The Norris Group Real Estate Podcast

The Business of Multifamily: Strategy, Growth, & Balance with Kent Ritter | Part 1 # 927

• The Norris Group, Craig Evans

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In this episode, Craig Evans interviews Kent Ritter, CEO and Founder of Hudson Investing, exploring his remarkable journey from management consulting to successful multifamily real estate investing. The conversation delves into Ritter's professional evolution, highlighting key insights into multifamily investment strategies, property evaluation, and personal growth. This episode provides listeners with an in-depth look at the strategic thinking and personal determination required to succeed in multifamily real estate investing, offering valuable insights for both aspiring and experienced investors.



Kent Ritter is a former management consultant and corporate executive turned full-time real estate investor on a mission to help others achieve financial freedom through multifamily investing. As the host of the Ritter on Real Estate podcast and YouTube channel, Kent shares impactful interviews and actionable strategies to help people “Invest like a Pro.” He also leads the Indianapolis Multifamily Investing Meetup, creating space for new and seasoned investors to grow together. In this episode, Kent talks about his journey, why family was the driving force behind his success, and how smart investing can change your life.



In this episode:

  • Craig Evans welcomes Kent Ritter, CEO and Founder of Hudson Investing.
  • Kent shares his career shift from management consulting to real estate investing.
  • Insights into multifamily investing, including key challenges and strategic approaches.
  • Property evaluation criteria: market growth, job creation, and economic development.
  • Scaling through team building and the importance of a capable operations team.
  • Lessons from self-managing properties and transitioning to larger-scale operations.
  • How rising interest rates affect investment strategies and decision-making.
  • Kent discusses balancing career success with family life and personal priorities.




The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669.  For more information on hard money lending, go www.thenorrisgroup.com and click the Hard Money tab.


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Narrator:

Welcome to The Norris Group real estate podcast, a show committed to bringing you insights from thought leaders shaping the real estate industry. In each episode, we'll dive into conversations with industry experts and local insiders, all aimed at helping you thrive in an ever-changing real estate market. continuing the legacy that Bruce Norris created, sharing valuable knowledge, and empowering you on your real estate journey. Whether you're a seasoned pro or a newcomer, this is your go-to source for insider tips, market trends and success strategies. Here's your host, Craig Evans.

Craig Evans:

All right. Hey everybody. This is Craig Evans with The Norris Group. We are very excited to have our guest on today. Today we have Kent Ritter, the CEO and Founder of Hudson investing. Kent is a former management consultant, startup owner, and corporate executive turned full time real estate investor and operator, Kent has achieved financial freedom, and now he is on a mission to empower others to the same through multi family investing. Kent is dedicated to teaching others how to make good investing decisions. He is the host of the Ritter on Real Estate Podcast and YouTube channel, where he provides impactful interviews and practical tips for investors. His goal is reflected in the show's motto, to help others"Invest like a Pro". Additionally, Kent hosts the monthly Indianapolis multifamily investing meetup, which is an amazing group of active and aspiring multifamily investors. In his free time, Kent loves spending time with his family. They were the catalyst for his journey to financial independence. He is proud to be the dad at every ballet practice and field trip. Kent has a beautiful wife and three children, all under four years old. Kent, and it is great to have you on. I really appreciate you joining us today, my friend.

Kent Ritter:

Yeah, absolutely. Thanks for having me on, Craig,

Craig Evans:

So listen, we do things a little differently, you know, because, we've got a lot of listeners that listen through, you know, and one of the things that have changed over the last year and a half or so is really trying to get in to know the person behind the career, behind the success, so to speak. So what I want to do is just start out a little bit letting our audience know a little more about you. What shaped you and led you to the person that you are, you know. So I know you run an Indianapolis Multifamily investing meetup. Is that where you grew up? You know? Were you in that area? Were you in the Midwest? Tell me about that.

Kent Ritter:

Yeah, I grew up in Indianapolis, born and raised in the Midwest here, and outside of spending, let's see, a semester abroad, living in Milan, Italy, and 10 years in Chicago, I've been in Indianapolis my whole life.

Craig Evans:

Okay, so, growing up in Indianapolis, what did you think you were going to do when you grew up?

