What does it take to scale from flipping homes and single family properties to commercial real estate investing? In this episode, we learn the ropes from an investor who scaled successfully from single family. Lisa Hylton talks to real estate investor and physical therapist, Kimberly Marie as they talk about scaling your investment. Kimberly runs us through her investment strategies and talks about what you need to do to become successful in the commercial investment space. Learn more about scaling into commercial by listening in to this episode.
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Commercial Real Estate: Scaling From Single Family To Commercial Investments With Kimberly Marie
I have on the show, Kimberly Marie. She is a Doctor of Physical Therapy. She’s also a published model and real estate investor based in Indianapolis, Indiana. She started her journey investing in residential fix and flips, and buy and hold in her surrounding neighborhood while practicing as a physical therapist. I am super excited to have you on the show. Welcome to the show, Kim.
Thanks so much, Lisa. I appreciate you having me.
I shared a little bit about your background, but I want to give you the floor to share a little bit about your journey investing in real estate.
I started investing back in 2016. I started in fix and flips and I was right in my own backyard. My first flip was really in-depth. It was a burned-down house that probably should have been leveled but I dug down. I replaced the foundation and put a full second story on. I did luxury on everything with smart home systems, natural stone tile and the whole works. That was my first flip. I dove in and fell in love with it. Originally, my goal was to pay off my student debt when I decided to go back and get my Doctorate. After I did that and I realized that I didn’t have a huge amount of debt to pay off anymore, I wanted something more passive. I wanted the tax benefits and all those types of things that the flipping didn’t give me. That’s when I transitioned to buy and hold single-family.
I would buy rentals all around my neighborhood where I had my primary residence. It was going great but I wanted to scale up and decided, “Everything takes the same amount of time, whether I’m going to close a single-family or a duplex. Why don’t I try to close something larger?” In 2019, I closed my first apartment complex. It was a 23-unit North of Downtown Indianapolis. From there, I didn’t buy anything for two years until 2021 in March. I closed a 27-unit in Downtown Indi.
It wasn’t because I wasn’t looking during those two years. I was looking but I just wasn’t finding the deals that I thought fit the criteria that were quite the right fit for me and that would fit my goals. I was hunting, I was in there but right up until March 2021, that was my first purchase since my other apartment. I have been trying to stay focused on that. Now, I’m in the process of stabilizing that 27-unit and I’m in the entitlement process for 37-unit ground-up development. As a little fun project for myself, I picked up a triplex. I’m going to completely redo that one too, as a buy and hold. It’s my story.
There are so many great things to dive into. I want to start with the 23-unit that you bought in 2019. It sounded like you were doing single-family homes or residential multifamilies before the purchase of the 23-unit, is that correct?
I had about ten single-family doors under my belt and about four of those were duplexes. The rest of them were single-families. To make that leap, it was a lot of goal auditing for me because a single-family is a great investment but when you have turnover, even if you have a great unit, you are going to have a little bit of vacancy and you are also going to have turn costs. Those expenses cut into your yearly return. Once I was realizing that like, “How much am I making on these single-families if I’m having turnover and repair?” It wasn’t my goal.
I wanted to be able to take a vacation for a month or not even vacation, just work remotely because now I’m not in the clinic anymore. I am a full-time real estate. I will see patients maybe once a month now. The apartments in the multifamily made more sense to me when I learned how to run those numbers and look at those returns. One example, I’m self-managing all of my single-families still to this day versus I have a third-party manager for all of my multifamily apartments because you can afford that with the returns and the economies of scale. That’s why I wanted to make that jump. Doing it wasn’t as difficult as a lot of people think if you break it down. It’s harder to close but every other thing is way easier.
Can you talk about the 1 or 2 key things that you had to put in place that was different from the single-family that you had to overcome or even someone else who’s trying to make that move into that 23-unit space and above?
A lot of education on running the numbers and presenting to the bank a pro forma. That was something I never had to do in a single-family home. They assess it by the comps, the comparable properties, and then that’s how they tell you what it’s worth. With an apartment complex, they look at it as a business. How much is it making out of the tax returns for the last two years? What are you going to do as an operator? How are you going to bump those rents? What is your plan? What is your budget? It’s all of those things and you have to extrapolate those numbers out 5, 10 years and show the bank, “Here’s my plan. Will you lend on this?” That to me was completely new.
