The 5 Questions Podcast
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The 5 Questions Podcast
Building a Successful Real Estate Portfolio: Leverage, Efficiency, and Sustainable Growth with James Knull
Curious about how to build a robust real estate portfolio without the pitfalls of over-leveraging? Our latest episode of the 5 Questions Podcast features seasoned real estate investor James Knull, who shares 20 years' worth of wisdom and experience managing over 250 properties. You'll learn why cautious leverage is crucial for long-term success and discover how prominent investors have faced bankruptcy due to high leverage. Through engaging stories and real-world examples, James emphasizes the importance of consistency over short-term intensity to avoid burnout and achieve sustainable growth.
Ever feel overwhelmed starting out in real estate investing? James Knull likens the journey to learning how to ski – no one starts on a double black diamond. He stresses the importance of starting small and mastering the fundamentals before tackling more complex investments. Additionally, we discuss how technology, particularly CRM tools like Salesforce and HubSpot, can significantly boost efficiency by managing contacts and automating communication. Tune in to learn how these strategies and tools can help you cultivate a successful and sustainable real estate business.
And we ended up in a situation where we were struggling to service the debt because our rents dropped such a significant amount that you know we had a lot of payments to service and a lot of not a lot of revenue coming in.
Speaker 2:Welcome to the five questions podcast, where we unlock real estate and business insights, one question at a time. Welcome to the 5 Questions Podcast. I'm your host, mario Lamar, our guest on today's show, has been investing for over 20 years and has over 250 properties under his belt. He's a realtor, real estate investor, a mentor and the leader of the Mogul Real Estate Group. Welcome to the show, james Knoll. James, welcome to the podcast.
Speaker 1:Oh my gosh, Mario, thank you so much for having me. I couldn't be more excited. I'm thrilled to be here and I'm excited to chat with you about real estate investing.
Speaker 2:James, the concept of a podcast is really easy. I ask five questions, either about real estate investing or business, and we get straight to the point you ready.
Speaker 1:Let's do it.
Speaker 2:Okay, so, as I mentioned, you've been investing for over 20 years in real estate and have over 250 properties under your belt. What has been the biggest lesson you've learned in your journey?
Speaker 1:Oh gosh, I'd say. Probably the most important lesson I've learned is to be very, very cautious with leverage. One thing I see a lot of new real estate investors get really excited about is just trying to figure out how to put as little money down as humanly possible on properties they buy, whether that is trying to get bigger loans from the bank with less money down, or even borrowing a line of credit to use as the down payment, or borrowing money on a promissory note from someone in their network for the down payment or a portion of the down payment. People love the idea on paper, of putting less and less and less and less cash into a deal, because at a glance, it looks fantastic. When you run your spreadsheet, when you run your calculation, your return on investment goes up when you invest less money. The thing about borrowing that money, though, is the more money you borrow, the more payments that you take on, the more monthly debt servicing that you're going to have to borrow that money. So when we look at something like what's happened in the last two years, where interest rates have gone up, well, anybody who is over leveraged highly leveraged borrowed a bunch of money. The more money you have borrowed when interest rates go up one, two, two and a half 3% the more payments that you have go up, and one of the things that we saw is that the interest rates went up faster than the rents by a lot, and so it put a lot of people in really intense negative cashflow situations.
Speaker 1:I ran into a similar challenge in my portfolio around 2015, 2016, where the interest rates didn't go up, but in Alberta, the market shifted and the rents went down.
Speaker 1:So again, I was very highly leveraged.
Speaker 1:We borrowed a lot of money to buy a lot of buildings and we ended up in a situation where we were struggling to service the debt because our rents dropped such a significant amount that you know we had a lot of payments to service and a lot of not a lot of revenue coming in. If we had quite simply borrowed less money and use more equity to purchase the properties, we wouldn't have run into as much trouble. So you know a big, big lesson that I've learned, and one of the most important things I think people need to be mindful of in real estate investing is that equity is extremely important when buying real estate. A lot of people get excited about more debt, more debt, more debt, borrow more, higher leverage. But I'll tell you, finding an equity partner, finding a joint venture partner, not overextending, not having too many payments, not giving yourself a tiny, tiny margin of error, is a very, very important part about not just getting into real estate investing but staying in real estate investing and having a healthy portfolio for the long term.
