right time, and all of that. So, we've developed a good system. Then we're trying to work on some software development, actually, as well to further automate all of that management process.

From Administering 401(K) To Having Multifamily as Real Estate Inflation Hedge

Darin: That's very cool. I remember either hearing you or reading something. That you guys will take and actually at the warehouse will take all the different parts that are associated with a unit and then put them all together. So when you deliver them, everything is there that they need to build out that unit.

Kim: Exactly. So, those are kit boxes, and it makes a huge difference. It saves a ton of time from having guys running back and forth to the shop, onsite. You don't have to worry nearly as much about things going missing or getting broken or different items like that. So, it is one large box. Ceiling fans at the bottom because they're the biggest and all the small pieces. Everything comes in one kit so that it can go directly into the unit. All the stuff that you need is there. Then once everything is installed and put up, put all the trash back in the box and get rid of the box.

Darin: That's very cool.

Kim: It has really made it a lot more efficient.

Darin: You mentioned 10 years ago. So, you've been in this business for 10 years?

Kim: Yes. I started multifamily, it will be 10 years in August, but August of 2011.

Darin: Awesome. Awesome. So, what were you doing before and why did you even get into multifamily?

Kim: I was doing some single family stuff before then. So, some of that was scale in terms of moving from single family to multifamily. But my background prior to that, prior career was working in the retirement plan industry. So, I used to design and administer 401(k) plans and defined-benefit plans. So, that's where I came from originally.

The Transition to Multifamily

Darin: As an actuary?

Kim: I never actually got my actuary. I took a couple of the actuarial exams, but I never actually pursued it all the way. Because I moved to Texas and then the company that I went to work for wasn't doing defined-benefit plans. So, I'd never actually finished my actuary.

Darin: So, what capacity were you in when you moved over?

Kim: Most of the time, I was doing an actual plan design. So actually taking all of the census data, figuring out exactly how to apply the laws as best you can to create the best tax savings opportunities and meet all of the testing requirements. Most of the plan design was mostly my piece of it. So, getting everything set up initially, but also did a lot of other pieces from soup to nuts on all of that.

Darin: Fantastic.

Kim: So, we're a professional organization in that field for a while once my boys were born. I've been a volunteer on their education committee for a couple of years before the boys were born. Then actually worked for them part-time for a few years when we were working on single family and up through the beginning of the multifamily stuff. Then for the multifamily, since it was way more than full-time, ended up taking over that piece.

Darin: Taking over. Look, you've been extremely successful. You've built a great reputation. Why do you keep doing it?

The Difference That You Can Make

Kim: I don't know. I guess most of the time it's still fun.

Darin: I mean, look, a lot of people get into it to build financial wealth, but you guys have already been way successful. You'd get to a certain point. So, why do you keep doing it?

Kim: Well, I guess part of it was by the time I realized that I had made a decent amount of money, we already had so many other projects already in progress that there's just stuff to continue on with. I'm trying to make 100 millionaires was one of my goals. So, got to hang in there for a little while longer. Made a good dent in that, but as far as our investors, getting people from sophisticated to accredited, and then some of the ones that were already millionaires. I counted if I made them at least an extra million dollars. There's quite a few of those as well.

So, I mean, that's coming along. A lot of it is just the difference that you can make. We've got a great team that's been put together. So, I really like the people that I get to work with every day. So, that's a huge piece of it. 2021 has been a more challenging year. There are certain moments when I do ask myself, "Why am I still doing this?"

Darin: 2021 was definitely challenging for a lot of different industries.

Kim: Yes. So, we actually had started miss 2020, I think, actually. In 2021 first quarter between all of the pipes freezing during our deep freeze, and then we actually had more fires at various properties in the first quarter. So, three relatively minor ones, just a handful of units in each place, and one of which was actually caused by a plumber when they were fixing one of the pipe breaks during our great ice storm.

Contributing to Society Through Multifamily as Real Estate Inflation Hedge

Kim: And then the biggest one on actually the same day you had mentioned before about the eviction moratorium being extended on March 29th. We also had a major fire at one of our properties that was all over the news on March 29th. So, for my birthday, it was quite the adventure.

Darin: That's stressful.

Kim: Yes. So, it's been a complicated year, but it's all coming together, and we plod through it. I've got an awesome team that's really done a great job being resilient through a lot of complications.

Darin: Well, I like a couple of your answers when I said why do you keep doing it. One, it wasn't about you. It was, "I want to make 100 millionaires through my investor database," and that you've built up this. When you started, you didn't have anywhere near the number of employees that you have now.