Kent Ritter:

Yeah, good question. I always knew I wanted to have my own business. Don't really know why I wanted to not my parents were not entrepreneurs. I didn't really know any entrepreneurs, actually, but I always just had that idea in my head that I thought that that would be kind of the coolest thing to go do, is own your own business, even as a small kid.

Craig Evans:

Growing up, who was the biggest influence on you growing up as a kid?

Kent Ritter:

I mean, well, depends on the age, right, but probably my parents or friends would have been I said, Mom and Dad,

Craig Evans:

You finished high school, you graduated with in finance at University of Indiana. Is that correct?

Kent Ritter:

That's right.

Craig Evans:

All right. So with that, what was your plan going through college? You grow up as a kid, you want to own your own business. Now you're in college, studying finance. What's your plan coming through college?

Kent Ritter:

Yeah, I mean, it's a good question, right? I think, like a lot of kids out there, you know, especially early years of college, I didn't really know. Didn't really know. And so, you know, I knew that, you know, I knew IU. IU's where I went to school. I went to IU because I grew up a huge IU basketball fan. You know, when you're in Indiana, you're kind of indoctrinated into that, right? And then I knew I wanted to be a business right, but I didn't really know what that meant yet. So IU has a great business school. And so I said,'Okay, perfect'. I go to IU. I get in business school. And fortunately, that worked out, you know, through a lot of hard work. So I got into business school. I always had really enjoyed investing. I always had enjoyed the stock market, and I had started it at that point, kind of really as I got to college, doing some investing on my own, some stock investing, so kind of managing my own portfolio and trying to just learn about things, right? So I started buying some stocks. So. That got me interested in that. So I really went and I did finance and econ, and I did really a focus on investing, right? But what investing really meant at IU at that time, and it was really just that stocks or bonds, what are you gonna invest in, stocks or bonds? That was all there really was, like I had one real estate finance class at that time, and I remember like the key takeaway was, you know, don't pay full price for one house. Buy 10 single family homes that you put 10% down on each, right? But there was nothing like commercial real estate related or anything in the curriculum. Now, I have to caveat that's changed a lot in the 20 years since I've been out of school, and now IU has a great commercial real estate curriculum. We actually just hired an analyst out of that program. So it's come a long way. So I give him credit for that. But when I was in school, you know, it's kind of back to this. I don't really know what I want, but I know I want to run my own business someday, and I still don't know. And so I talked to a friend of mine's dad who was successful, you know. And I knew they were successful because I knew they lived in a rich part of Chicago, and that was all I really knew, was that he must be successful. And so I talked to him, you know, and he gave me advice. Well, if you don't really know what you want to do, go into accounting, because it's just, you know, no matter what you do in life or in business, you know, knowing how to do accounting will be valuable, right? And so I picked up an accounting double major, and that lasted until I did an accounting internship, and I sat in a cube and did journal entries all summer, and I was like, I hate this. So, drop to that, something like nine credit hours short. And I went into management consulting because, like, if you had decent grades at my time, you were either going into manager consulting or you were going into investment banking. Those were kind of the two big paths at least in my school. And so I went into management consulting because, again, I thought that it would teach me a lot about business, how businesses work. I get to see a lot of different businesses, a lot of different industries. And again, it would just be a great learning experience for when I again, someday go and start my own business. Don't know what it is yet, but someday when I do that right? And that was kind of as far as it got in school. So I got out of school and I became management consultant, and I spent the next 12 years, traveling around the country helping businesses solve problems that they couldn't solve themselves. And I got to go to almost every state and work with hundreds of different businesses, and it was an amazing experience. And through that, I did start to see themes on, you know, what works, what doesn't work, right? And why is this business succeeding and this business failing?

Craig Evans:

Was that the first business that you founded. In other words, when you came out of school, did you immediately start your business, or were you working for someone?

Kent Ritter:

No, no, I went to go work for a manager consulting firm, right after.

Craig Evans:

Okay, okay.

Kent Ritter:

Yeah, did that for three years.

Craig Evans:

So what was the first business you started then?

Kent Ritter:

So the first business was a manager consulting business,

Craig Evans:

Okay.