Speaker 2:You know and this is a good point you're bringing it's not only about getting into the game, but it's about staying long-term into the game. So there's a way of thinking that, oh, I can buy a bunch of buildings and borrow the funds from everybody and then grow to zero, to a hundred doors in a year or two. You could. But then again you're going to face the problems, like you mentioned, of over-leveraging, maybe yourself, and if you had a down market you might have some sweats.
Speaker 1:Well and I mean I'm not here to name any names, but at the time of this recording, in mid-2024, there are several very prominent, very noteworthy, very well-known investors and investment groups and general partners across Canada who are either going bankrupt or struggling financially in very, very serious ways because of exactly what I just described. So we have case studies that are happening around us right now of what happens when you over-leverage and borrow too much money.
Speaker 2:It brings us to our second question. You're not only an investor, but you also mentor others. Is there a key quality that you believe that makes a successful real estate investor?
Speaker 1:but successful in business is consistency. Consistency will always beat intensity and that's why the story of the tortoise and the hare exists Because you know consistency is easier to maintain because you're not having these spikes of energy and then burnout, and then energy and then burnout. And one of the things that I've noticed is people will get excited about real estate investing, go really, really hard for three months. They won't get their first deal, they'll get discouraged and then they give up too easily. So consistency means, for example, analyzing two properties a week instead of getting really excited, analyzing 10 properties in one weekend and then getting tired and giving up. Consistency means making a habit out of talking to three people every week about your real estate investing journey, to constantly be looking for new partners instead of power calling everybody you know over the course of a weekend and then not getting any results and giving up. Consistency means holding yourself accountable to going to one real estate investing networking event per week, etc, etc, etc. So it's like it's picking certain business activities that are going to contribute to your business and, instead of being outcome driven where you're, you know you go to a networking event and you don't find a joint venture partner. So you think to yourself I didn't find a joint venture partner at that networking event, so I give up becoming becoming focused on the process, where you know what, no matter what.
Speaker 1:My definition of success is that 52 networking events, 52 weeks this year, that's what I'm going to attend, and these are examples, people. But the point is, if you can keep that consistency, keep that momentum, you become that overnight success that took five years. Where you, you know, all of a sudden you blink and everything is starting to come together. But it's when you start and then stop. It's when you blink and everything is starting to come together. But it's when you start and then stop. It's when you try and then give up. It's when you put in 100% effort and get discouraged. That's where people just keep going in circles. If you try to just do a little bit less, but make sure you do it consistently every week, those are every single time, undoubtedly across the board. The people that I see reach the highest level of success in a five-year period.
Speaker 2:I 100% agree with you. It's like chewing an elephant in one bite you can't do it. But small bites at a time, you'll get it done. And you know, same thing, like you mentioned networking events you mentioned networking events. If you, you know, try to shake everybody's hand into one networking event and, like you said, don't go the rest of the year. Nobody's going to remember you at the, you know, come December. But if they see you month over month attending, or, you know, a few times a month attending these different events, by December they'll know who James Canole or Mario Lamar is, because they're used to seeing you. So I totally agree with what you're saying and thank you for breaking it down for us. Brings us to our third question what strategies do you recommend for maybe a new investor looking to make real estate investing their vehicle to success?
Speaker 1:You know there isn't one strategy for every single type of person, so, and there isn't one strategy for every single type of market. That makes it tricky to say new investors should try this strategy. So I'm going to answer the question in a little bit of a different way as a new investor. Keep it simple Pick a strategy in your market that isn't overly complex, that isn't overly risky, that isn't overly time consuming. If you're planning on being a real estate investor over the long term, you're going to have plenty of time to do these big, sexy, complicated deals that you hear about people bragging about on podcasts. But you know what? I'm a big time skier. I think about it like skiing. You know what? Nobody starts on the double black diamond runs. Everybody starts on the bunny hill and then they move up to the green run and then they try a blue run and then they do a black diamond run.