Kim: Yes, one property and two employees, and now we've got about 170 or so.

Darin: Yes. So, now you've got all these families that are looking to the company and looking to you to lead. There's a sense of responsibility back to all of your team members. You know what? I don't know this because I haven't gone and sat on the beach as a retirement.

But I just think if you make so much money that you just cash in and go off and do nothing, that's when you start to lose it. Because you got to keep your mind moving and learning and growing and getting uncomfortable and giving back. And being a contributor to society rather than just go hang out on the beach. So, I applaud you for having that perspective.

Going the Fund Route

Darin: Hey, there's a lot of things that you guys do differently than other syndicators. Because syndication can be, "Hey, how do you do it? You got to do all these steps," and it could be one person after the other person just do it the same way. But you guys do a lot of things differently. So, I want to hit on a few of those.

One, you guys create a fund and raise the capital before you actually purchase the deal. Most syndicators will go out and they lock up the deal. And then they've got four or six weeks to raise the money and close within 60 days. So, why do you decide to go the fund route?

Kim: Well, a couple of reasons. But one of it is you have to make really strong offers in this day and age. I mean, that's actually been true for years. But oftentimes, there's hard earnest money and other things. So, we want to have a decent gauge of what the level of interest is, how much our investors actually have to work with, how much we're going to have to do.

Also, it can make the offers a lot stronger to have the money actually already raised. I mean, that is a question that I get frequently from sellers is during a buyer interview call, "Do you already have the funds?" or "Are they already committed?" So, that definitely can help things. Normally, we at least start ahead of time as we're looking for properties. The other thing is we stumbled into it a little bit on the first one in terms of we ended up with three properties in that portfolio and then three in the next one. Then actually seven in the one after that, and then one by itself, and then two again.

Additional Diversification

Kim: But we like having the multiple properties in a single offering. It gives them additional diversification for the investors, and then it gives more ability to play off on another. So, sometimes when eviction moratoriums get extended, you'll have a property where a couple of people go, "Oh, well, I guess I really don't have to pay April’s rent because … Well, I got all caught up in March. But I guess April isn't really a priority anymore because they can't evict me."

So, if you have one of those where you get a handful of those residents that won't up the properties, maybe you don't at the other property, and so then it balances out a little bit. It gives a little bit more of a pool to work with. It's a little more capital efficient in terms of the going in capital that you need in order to start some of the capital projects and things. While you're waiting on draw requests instead of having to have a certain amount for every single property. Sometimes we're able to, "Okay, we're going to start the exterior over here at this site right now. Then as soon as we get that draw money back, then we'll go work on the one over to the other site." So, we do get some capital efficiencies.

Darin: There's some flexibility with the multiple. Those are all good answers, and I wasn't necessarily expecting all that perspective. So, a lot of people that I talk to, it's funny because I talk to a lot of syndicators that had done eight, nine, 10 deals. They don't say it this way, but when I ask them, "Why don't you create a fund?" Most of them won't admit it to me, but I could tell they're scared. They're nervous.

A Back and Forth Game

Darin: Look. They were scared on their first syndication. But they were able to raise the money and they know how to do that. Then going from a deal-specific to, "Hey, I'm going to raise a fund." Raising a fund is more about, "I believe in you. I believe in Kim. I believe in Exponential," versus really analyzing the deal like, "Look. She's come through time and time again. I'm going to …" But that first time when you go over and do it for the first time, it is taking a risk. How many of those people were really investing because of the deal versus because of me?

I don't know if you know a guy by name of Ivan Barratt out of Indy. But he also is, I think he's on his third fund. He's a big proponent of it in terms of it's very, very difficult in the beginning building that credibility. But then afterwards, it gives a lot of flexibility.

Kim: It definitely does.

Darin: I think that I've seen your guys' funds fill up predominantly before you go out and buy deals, anyway. But he was talking also that it gives them more runway. Because if they're buying multiple assets, they could end up raising enough money for the first asset, keep the fund open, and then they're going and raising for the next. For you guys, you guys close it off and then go out and buy the deals, and then you start a new fund for the next ones.

Kim: It varies a little bit. Oftentimes, we raise the initial bulk of stuff and then wait to see exactly what it is that we find to know if we need more or if we're already sufficiently funded to do it. So, I mean, it's a back and forth game.