Kent Ritter:

But it was 3-4, years into my career.

Craig Evans:

Okay.

Kent Ritter:

It was really based on taking one idea that this big management company had, manager consulting firm had, and really kind of niching down into a specific technology that was just about to take off. And we caught a great, we caught the market the right time. We were kind of, you know, at beginning of the adoption curve that wrote, and we rode that wave and grew the business to 95 employees, you know, doing over 30 million in revenue in a five year time. And then we decided it was, it was the right time to exit that business, because we started getting some business, because we started getting some great offers. And so then we exited that business, 2015, and that was really what led me into real estate, because I had this capital that I knew was coming, because it takes a long time to sell a business. So I knew this was coming, had this capital, and I was like, 'Okay, well, what do I do with', right? I was always into investing. So I, you know, had built up a good brokerage portfolio. I was investing in stocks, but one thing that IU had really taught me was you got to diversify, right? So I knew I didn't want to put all this other money in stocks as well. I knew that I wanted to make sure that I had some diversification. So I started talking with folks that were older and wiser and richer than me, and said, 'Well, what should I invest in?' And that was when really, real estate really came into the picture. Because, you know, I kept asking people, and he asked a few smart guys, and they all said, You got to invest in real estate. There were different reasons. There were tax reasons, you know, there was appreciation, there was cash flow. People were doing it for different reasons, but it all came down to real estate. And so that's really what launched my interest in real estate, was getting prepared to kind of exit that business and setting myself up to diversify and have a good portfolio in the future.

Craig Evans:

You know, most of our audience is Single Family investors. So, you know, that's was super excited to get you on, because I've done a lot of multifamily in my career, but I always love to bring other multifamily guys on and talk about the niches and the segments of investing that you guys have found through, especially through multifamily, right? So, really, you know, I want to start diving into multifamily with you, in the space that you really fill out so. So kind of walk me through, how did you end up, from what you're doing in consulting, and end up in the multifamily space?

Kent Ritter:

Well, it was kind of a winding road, right? So I got into real estate in that way, but I did a lot of different things. So I started out in single family, you know, I started doing some house flipping and buying rental properties with a couple of buddies from college. And, you know, we built up, we did a few flips. We built up a pretty decent sized portfolio. We had about 12 single families or duplexes, and, man, that became a headache because we were self managing, and it got big enough that there were issues all the time. And for anybody that's ever flipped a house out there, I mean, you know what kind of a full time job that is we start doing three or four times, it multiplies, pounds. And so I was like, wow, there's just not enough like, I'm doing a ton of work, but there's not enough scale here for me to live the kind of lifestyle I want to live, because it honestly wasn't producing that much cash flow. We're making a couple $100 a month off of each rental, you know, but you're one you're one missed renter away on a single family from paying the mortgage, you know, you're one hot water heater away from knocking out several months of revenue. There just wasn't the scale there, you know. And you start to realize how hard it is to buy a good single family rental, you know. And I think, I think it's become more difficult. And so as I started just to educate myself, and started to get some great mentors, and started to just think bigger. It really became about scale. And that was something from my manager consulting days, right? Like that was one thing scale is so important to create safety in a business, and it's true within real estate too. And so I found out that I could go buy, you know, 50 units, or 100 units, 100 homes at a time, all under one roof in one transaction. I said, Wow, this is great scale, right? And then I learned that I could actually get a cheap, get cheaper management. You know, I could hire better managers, better quality managers, but for a cheaper percentage of my revenue, right? I'm not paying 10% in a single family or 8% whatever it is these days, I pay in three to 5% of my revenue for really professional management, you know. And everything just gets cheaper. You can buy in bulk materials, insurance per unit. Everything gets cheaper as you go bigger, and so it becomes safer, you can also absorb a lot more vacancy, right? Like a lot of our properties that break even occupancy, even when we first acquire the property, not even after we improve, it'll be somewhere 70 to 80% occupied. And these properties are 90-95% occupied, so there's a great margin for for error there. So just a lot of safety built in. So it's about scale and safety was what led me to multi.

Craig Evans:

So when you started out and you're coming through single families and SFRs, what do you think you know for the people listening right now that all they've done is SFRs, right? What do you think is the number one or the hardest part of starting in that multifamily space?