Speaker 1:Why would you ever approach real estate investing in a different way? You know you're not going to try to ski down that black diamond your very first time ever going to a ski mountain. So when it's your very first time real estate investing, don't overreach, don't over leverage, as I talked about earlier, but also don't overcomplicate it. You know you don't have to do a big, complex, difficult deal. Just pick something that's going to help you get comfortable with the fundamentals Looking at a property, analyzing a property, writing an offer, negotiating an offer, getting your offer accepted, going to the lawyer and closing the property and placing a tenant and property managing a tenant. Keep it simple. Don't try to be too fancy or too complicated on your first deal, because if your first deal ends up going very poorly, that's going to really hurt your confidence. You're probably going to lose some money, you're probably going to lose a bunch of time and energy and it's going to leave a really negative experience in your mind that you're going to associate with real estate investing and then the likelihood of doing another deal is next to nothing.
Speaker 1:Whereas if you do a nice, simple, straightforward deal and it goes really well and you have a great time and you make a little bit of money, you're going to think, okay, this works, I like it, I'm getting success, what's next? That's what you want to be thinking from one deal to the next, as opposed to having the deal take energy from you and make you feel less excited. You want the deal to pump you up, make sure you feel good and make sure you're excited. You want the deal to pump you up. Make sure you feel good and make sure you're excited and confident to do the next deal. So that's what I would say is perfect for a new investor Keep it simple, keep it uncomplicated, keep it unrisky. Those are the things that are going to help you stepping stone from one deal to the next, to the next.
Speaker 2:I couldn't have said better than that. This is a true wisdom there, because there's something to be said about building confidence. When you go and do your first deal and you're successful, then maybe you take on a little bigger deal the next time. And then again and again and again, and it's going to happen. You're going to run through some hurdles If you, you know, if you have the confidence, you'll be able to tackle those hurdles. That as you go in your, your journey, if you, if you encounter them, uh, right from the start, because you, you took on a big project probably not going to be as encouraged to continue, so I agree with you. Next question you have a big portfolio 250 properties, over 250 properties. How do you approach the risk management in your real estate investments?
Speaker 1:You know one thing I do to manage the risk and I know I've said it a couple of times already, but I don't try to over leverage. Leverage creates a ton of risk because the more leverage you take on, the more monthly payments you have, the less wiggle room for error that you have, the less room for absorbing market fluctuations you have you have. So that's one way to manage risk very, very easily is just don't over leverage. Give yourself a cushion.
Speaker 1:Another way that I manage risk is I'm constantly re-evaluating my portfolio. I don't have the mindset that I'm going to keep forever every single property that I buy. Sometimes I buy a property where I analyzed it, I thought it was going to work out, I thought it made sense, and then, after owning it for three or four or five years, for whatever reason, it doesn't attract good tenants, the area that I thought was going to gentrify isn't gentrifying, or the property just wasn't built very well and has a lot of maintenance issues. I'm okay with removing properties from my portfolio to open up equity, to open up buying power, to open up my mental bandwidth, to then pursue adding better properties to my portfolio. So you know, one of the ways I manage risk is by removing troublesome properties from my portfolio on a regular basis and seeking ways to add better performing properties.
Speaker 2:Being not too attached to your portfolio but treating it as a business and be able to shift if you need to, is probably one thing that you know you need to do. So, yeah, that's really good insights. Our last question is here, James. We're in 2024. Technology is here. Ai is here. What role does technology play in your real estate investing strategy, and are there any tools or platforms that you find indispensable?