The Future of Multifamily

Kim: It's not always that we raise all of it upfront because you just never know quite what you're going to find. Everything is more expensive than it was when I started in 2011 by a long shot. So, you definitely can spend the money a lot faster.

Darin: Well, with that said, you've been in the business for 10 years. I got in the business three and a half years ago. I ran into some syndicators who were like, "Darin, man, I was buying early on 30-40 a door and now it's 80 a door. I'm out, I'm going to wait this thing out. I'm out. I bought at 80 a door and now it's well over 100 a door." What's your viewpoint? I don't ask everybody this because everybody doesn't have as big a perspective as you do. But what's your perspective on multifamily going forward? I mean, do you think it's going to continue to run, and if so, why?

Kim: So, I mean, I can make cases in any direction. I think the biggest thing is I think that there's going to be some inflation soon. I think we're already seeing a lot of that.

Real estate is a great asset to have in an inflationary environment. So, do I think that cap rates are going to continue to compress? I could make an argument that they might. And I certainly would not underwrite that way. I do not underwrite for cap rate compression. I underwrite for cap rate expansion.

Darin: It helps a lot of people out if they make a mistake.

Kim: Yes, certainly, but the cap rate compression has been very, very good to me. I like to think we've done a really great job on our properties and have operated them well and really gotten out.

Choose the Assets You Will Keep Long-Term

Kim: But some of the massively exceeding anticipated things was somewhat due to cap rate compression, and so that's been great. I'm always pretty conservative in underwriting it. That said, you can't be too conservative or you will be sitting on the sidelines. So, don't want to be sitting on the sidelines entirely. But I'm also, I guess, for me, I'm really focusing on making sure that the assets that I have now are the assets that I want to have. So, I am selling a decent bit of the portfolio that are things that we don't want to hold long-term and really focusing on the ones that are, and trying to find the new acquisitions that are things that we're okay with holding for a longer period of time.

Hopefully, we can still turn them relatively quickly or still get at least recapitalized to get the investors back some of their money or refinance on some of them. So, I think there's a lot of opportunities to do all of those things. But I do want to make sure that there are things that I'm happy owning for the longer period of time. I think there's a chance that tax rates are going to be higher for a bit. It might just make sense to hang on to some things. What we own at the end of the year, we're trying to make sure that that's the portfolio that we are comfortable holding longer term if that's the advantageous thing to do based on how the market reacts.

Darin: That makes sense.

Kim: So, the prices have gone crazy, but I think a piece of it, I mean, some of it is just real. There are just tons of people flooding in Texas.

Things To Consider When Picking Long-Term Assets

Kim: So, it's particularly in this market. It is a supply-constrained market. And then even on the investment side, we've got a lot more money from the coast. I mean, there's always been money from the coast pouring into Texas, but there's even more so now. Then COVID also added a lot of the people that were in more retail-focused investments, hospitality-focused investments, office investments. Those branches of real estate have transitioned into multifamily, too. So, constrained supply in terms of the actual number of buildings that are available and relatively unconstrained supply of dollars looking to invest here.

Darin: That's a great way to put it. You didn't go into detail in terms of how you're making your selections and what you want to keep and what you don't necessarily want to keep. I have talked to a number of syndicators over the last couple of years that they, for, I don't know, lack of a better term, have been trading up and have been getting out of some of their C, B- assets and getting more into B+, A- type assets. So, would you characterize your shifts to be consistent with that or was it some other determination?

Kim: It's pretty consistent with that. But it's also focusing on areas that I want to be in as well. So, yes, anyway, earlier in my career, there's been certain times that we've owned properties that might have not quite as great neighborhoods sometimes. We've made a lot of money there, and it's gone very well. But there are certain things that I am trying to get just a little bit safer to reduce some liability, those sorts of pieces as well.

Also, I'm really focusing on what cities that we want to be in because some cities are much easier to work with. Some cities respond to stuff a whole lot better than others. So, that's a big piece of it, too, is making sure that we actually are happy with the locations.

Bank Debt Versus Agency Financing

Darin: Are you only in Dallas or are you all across Texas or what markets are you focused on?

Kim: We're only in DFW as far as what we've owned. We are looking at a lot of other areas. We've looked at other markets. There's a portfolio we're going after recently that had a San Antonio asset in it as well. So, a lot of things that we're considering. We've evaluated a lot of other markets, looked at a lot of properties and other markets. But have managed to find stuff that we were happy with here. So, that makes it simple and everything's close to home.