For someone who hasn’t been in multifamily before, educate yourself on the different spreadsheets for underwriting and for running the numbers. Get good at knowing what type of quotes you are going to need for a CapEx and a renovation. You’ve got to know the rental market. If you are looking at a building that has $650 a month rents, what is the market? Is it $850 a month for a one-bed? That’s a great margin. What do you have to do? How much money do you have to put into that unit to capture that $200? What is that going to do to your numbers, your ROI at the end of the day? Those are all things that the bank has to see. You have to prove to them that you know what you are doing, you have done this before, even if you haven’t and show them, “I have done my research. You can trust me. You can lend with me.”
In addition to doing your research, maybe this was a strategy you use or you didn’t but for people who are in the same situation as you. They have several single-family homes and they have invested in duplexes, triplexes, they might not know how to run the numbers on that CapEx coat. I’m guessing that they need to work and make relationships with good contractors who can help them to determine what some of those coats are to make the improvements to bring up the rent. Would that be a correct assessment?
I would definitely say so, 100%.
In addition to that, talking about the banks and getting loans from the banks. Most recently I had a friend who is also single-family and she wants to move into multifamily and buying 20-unit, 30-unit, 50-unit. One of the things she got was a hiccup for her was she didn’t have experience in the multifamily space. The lender was like, “You need to get the experience.” Can you talk about how you have dealt with that? Maybe that wasn’t an issue because the regulations were different in 2019 but I was curious.
I put together some slides. It’s like an about me like, “Here is who I am. My mom invested with me. Here’s who she is. She CFO of her company so she’s good with the finance side. Here is my background. Here are all the homes that I flipped, here are all of my rentals and my financial statement for my real estate holdings.” I tried to make myself look sophisticated, even though I never did it before. I also got lucky because I’m working with a phenomenal broker in Indianapolis. His name is Cory Gardner with Gardner Property Group. He has been with me since 2016 and he does commercials. He was able to say, “Here are some of the things that you might want to show the bank.” I had him helping me with that as well but also, he found this deal direct to the seller. It was this older gentleman, he’s a new grandpa. He was okay with exiting this particular property so he was really nice.
There were a lot of things that I look back that I made a mistake on that, he gave me a lot of leeways where any other buyer or seller would have said, “What is she doing?” He helped out a lot. I still have a relationship with him now because funny, my 27-unit is across the street from another holding that he owns that I have been wanting to buy. I’m like, “I own the property across the street.” We have a good relationship still but I would say to someone who might not have as good of a relationship with their broker, try to sell yourself as a real estate investor.
If not, if you don’t have a lot to say as far as your background or what you have done so far, try to find someone who has done it, partner with them and say, “I will give you a little piece of the equity. You don’t even have to come in as a money partner but can you help me? Can you go in with this? Can I put your information on here? I will run it for you,” or whatever the situation might be, and have them help you along as a mentor figure and in return, you pay them equity. There are so many ways to be creative. I have not personally had to do that but I have had friends who have, and that has been helpful for them.
I feel that your background in flipping helped you in terms of when you’ve got to the point of estimating those CapEx as well because you have that experience renovating and have an idea, “How much is it going to cost to make this change, that change, etc.”
I was lucky because a lot of my single-family rentals as well, not only the flips, the flips were very helpful because I was building from the ground up basically. I was taking it down to the studs, new subfloor, new mechanicals and everything. That was helpful to look at, “If I ever want to overhaul a building, this is what I’m going to look at and this is the type of process that I’m going to have to go through.” My rentals on the other hand weren’t as in-depth. I wasn’t moving walls. I wasn’t doing any of that but I still knew if I want to replace the countertops, refinished the cabinets and put in new hardware what it would cost. I was putting it all in a spreadsheet and saying, “Here’s what my costs are.” It helped to have done that before on a smaller scale.Learn to say no to some of those things that you don't think are really your passion. Click To Tweet
That’s perfect because it brings us right into where you are at on your three different properties. From there, can we talk a little bit about the 27-unit that you have purchased and now, are you in the process of stabilizing them? Can you explain to my readers what does that means?