Speaker 1:That's a great question because, I mean, I'm a huge believer in using tools to force multiply yourself as a professional, to become more efficient, more effective, to get more work done in less time and to get more results from less resources. So two of my favorite tools are number one, a CRM, which stands for client relation management. There's a lot of CRMs out there. Some of the more popular ones would be Salesforce, hubspot, pipedrive, followupboss, just to name a few. If you Google CRM, you'll get a lot of hits. What does a CRM do? It's basically like a contact list with added features. It helps you keep track of the people that you know, and so not only is it like an Excel spreadsheet, we'll have name, phone number, email, maybe home address, maybe a couple of other details. A CRM is going to actively record your entire conversational history with every single person you talk to, and a lot of them will also automate some communication, so you can send out things like newsletters, you know, semi-regular reminders to reach out, et cetera, et cetera, and it'll help you keep a task list of who you need to contact.
Speaker 1:Why is this important?
Speaker 1:Well, we know in real estate that your, as they say, net work contributes to your net worth and as we go through our real estate journey, we realize you might need someone to borrow money from, you might need someone for equity to invest in your deal, you might need someone to help connect you with an opportunity.
Speaker 1:And you know when you've only got four or five people that you've met. Okay, that's pretty easy to keep track of with a notepad or some sticky notes or you know a couple of emails in your inbox. But very quickly, if you're serious about playing in the real estate space, you're going to meet people and you're going to meet more people and you're going to meet more people. And all of those people are going to be a very important part of your journey because, I'll tell you, someone you might have met in your very first year at your very first real estate networking event might end up being your business partner five years from now, 10 years from now, 15 years from now, 20 years from now. And I can say that with confidence because 20 years in, I'm doing business with people literally this month, right now, today, that I met 12 years ago at a networking event. So you never.
Speaker 1:Different people are on different journeys in their lives, and you might meet somebody at a time where it's not a good time for them to do a deal. It doesn't mean the answer is going to be no forever. It just means right now isn't a good time, and you never know when it might be a good time. And so that's what I mean by getting more results from less resources. Sure, you can build a business if you meet 1000 people, but if you have 1000 people and you keep forgetting to call people back, you know you talk to somebody and they say you know what? This is a really bad year, but I think next year we'll have some equity freeing up and you forget to call them next year.
Speaker 1:Well, there's an opportunity for a business partnership that now isn't going to happen because you forgot to keep in touch with that person. If you remember to actively engage with and keep in touch with a smaller sphere of people, you're going to have a better time than doing a poor job of keeping in touch with a lot of people. So, instead of trying to remember that all in your brain or manage it all with sticky notes in a notepad, or scroll through your text messages and try to remember to get in touch with people. A good CRM is going to help you manage your network, your relationships, your connections, your contacts, and help you do more business with the people you know, because you're going to be the one proactively keeping in touch and staying connected with people. So, as a real estate investor, that is a quintessential tool that you want to get familiar with and start using, because you're going to get into the space, you're going to meet a lot of people and you're going to want to keep in touch with them.
Speaker 2:And you know those CRMs programs now. They offer all kinds of bells and whistles where you can do it all in one program instead of trying to manage an Excel sheet here and then another kind of calendar there and it's all built in. So it's like you said it's almost an indispensable tool to use as an investor Absolutely, james. Thank you so much for being on the podcast with us today. Lots of knowledge, lots of value that I got from you and hopefully our listeners take a piece of it on their journey as well. Thank you so much and I hope to speak to you soon again.
Speaker 1:Hey, you know what, Mario? It's been my pleasure. Thanks for having me. Great questions, great conversation and really enjoy chatting to everybody out there working on their real estate investment portfolio.
Speaker 2:Thank you, We'll talk soon. Thanks for tuning in to the 5 Questions Podcast. If you enjoyed today's episode, don't forget to subscribe, like and hit the notification bell on our YouTube channel so you never miss an episode. Liked and hit the notification bell on our YouTube channel so you never miss an episode. Stay tuned for more insights and tips to transform your real estate and business game. See you next time.