Darin: Fantastic. Another thing that you do a little different is how you finance deals. So, I would say a big majority of syndicators that I know focus on agency financing. You guys are more focused on bank debt. Talk about why you went that direction versus agency financing.

Kim: Sure. So, one of the pieces of advice or at least a concept that I was introduced to pretty early in my investing career was just really the concept of exit flexibility. So, you want to make sure that your debt is in alignment with your plans for the project and for the property. And that you also have flexibility on when you exit if that's something that's important to executing the business plan.

Kim: So, I have done some agency. The third property that we bought was actually an agency loan. When we sold that, the buyer decided not to assume financing and paid the $3 million prepayment penalty.

Darin: Holy cow!

Kim: So, anyway, watching somebody write that check definitely had a piece of that. I have another one that we actually bought as a loan acquisition that we sold.

A Give and Take Business

Kim: That one was only about a million or so dollar prepayment penalty. But those can be quite large. So, yes, while the loans are assumable, it can be very expensive to get out of them if the loan terms are no longer something that somebody wants to assume. It's easier, potentially, now to justify getting into a longer-term. The interest rate is really going to be below 3%. Longer-term, probably not. So, probably it is attractive for somebody to assume in a couple of years. But a couple of years ago, we thought interest rates were really low when they were at five.

If you had a 4.5% loan or whatever, and you're trying to sell that property now, you're in a mess. You either have a huge prepayment penalty or you have to get somebody to assume a rate that's 1.5% above what they can. So, that was a lot of the pieces that we always looked for. We started out doing a decent bit of bank debt, and then now we have an insurance company that we work with a lot on a lot of our loans.

So, we're often able to get fixed rate, but with a lot more exit flexibility. Usually shorter term, usually more in the five-year time horizon. But that matches well with what we're trying to do as far as executing the business plan as well. So, we're trying to come in, get our value add done, get to a place that we can either refinance or recapitalize or sell in that three to five-year mark. That timing works well for us.

Darin: That makes sense.

Kim: They've been great partners to work with, too.

Darin: Well, I mean, it's a give and take, right? You're bringing them business and they're comfortable with you, and they're getting a good return.

Giving Back to Investors While Having Multifamily as Real Estate Inflation Hedge

Darin: So, it's a five-year term. Are there any extensions on that or is it just balloon at the five-year?

Kim: Sometimes they have extensions. I mean, some of them have had extensions built into them. A lot of them are just a five-year term. But, usually, free and clear exit after two years or so. So, you have anywhere between two years and five years that you don't have to pay any of the exit penalties.

Darin: Yes, that's huge. Like you said before, I mean, when it was 4.5%-5% coupon rates, people thought everything was going up to six. And there's a number of syndicators that are just stuck in the properties right now. They could sell them at really attractive per unit valuations. But because of the debt they put on it, they're stuck with this massive prepayment penalty that they'd have to pay. So they're just like, "You know what? I'll ride it out and hold it for longer."

So, another thing that you guys do that's different is you're focused on the investor base differently than I've seen with other people. You have a Christmas party. This year, you didn't do it because of COVID, but you have a Christmas party. All the investors get there. You see some familiar faces, and some people are in your deals only, and some people are in other deals also. And you give back that way. Also, you have open houses at your properties. You just talked about you had an open house at your materials company.

A Unique Way to Connect with Investors and Using Multifamily as Real Estate Inflation Hedge

Darin: In addition, you do due diligence a little differently. Most of the syndicators that I've talked to and we did the same thing is we used a combination of whoever is going to be doing our inspection and also our property management company, third-party property to do the inspections. You guys will also enlist investors to come and do that.

I know that when I was getting started, you guys were one of the first deals I got involved with, and I was one of those investors. I wanted to see what it was like. So, I went and participated in one of those. So, can you talk about why you chose to do that and what that looks like?

Kim: Sure. I mean, I guess as far as the due diligence, I mean, why not take advantage of free labor, right? We have a large management company, so I can pull a whole lot of maintenance guys off of their respective sites and have them walk units. But no. All kidding aside, I think it's a good way for the investors that want to be involved to be involved. But it's certainly nothing that anybody has to do. And we oftentimes will have over 100 investors in a single project.

So, it's a very, very small percentage of them that actually come and do that. But it's another way for the investors to get connected with the team and with us, and see some of the assets and see what's going on. A lot of them become experts in terms of what to look for on things as they've done it multiple times over.