I bought this property purely for a locational loan. In Indianapolis, there’s a neighborhood and a street called Mass Ave. It’s the place where everybody wants to live. If you don’t live there, chances are you go out to eat there. You go to their restaurants, bars, activities, things to do and trails. It’s a beautiful historic neighborhood and it’s the street where everybody goes. This property is four blocks to the North. It’s unbelievable. You look around and you see the skyline, you are right in the middle of downtown. Just the land alone would be very valuable to me. I saw this and I’m like, “Twenty-seven units, what?”
I submitted an LOI sudden scene and it was accepted. I go in there and realize for the 27-units, there are only five electric meters. It’s on an old boiler system. The plumbing is all galvanized piping. Some of the units are smaller than the room I’m sitting in. I was like, “This is a tough property,” but I was still excited about it. I still wanted to make it work. That was a heck of a deal to close though because everything we talked about to have to sell me to the bank, I followed my banker who closed my 23-unit with me to a new bank. The new bank didn’t know me as a buyer, my banker did. I was lucky he was literally putting his head on the block for me but the numbers for this building were completely terrible.
Twenty-seven units and it had nine vacancies. I didn’t know that at the time. I thought only five were vacant. That’s what I submitted to the bank. Rents were $380 to $440 a month, the market is $800 something but the units are small and old. It was a very challenging property to sell. At the eleventh hour, the bank told me no. I was like, “What do you mean, no? I can’t take no.” They were like, “I’m sorry. Credit is at this, the numbers and it’s too risky.” I completely changed my strategy at that point.
What I was going to do was completely renovate the building. It was going to be a $1.1 million to $1.3 million renovation to make it into eighteen units and bump the rents. All the mechanicals were going to be new. It was a complete overhaul but the bank said no. Why would they fund me when they can go fund someone else? B class properties, 7% cap easy-peasy. The purchase price was a 4.8% cap because the financials were so out of whack. I had a heck of a time getting insurance because they are like, “This is a 100-year-old building. Look at the mechanicals, look at the condition, the brick is falling. I couldn’t get that.”
Getting to the closing table was extremely difficult. I ended up changing my strategy to, “I’m only going to buy the building. I’m going to stabilize it. I’m going to bump these rents from $440 to $600. What is that going to do to the pro formas?” I extrapolated that out. Now, the numbers were crazy good because I was going to double the value of the building. I’ve got with my broker, Cory. He sold one of my empty lots within three weeks. I sold my car. I went back and showed him my new financial statement and said, “I have a lot more post-closing liquidity. Here’s what the numbers and my different strategy, please finance me.”
They said, “We will go to appraisal.” The appraisal comes around, this thing should have appraised $300,000 less. I said, “I’m going to come to the table with $300,000 more. Don’t worry about it.” It appraised because my broker was talking to the guy every single day, “Here’s what we are going to do. Here’s what we are going to change.” It appraised on the dollar. I was screaming so much that day. I was so happy. It was funny because at the closing table, my banker was there and he goes, “Be honest with me, did you think this was going to appraise?” I was like, “Todd, I’m not supposed to tell you this but no, I didn’t.” He goes, “Me either.” Needless to say, now that it has been a few months, it has been a challenge because it appraised for a price that it shouldn’t have. The financials didn’t support it. It has been a challenge.
To date, I have leased six of those units up at $628 for five of them and $750 for one of them. That’s great for my numbers but I’ve got a phone call that a shut-off valve broke on the second floor behind a toilet and it ruined four units. I was getting a video from my property manager raining. One of the people up and left before she even got there. I’m like, “I don’t blame them. They are in a river.” Two of those people that just moved in at the new rate moved out. It has been a big challenge. I’m floating this building a good amount per month to keep it level but if I stay the course, if I keep doing these renovations and getting these new people in, I should still double the value of this building. That is the story with the new 27-unit.
You have one hell of a story here. I love it though. I feel like it shows so much determination. The amount of determination required to continue to move forward and keep pushing forward even when everything is not always going the way you want it to go and having that faith. Also, a really good team. These people have been with you since 2016. It’s so required. That’s the thing in playing in real estate. You need to have that team because that’s what helps to carry you to the next space. It’s not surprising that your second project is a ground-up 37-unit development. Can you talk a little bit about this one?