Kent Ritter:

Just getting the capital right. These deals are more expensive, but, but I will tell you guys this. I will break your belief everything else is easier. Everything else is easier. It's easier to get financing on a multifamily than a single family. On a single family home, right, most of the time, they're underwriting you as a person, right? They're underwriting your income from your W-2 and all this, right? If I get go get a commercial loan, they're underwriting the property and the income the property makes. And most of my loans are non recourse, meaning I'm not personally liable on these. They're underwriting the property, and as long as I don't do something terrible, I commit fraud, then, you know, even if things did go terribly, I give the property back, but they're not trying to take my house and my car and everything else. And so there's just safety there as well. I think the hardest thing is just, it's the belief that you can go do it right, because it is, and I had some great coaches and mentors helped me get there to believe I could go buy a 50 unit or 100 unit, right? And I started with a 29 unit. So, you know, I didn't start there, and now we buy 200 unit, but it's that leap, and then it's having the capital to be able to go do it. And that's really where, when I learned about syndication, which is really pooling people's money together to go buy a bigger, better asset than you can on your own. That was really the game changer. So I said, 'Wow, okay, yeah, we can do this. We can pull it together, and it's just a private equity model, right? But you go get friends and family, and you get everybody on board, you go buy something bigger and better than you can on your own.'

Craig Evans:

When you're evaluating properties, you know, what are the top three things that you're looking for in a property? Besides, what's your cap rates going to look like? You know? I mean, from a CapEx perspective, from initial startup of it,what are you guys looking for, when you're going to look for that?

Kent Ritter:

Yeah, I mean, it absolutely starts with the market, right? It is. You've got to be in a good market, a growing market. What is a good market, right? A market where there's job growth, there's job creation and there's job diversity, right? You don't just have one employer that might go out of business, and everybody in town's out of a job, right? So you got diversification, you've got growth, you've got economic development happening because, you know, a rising tide raises all ships, right? But it also goes the other way, so you can have the nicest property in town. But if everybody's out of a job, it doesn't really matter. And so you got to be in a growing market. You got to dig down into a sub market, right? How are the schools? Are the good schools? What's the crime like? You know, what's the walkability? You know, what's the distance to the grocery store and the major employers? And I get a dig in there. So you got to start market, sub market, then and only then do you get down to the property and care what the property's like. But from a property standpoint, I mean, there are, when we do due diligence on a property right there's two main areas that we're focusing on right away. One is the the lease, what's called a lease file audit. And what that is is, well, you're looking at all the leases, and you're looking to make sure the leases are, what's on the leases, that the leases are compliant. You're evaluating people's incomes, you're evaluating their employers, and you're just understanding the resident base, right? You're understanding, you know, do these people have the ability to afford the rent that they're paying, and do they have the ability to afford future rent increases, right? And a lot of that is judged by rule of thumb, is your income should be three times your rent, and largely it's believed like that's affordable, right? So is your is your income three times your rent? And outside of doing all the just the review to make sure everything's accurate, I mean, that's a big check, right? Also, does everybody work at one employer? If that employer goes out of business, are all these people going to be out of a job, right, understanding that. The other thing we're looking at is the physical due diligence, which is the building itself, right? And so we walk every single unit, if we just bought a two, or we are buying a 209 unit property right now in Fort Wayne, Indiana, it was 100 degrees a couple weeks ago when we walked every single unit. But we still did it. Because if you're not walking every unit, you don't know what you're taking over, right? And so I would say, no matter what you're buying, make sure you see every angle of it inside, outside. Like I've heard single family horror stories, or I knew somebody that bought a house, sight unseen. Got to the house. The entire back of the house was burned, was burnt out like golf, like, I mean, that's the worst I've ever heard. But like, we walk every single unit. We walk out 209, units. We look in every nook and cranny. You get contractors that we trust on the roof, scope the sewers, check termites. I mean, just everything.

Craig Evans:

Yeah.

Kent Ritter:

It's so. I mean, those are some of the things that you just start at as you start to look at these.