Darin: Yes. I had a few guys that had done a number of properties that they knew what was going down and they were teaching me, "Nope. This is the way you got to do it."

The Effect of COVID

Kim: They're checking under the sinks for whether or not that cabinet was rotted out, and check for plumbing leaks. So, yes, I know. That's been fun. I mean, and then as far as the Christmas party, we try to have Christmas parties. We try to have sale parties. It was really hard during the COVID. That was probably the hardest part during COVID. Because we are used to having at least three or four events a year that have the investors have an opportunity to get together and get to see everybody. We didn't get to do that. This was the first time that we had some sales this past fall and I had to just mail all the checks instead of getting to hand them out in person.

So, that part was a bummer, but we're very happy to be back at things. Now that Texas was opened, we had an open house at the two properties that we bought in December a couple weeks back. Then last week, we had the event at the warehouse. We're trying to have a few different things that people can come out and get reinvolved and get connected. Had an awesome, awesome surprise last Tuesday night when we had the investors here. I had an awesome surprise.

Darin: What was it?

Kim: Gary, my original KP from the very first property that lives in Portugal walked in the door.

Darin: Holy cow! You had no idea he was coming?

Kim: I had no idea that he was coming, and I was just talking to somebody and then all of a sudden I look up and Gary was there. So, that was really, really cool.

Darin: Very cool.

The Bigger Purpose

Kim: He had come back for various reasons. But took the time to come to the event, too, which was really cool. So, it was awesome. Awesome to see him and just see everybody. Our investors really are all friends and family and have become part of the family. So, it's really cool.

The teams get a lot out of talking to the investors. It gives them an idea of the bigger purpose of the work that they're doing on a day-to-day basis.

I think the investors really like getting to know some of the team members and hearing about some of the things that go on at the sites. They have a whole new appreciation sometimes after some of those conversations and hearing some of the stories that they hear in terms of how hard our teams work.

Darin: That's an interesting perspective, too. I didn't even think about that, but the intermingling of the employees and the investors and they come at it from two different angles. So, a gentleman that I know that you know, Glenn Gonzales, I had him on the podcast and he was kind enough to invite my son and I to come down to his ranch and we went down there and visited him.

He mentioned to me that, for him, he's got the book, the Maintenance Man to Millionaire. He spends time with the maintenance people and the leasing people to educate them on, "Look, the reason why we're doing this and like every time you save money here or you increase revenue here, this is what happens to the valuation and then impacts all the investors, and that's why we're all working together." Most of those people don't have anybody that spend the time to teach them that.

A Separate LLC for Employees so They Too Can Use Multifamily as Real Estate Inflation Hedge

Darin: So, giving them access to the investors is another way of doing that.

Kim: Yes, and we try to make sure that our employees really do understand how the business works and a lot of the benefits to that. Then we also let the employees invest in the properties. So, we actually let them make small investments in the properties that we're buying. We have an employee fund that one of our investors actually set up. A separate LLC for them to have an employee investment fund.

Darin: Very cool.

Kim: So, that's a neat way, too. Obviously, doubling $1,000 isn't going to get you real rich real fast, but it still makes a big difference.

Darin: Yes. I mean, hey, you're invested. So, somebody came up with the idea of creating an LLC and then any of the employees can invest in that LLC. And that LLC then becomes one of investors in the fund.

Kim: Yes.

Darin: Very cool.

Kim: So, they get just basically interest on their investment during the time that it's held. Then they get the benefits of it at sale on their investment so that it keeps their taxes a lot simpler. Because it certainly would not be worth getting rid of a very simple tax filing in order to do a complicated one for a small investment. He's come up with some creative ways to do that.

Darin: Very, very, very, very cool. I like that. So, you also did something different just recently. I don't know if it's right up your alley or somebody coaxed you into doing it. But different with syndications versus buying stocks, most syndicators will send out a monthly email with updates on what's going on with the properties. Well, this last one that came from you I saw was it had a video.

A New Way To Communicate

Darin: So, there you were with, I don't know, a five-minute, 10-minute video, whatever it was. And I'm thinking to myself, "Somebody was probably telling her, 'You got to do this video,' and she's like, 'I don't want to do it.'" I don't know if that's true or not. But I could tell you from an investor perspective that, especially with COVID where we haven't had a chance to see each other, it was nice to actually see and hear from Ms. Kim Radaker Bays.

So, I'm in probably, I don't know, 12-13 deals, and I haven't had one other person do that. I think that probably more and more people will start doing that. Because it gives access. It's nice reading an email, but seeing somebody speak and give their true thoughts, that's a nice perspective as well.