This one is in the same neighborhood in Fountain Square, where I’m still living, where my first primary residence was and all of my flips are. This one is a little bit of a unique situation because I started this in 2017 not knowing it was going to be a ground-up. I started with land banking basically, and I didn’t even know what it was. I would see an empty lot, go on the market on the street and I would buy it. I would go to the sheriff’s sale and buy it. I saw a house and I go buy it. Now, I realized I own a whole block on the Eastside. I’m like, “What can I do here?” We are right in an amazing location. I know this area very well. I own three rentals on that street because of all the land and the three houses. It’s in the main neighborhoods.
I went to the city and I’m saying, “Can we rezone this into multifamily? We have this amount of square footage and so on.” Now we are in the process where we are seeing what we can build. It has been a challenge because it is residential but we are only one block off of where the commercial would be. They are still saying a quick and easy without going into the variance and zoning process in front of the court. “Even though it’s within the height restriction of a single-family, we think this is going to stick out. We don’t want it to be that tall. Instead of three stories, we will give you two stories.” It’s going to be 26 units, 27 or something instead of the 37.
I’m like, “What does that do to the numbers?” Not only that, what are we looking at as far as material costs now. Everything is crazy because of all of this craziness with the weather in Texas and the lumber costs, COVID and everything that. The numbers that we are underwriting for this development don’t make a lot of sense. It’s not that great. Some people may say a 10% return is okay but for what I’m doing now, that’s not ground up. It’s not that great for me and the first year, I’m not going to make any money.
I’m in a building that’s 27-unit where I underwrote and I’m not making money in the first year. Going through that process now hurts. You’ve got to have thousands of dollars to not make money. That’s really not making money. To stay even, I’m thinking to myself, “I’m doing this for the 27-unit because I’m going to have crazy returns, in the high 10s and 20s returns.” That is exciting to me. If I’m doing everything for ten, it doesn’t make any sense. I may be holding off on that because of material costs and because of the variance. It has been a learning experience. We are still in the process of that and talking with contractors, talking with the city but that’s a little bit of a different bear.
Now that also brings us to the triplex that you also purchased. Can you talk a little bit about the reason that you decided to buy it?
I go two years without buying anything and I’m only commercial, development, apartments, now all of a sudden, I buy a triplex. I couldn’t pass this up. I submitted sight unseen closed as soon as the title comes back like, “Let’s go.” It’s a killer area. There is a huge condo development by a giant developer going on two blocks to the West. Two blocks to the South, a condo development just finished. I was talking to my friends like, “I think you guys should buy one of these condos.” I was walking these condos already and they are like, “Sorry, they are gone. They are already sold.” I was like, “I love where it is.” It’s different than where I live downtown. It’s North of downtown but it’s a little bit more suburbia.
The single-family homes are newer and quieter. It’s more a professional type of place. You are not going to walk down the street and have a bunch of restaurants and bars. You might have a coffee shop that also serves alcohol that people go to work. You have this little quaint Mexican shop. You have office space. It’s a beautiful classy location. I bought this triplex for $145,000. I was like, “I can literally put $100,000 into this and my returns are still in the twenties. That’s why I bought it.
All of my readers that are living on the Coast like LA and anywhere in California or New York, they are like, “$145,000 for a triplex?”
That’s unheard of here too. I couldn’t believe that for the location. When I’ve finally got in there, I was like, “This thing is going to be falling over. I’m going to have foundational problems, settling and moisture. The structure is pure block. It’s a slab-on-grade, complete concrete structure. This thing would survive a hurricane in Florida.” I was like, “This is unbelievable.” I do have to add HVAC to it because it was the base key and I’m not about that. I’m adding an AC and furnace, which is a big-ticket item. The kitchens are small so I’m going to have to completely redo those but as I said, even if I put $100,000 into this thing, it’s so stupid good. It’s crazy. I was very pleasantly surprised. The structure was sound. I couldn’t believe it. It’s going to be great. I couldn’t pass it.
All of these experiences are so good. Thank you so much for going into all this detail. I appreciate it. At this point, given your experience of one, you have a Doctor in Physical Therapy, a published model, and you are also investing heavily in real estate. Can you share with my readers’ advice you would give to someone now who wants to start in real estate? Given your experience, what would you share with them?