Craig Evans:

You know, where did you buy early on in your career? Did you buy local? Or were you looking outside of your local market, at different markets that maybe had better industry, things like that going on?

Kent Ritter:

Yeah, I did a little bit of both, kind of at the same time. And so, you know, I believe that when you're starting, if you're going to be the one really managing and really overseeing that property, even if you're not the day to day manager, you really do have to think about logistics and how it takes to get to that property, because if you think you're gonna go buy a property that's, you know, three hour flight away, and be able to really successfully oversee that, which people do, I just don't really believe that you can oversee that in the way that really needs to be overseen to be successful. So I think you gotta really, I would say I undervalued that at the beginning. Really value that now, and is it drivable, or do I have a team member that is going to be getting out there and knows that's part of their job description, and they're comfortable with that now, as we've evolved, right? But when I started, it was just me. I wanted it to be drivable, because part of my mission of going into real estate and getting out of management consulting was to be home for my family, because in management I traveled all the time, and I didn't want to be doing that all the time. So if I bought a property four hours, you know, across the country, I'd be traveling, and I wouldn't be really living, you know, the reason I got out of management consulting.

Craig Evans:

Yeah.

Kent Ritter:

And so part of it was that, but I will tell you I did buy, one of my first purchases was a big property, 250 units down in Atlanta. But it was through a group where I was a partner. I was one of the partners. We had partners with boots on the ground in Atlanta. They were running kind of the day to day, week to week, right? And so because of that comfort level, I was willing to do that. So you can do both. I just think somebody's got to have their boots on the ground and be familiar with that market. It can be a partner, but it's got to be somebody.

Craig Evans:

How many of your properties, I know you said when you were starting in the SFRs, you were in the single family space, you were self managing. When you first started in the multifamily did you try to self manage any of that at all, or did you hire management companies from day one?

Kent Ritter:

No, we hired management companies.

Craig Evans:

What kind of cap rate are you looking for when you're looking at deals from a multifamily perspective?

Kent Ritter:

Well, it depends on location and asset class, a lot a lot a lot of different things, right? But mainly location asset class, meaning that different parts of the country demand different cap rates. You know, if a primary market, right, high growth market, a big city, it's going to demand a lower cap rate than if you're in a very rural area where there's just not a lot of competition, there's not a lot of properties trading, I mean, that's just going to be at a higher cap rate. Relative risk is going to be higher. And then if you're buying, you know, an A property, a brand new property, right in a prime location, that's going to have a lower cap rate. Because it's a lower cap rate, it means a higher multiple right on your income than a property that is, you know, in a bad neighborhood and falling down right? So there's kind of everything in between. But I would give you kind of, generally, you know, one really important thing to take into account on what your cap rate should be, is going to be your interest rate on your debt. And so, you know, one thing I don't think you want to be is inverted, meaning your cap rate is lower than the interest rate on your debt. Because your cap rate can also be looked at as, what is the cash flow that's coming out of that property day one, right? So it's a 5% cash flow. If you didn't have any debt in place, you'd expect a 5% return on your money. And so if you look at that interest rate and say, okay, my interest rates five and a half percent, my cap rates 5% then you know you're just going to be in a tougher position. You're going to be the cash crunched position from the start, versus if your interest rate is five and a half percent and your cap rates six and a half percent, you're going to have some cash left over.

Craig Evans:

Right.

Kent Ritter:

You know, at the end of the day. And so that's just a way to make sure you're being safe, kind of as you make your investments. And that's one of our first kind of criteria is, you know, can our interest rate on our loan? Is there a spread between that and the cap rate, and is our interest rate below the cap rate we're going in. So that, that's one of those rules of thumb that we work for.

Craig Evans:

As your, how many employees do you have now?

Kent Ritter:

About 30.

Craig Evans:

Okay, so you've got teams that are that are helping evaluate properties, and then they're looking at things. It's that all, I would assume, that's not all falling to your shoulders now, but...

Kent Ritter:

No.