Kim: Yes. We've gotten great feedback on the videos, but no, I enjoyed doing the video.

Darin: You do you enjoy it? So, somebody didn't push you into doing it?

Kim: Yes, I enjoy it. I don't really get pushed into doing it, but so I do enjoy that. It's a little harder for me to understand everybody's loving the videos. Because the only time I really have time to read through email that's just personal stuff that like if I have my investments or that sort of a thing is usually when my husband is still asleep first thing in the morning. So, I can't watch videos because it's going to wake him up. I'm bad about watching videos myself. I normally just read the email, but we've gotten huge feedback from the videos.

It's a lot of fun. There is stuff that is just a lot easier to explain. I think one of the ones that we sent out was just to one of the groups of investors. Because it's a unique portfolio as we're starting to peel off different pieces because there's a portfolio loan and how all of that works.

Multifamily: A Sea of Blue Suits and a Real Estate Inflation Hedge

Kim: So, that was something that was a lot easier to have a conversation about. Kind of talk through as opposed to trying to put everything in an email of how it all works, and what expectations to have as we're starting to divest portions of that portfolio.

Darin: Absolutely. Look, you're a woman in a predominantly man business. You've catapulted yourself to extremely successful. How does that impact anything or does it not being a woman in business?

Kim: So, I guess I have a unique perspective on this. So, at NMHC, the first year that I went, I mean, if there's 1% women at that conference, I would have been pretty amazed. I went with my Director of Operations, Natasha. She and I went. I mean, it was really low. I would say we're probably up the last time we went right before COVID, probably close to about 10%. So, definitely massive increase, but still, it is a very male-dominated business.

There was a women's event at that last one that I went to. There's a lot of talk about, "Oh, we need to get more women in this business," and whatever else. Or complaining about not being part of the club or whatever. I think to look at it that way is to miss an opportunity because you're there in a sea of blue suits. It's all it is, thousands of guys in blue suits. They would much rather talk to me as a female than talk to each other.

So, take advantage of the opportunity. I mean, yes, it's a little bit daunting or intimidating, potentially, if you let it be. But everybody would rather hear what you have to say, honestly, than to talk to the guy that they're stalking to now most of the time. So, I mean, in some ways, I think it can just be a huge advantage.

90% Of Millionaires

Kim: You were assumed to have a different perspective and a different story to tell and what you've done. I think it's sometimes actually easier to get the attention or make it out a more memorable connection instead. So, instead of looking at it as a negative, I've always just viewed it as a positive. And it's just one of those things.

Darin: That's great. I spoke with Maureen Miles, and she had similar perspective. She was like, "Look, I just look at it as an advantage." So, that's fantastic that you have that perspective as well. You probably have heard this quote before, "90% of millionaires have come through real estate." Do you believe that? Why do you think that is?

Kim: Probably, I mean, I haven't researched the statistic, but it's probably not far off. I mean, there's definitely some people. And I mean, you can save your way probably to a million dollars. I know people that have done that. Just good career and stick money in your 401(k) and build up, save along the side, invest in stock market, and those sorts of things. But it is hard to make meaningful amounts and changing that sort of a thing with traditional investments. You can be really lucky and pick the right stock at the right time, bitcoin millionaires and all of that.

Darin: Right. Exactly. The other thing that I think is interesting is if you're in this world, you see the benefit of leverage. Leverage of having a loan at 70% to 80% and any of the gain is going to go back to the equity owners. Having the depreciation, so you're depreciating an appreciating asset. Then if you're a syndicator, you're leveraging other people's money.

Multifamily as Real Estate Inflation Hedge

Darin: Also, you're bringing unlimited partners to raise capital. So, there's massive reasons why it is, I don't want to say it's easier. But I think it happens more frequently and at larger percentage levels in real estate because of that leverage, where you don't necessarily have that.

If you go buy a stock, yes. You could buy calls and puts, but most people don't know how to do that and don't do that. So, you buy $10,000 IBM, it's $10,000 IBM. But you put money into a syndication and you're getting that leverage.

I was just golfing with my buddies and some of them are not in the real estate world. When I talk about returns like I'm talking about some of the deals that I'm invested in passively that are up for sale right now and what the potential returns are coming back, they're like, "Yes, but that's more risky."

Kim: I never read it as more risky. I mean, with stock, you have no control, whatsoever.

Darin: Exactly, but it's because we're in it, right? I mean, I think there's so many people that grow up and just told what you said. A W-2 employee just puts their money in the stock market and forget it. They think that that's the smart play. Then when you learn about this, I'm like, "I don't look at it as being more risky."

I'm like the banks that are lending on this, if it's a $10 million asset and they're going to give a $7 million or $8 million loan. They've got a ton of data to go through. To assess whether that's a good financial decision. So, it's on top of the syndicator and all the experience passive investors. You've got these lenders that aren't going to lend on this stuff if it's going to be a risky investment.

Real Estate Investing Then and Now

Kim: Yes. That's very true. There is that extra double check of the loans now. I mean, lenders can sometimes be, well, I haven't seen them go crazy in multifamily. Obviously, back in '08-'09, they were going pretty crazy in a single family and assume that they've made some bad decisions on that, but in terms of the credit worthiness.

But the nice thing is that all of the multifamily loans are really based on the credit worthiness of the property. So, it is the property that's making the money and the property that's making the payments on that and justifies what it is.

So, I mean, sure, occupancies can just dramatically drop and whatever, depending on different moves and different things. Obviously, there's economic conditions, but overall, real estate is a pretty forgiving business. Because over time, it mostly corrects itself.

As long as you can hang in there, real estate is way more expensive now than it was 10 years ago, 20 years ago, 30 years ago, 40 years ago. So, in some senses, even if maybe you overpaid a little today or things didn't run quite as smoothly or you had a little bit of a dip in occupancy or your renovation costs more than you thought it would. There's a very strong possibility that you can grow out of that if you just give it an extra year or so. Whereas other investments aren't quite as forgiving sometimes.

Darin: Yes. That's a great point. Hey, earlier you talked about inflation that, look, we're already seeing inflation, and that most likely it’s going to continue. Look where the governments put in four, five trillion dollars and wants to put in another massive trillion plus package for construction and whatnot.

A Good Place To Be

Darin: So, you mentioned that real estate is a great place to be in an inflationary environment. Can you just, in a simplified manner, talk through why? Why is real estate a good place to be?

Kim: So, the big thing is when prices are going up, the prices of everything is going up. That would include rents, generally increasing along with inflation. So, the rents will go up over time. Because those rents go up based on how the multifamily properties are valued. If the rents are going up faster than the expenses, I mean, your expenses will go up, but there is a higher revenue number than an expense number or it wouldn't be a profitable business.

So, as that income is climbing, that really makes the property more valuable over time. It will naturally increase over time in an inflationary environment. So, if inflation is high, likely, the property prices are going up pretty commiserate with that.

Another nice thing about multifamily is that the leases are generally a year long. So, sometimes six months, sometimes 15 months, different things. But it's not like an industrial lease or whatever where you might be tied in for seven to 10 years. And if that lease doesn't renew at that time when the prices are going up so much.

So, there's a whole security that comes from having the tenants locked in for a long period of time. But there's also a risk in it as well because you've set up pricing years ago and you don't really know whether you're going to be getting a good deal as far as what you're getting paid in rent five years from now or not.

So, one of the nice things about multifamily is that it does adjust on an annual basis. So, you are able to keep up with those inflationary trends on a much more rapid.

Inflation Rate vs. Multifamily

Darin: Yes. That's a huge point when you compare multifamily to other asset classes. So, you mentioned industrial and industrial is hot also. Multifamily and industrial are both really hot segments of the real estate market. But I was recently talking to a guy. He's in a company that all they do is industrial. He's like, "Darin, man, you are in the right spot. Because when we hit this inflation, we're locked in with these rent increases in our contracts for the next five, 10 years." Just like you said.

But in multifamily, if inflation shoots up, income shoot up, people have more cash, there's more competition for apartments. We can up the rent by whatever the going market rate is, and we're not locked in. So, that's a great point. Another point on the inflation side, and you mentioned that revenue is going to be more than the expenses. In many cases, not all cases because you could get a floating rate loan. But in most cases, your debt service is going to be locked in.

Kim: Very true.

Darin: So, your rents are going up, but your debt service is fixed. So, that gap continues to get bigger each year. So, that's another huge benefit of being in that inflationary environment.

Kim: Very, very true, yes. I mean, it is nice to have debt when there's inflation. Because you get to pay it back with dollars that are less valuable later on than the dollars you borrow today.

Darin: That's huge. How did you grow up? Were you brothers, sisters? Were you in Dallas?