Craig Evans:

When you first started, you know, because, again, we got a lot of people that are, that have been talking to us about multifamily. Again, I got a long background of multifamily. I mean, one point we had a little over 1000 doors, and primarily all multifamily. And so, you know, I like bringing other people into the mix that multifamily is what they do, right? So, and that was not always just coming from me, right? I won't be able to hear that there's a lot of different philosophies and thoughts on how to work that but, but when you were first starting through that process, you know, how much time were you putting to to finding the deals and evaluating versus, you know, going through, in other words, where was this all? What did you find out of it, you know, and I understand it's market specific. You know, when there's when there's not as much competition, it's, it can be harder to find the deal. But for people that are trying to get into multi family, what would you tell them? Say, 'Hey, listen guys, you're going to see you're going to have to look through 30 before you find one potentially', you know, those types of things. What did you see out of that?

Kent Ritter:

Yeah, man, good question. And then...

Craig Evans:

It's a faded question because...

Kent Ritter:

Yeah, no, it's good. So, you know, I think, I think a few years ago, I think pre interest rate run up in '22 I think you had to look at, our rule of thumb is always 100 deals to win one. And it would basically work like this. It would be, you know, you had 100 deals, you need to be able to discount, basically swipe. I don't use the dating app, so I don't know which way, but you're swiping left, I think on 70% of those deals. So 70 out of 100 before you even underwrite them, you just need to be able to say no, because they are not meeting some criteria. It's not the right market, it's not the right age of asset, you know, it doesn't, it's not in the right area, without the right incomes, the jobs I talked about, right? All that, because you can't underwrite every deal, because, especially when you're starting, it's going to take you three, four hours to do a full underwriting. And so you just can't keep up with that volume. So you got to have a really good criteria to discount and get rid of a lot of deals before you even get to underwriting. So you get rid of 70, right, you get 30 left. Okay, these 30 we're going to dig into, and we're going to underwrite, right, and then maybe of those 30, 10 of them, we're actually going to put offers on, because once we underwrite them, put all the numbers in. As you know, everything shakes out for a five year business plan. Okay, we like it. All right, we're gonna put offers in on 10 of those, and we hope to win one of those, right? And so it just, it just shows you, like, I think when I started, I didn't understand what a volume game this is. It is a volume game. You have to be able to churn through a lot of deals. You have to be really efficient at it, because that's the only way. And what I find, and I fell into this right as a rookie getting started, you get your hands on one deal and, man, you want to look at that thing every which way from Sunday, and you fall in love with it, and all you get emotionally attached to it, you know, and you do all this and that and but at the end of the day, it's not really a good deal. The reason you're spending a lot of time is because you're trying, well, what if I do this and what if I do that? You know, if you're doing that, it's not a good deal. It's not you just let it go. And the only way I got great advice from a mentor who said, you know, how you get over that deal, go look at 15 more, and you just keep doing that, you know? And so that's really what it was about, for me, was just understanding that mindset of you got to get really efficient at saying no quickly to deals, because most deals you should be saying no to, and you got to have capacity when those ones come

Craig Evans:

Well and you know, the thing with that is, if you can't, you're never going to scale.

Kent Ritter:

That's right.

Craig Evans:

I mean, you'll get stuck in those two trying to figure out how to make those things work, versus, like instead, all right, I've already looked at 20 while you were looking at two.

Kent Ritter:

Well, and I want to go back to, I said that was like, pre 22 run up, right? Since interest rates have run up, there's just less good there's less deals and less good deals, because there's less deals at work. I mean, it's a lot easier to make a deal work at a 3% interest rate than a 6% interest rate. And so I think you got to look at, I don't know what the number is, but it's 150 or probably 200 to get one, you know, it's gone up. It's gone up. And we actually keep all those stats. I just don't have them on top of my head, but we look at hundreds, if not 1000s of deals a year.

Craig Evans:

Hey, that's going to do it for us this week. Make sure and join in next week for part two with Kent Ritter.

Narrator:

For more information on hard money loans, trust deed investing, and upcoming events with The Norris group. Check out thenorrisgroup.com. For more information on passive investing through the DBL Capital Real Estate Investment Fund, please visit dblapital.com.

Joey Romero:

The Norris Group originates and services loans in California and Florida under California DRE license 01219911. Florida mortgage lender license 1577 and NMLS license 1623669. For more information on hard money lending go to thenorrisgroup.com and click the hard money tab.