Where Kim Got Her Entrepreneurial Bent

Kim: I was more or less an only child. I had one brother. He passed away when I was 16, but he turned 16 when I was only two weeks old. So, he was off at college by the time I was two. So, we were two only children in many ways than anything else. But I grew up in the Midwest outside of Chicago in the suburbs, and then went to University of Iowa. Spent some time in Cleveland and then made my way down to Texas and I've been here since 2002. So, this is definitely home now. I've been here a long time.

Darin: Where did you get the entrepreneurial bent? Was it from growing up?

Kim: Oh, that's my dad.

Darin: Your dad?

Kim: My dad, he was originally doing manufacturer's rep and then he actually owned a powdered metal plant that he built from ground up. Then sold that business several years ago, but he's definitely an entrepreneur. I suppose I just don't take instruction very well. I don't like being told what to do. So, the entrepreneur thing works better for me.

Darin: Right. Exactly. If you don't like to be told what to do, then having your own business is definitely a way to go.

Kim: It's a pretty good way to do it, yes.

Darin: Awesome. Awesome. What do you like to do outside of work?

Kim: Well, so we actually bought a ranch this past fall. So, part of the reason we got that property is because we started a nonprofit last year. So that's going to benefit families impacted by autism. The ranch that we bought, while we hold it personally now, we'll deed acreage over to the foundation over time as there's need to do so on that.

A Way To Calm the Mind

Kim: But really have a place where families can go and spend time and have a little bit of normal way and place where everybody else understands that the unexpected is to be expected.

So, we spend a lot of time down at the ranch. That's been a lot of fun to do. I went from having one cat a year and a half ago to now we've got two dogs. But then we also have Herefords, and longhorns, and sheep, and goats, and chickens. So, that's been quite the adventure. I crochet a lot.

Darin: Hopefully you have somebody that takes care of all of those animals.

Kim: We do. We got a ranchman that's down there full-time. So, he takes care of all of them when we're not down there. I crochet a decent bit, so that's some creative outlet, I guess. Keeps me busy and productive if I'm just sitting there watching TV.

Darin: That's something I would not have expected to hear from you. You seem like you got your hands in a lot of different things and you're always thinking about how to make things more efficient and grow.

Kim: Well, I'm not good at just sitting and doing nothing. So, if we're going to watch a movie or whatever, I just get something done at the same time, I guess. I like to cook.

Darin: It's probably calming to you, too.

Kim: I like to travel. It is, yes.

Darin: It is a little bit of way to calm the mind.

Kim: I just recently finished my nemesis project. Natasha had actually found a peppermint Afghan that looks like little spiral peppermints, Christmas Afghan on Pinterest a little over five years ago.

Connect With Kim

Kim: She's like, "Hey, you crochet. Can you make this for me?" I looked at the pattern and I was like, "Oh, my God! It's going to be a beating." So, lots of procrastination went into it. But eventually, just recently finished it and gave it to her for sixth year anniversary for working for me.

Darin: Five years later. Nice.

Kim: So, it took me five years to finish it because I procrastinated a lot, and put it down for years at the time, and whatever. It's a very well-traveled Afghan. And it's been to Mexico and Uruguay. It's been to probably 20 different states, and based on the number of hours that went into it, it's probably worth about 20 grand at my hourly rate, but it eventually got done, and it looked good.

Darin: Fantastic. Fantastic.

Kim: It's good.

Darin: Hey, if people want to reach out to you, what's the best way to learn more about you and reach out?

Kim: Sure. Well, our company is Exponential Property Group. So, feel free to go to our website. There's some information there on our track record. People that are interested in investing can reach out to Amanda by emailing invest@exppg.com. My email is kim@exppg.com. So, they can email me as well. You will get a bounce back on my out of office stuff because I do try to focus more on some of the bigger projects. That's been my focus for the past year, and I have to work through those things. But it will get read at some point. It just sometimes a little bit delayed.

Darin: I could vouch for Amanda. She is phenomenal. If I was ever to hire somebody to be an investor relations, she's the model. She is just so super responsive. I mean, you email or call her and you're going to get a callback quick. She's going to follow up and get you the answers you need. You guys have been great to work with. I look forward to investing in more of your deals. Thank you very much for coming on. I really appreciate it.

Darin: Listeners, I hope you enjoyed that one. Just keep a watch for her because this one is a superstar. All right? Until next week, signing off.

How to Reach Kim Radaker Bays

• Website
• Email for Investors: invest@exppg.com