When I get asked this question, I always try to come up with something different but it all comes down to the same core thing. You have to figure out what is your why and 100% focus. A lot of new people who want to get into this industry are so wide-eyed, bushy-tailed and happy like, “There’s all this money to be made here.” I always try to remind that person what you are good at? What do you like to do? For me, I love flipping and I still love residential. That’s why this triplex was a fun little project for me but my focus is multifamily. It’s like, “If I’m going to do that, I have to make sure that these returns are crazy good.” As I said, I didn’t buy anything for two years until these 27 units. For someone who’s going to get into flipping, I always ask them, “What is your goal?” If it’s, “I don’t know. I want to make money. I want to be like you.” No. This is very intensive. This is capital intensive, time-intensive, it’s stressful.Be honest with yourself and challenge yourself to level up and continue to educate yourself. That's going to get you where you need to be. Click To Tweet
You have to learn everything about it and you have to have a passion for it to be good at it. I happen to have a passion for it. The people who do syndications and wholesaling, I don’t want to do that. I’m learning about it as far as the syndications side goes but I have never wanted a wholesale. Some people who want to do that, want to do it for the connections, for the quick flip and to learn an area. Remember that and what is your goal? Is it to get capital to do buy and hold? Is it to get capital to invest in a syndications deal? Figure out what you want to focus on and educate yourself in that realm. A lot of people are like, “I have an opportunity. You can be an agent, you can be my wholesaler, you can be cold calling for me.” They are like, “I want to do it all because I want to experience. I want to be in it,” but the best thing you can do for yourself is to say no.
“I’m only focused on multifamily, commercial, industrial, wholesaling and building my income,” or whatever it is. To say no to some of those things that you don’t think are your passion, that’s the most important thing for people to find out before they go into this because you do have to be obsessed with it and immerse your whole life in it. I went to school to get a Doctorate degree, I worked my butt off and now I quit my job to do this. Figure out what you want to focus on, educate yourself and always keep your goals at the top of your mind is what I would say to somebody new.
One other thing on market, even in your bio and write-up about yourself, you talk about how you are an expert in an Indianapolis real estate market. Can you share with my readers the importance of being an expert in a particular market especially if you are going to play at the depth of what you are playing, which is as an active investor?
A lot of what I have done up to this point has been a huge risk. For instance, my very first flip was a ground-up rebuild. That was very capital intensive for my first flip but how was I able to do that? I knew my neighborhood like the back of my hand. I knew exactly who was living on that street, how long they have been living there, what houses were selling in my area. I have walked them all before they were flipped, during the flip and after the flip. I knew what other people were putting in their homes, what people wanted to buy since I was first a consumer. The more you know, the more risk is gone. There’s always a risk and things you can’t control but when I buy a property like that 27-unit, a 4% cap, it’s losing money left and right, it’s going to fall over at any moment. I bought that because I know the area so well. It’s the same with the triplex. I was like, “What? This here for this price? You can’t go wrong,” because I know it so well. I started in my own backyard and I was first a consumer before an investor.
I moved into my primary residence when I was 24 years old and I would walk my dog. I would meet my neighbors. I was learning who was moving here, what people wanted and to do because I have immersed it myself as a consumer. From there, I was able to leverage that, “What if I did this? Someone is going to like this in their house. Look at this one that’s not selling, they cut a corner here but someone like me is looking at that.” The same with my rentals, what are people going to look for in a rental? Knowing the market is absolutely crucial. A lot of times people evaluate a deal on the numbers, which is very important but I never want to just look at a spreadsheet. I have to go there. I have to walk around and do the wave tests. If you wave at a neighbor, do they wave back and smile or are they mean? They might say something. Things like that to be sure of where you are buying and not to jump the gun to do a deal if it looks good on paper because that could be bad if you do the wrong deal.
That now leads me to the level-up questions that I asked all of my guests. The first one is, what are you grateful for in your life right now?
There are so many things but number one I most grateful for, the people in my life. I’m grateful for my mom who has always had my back in this whole real estate journey. I called her up about this triplex and said, “You have any extra cash?” She’s like, “Whatever you need.” I was like, “Will you have this much?” “I don’t know, let me check.” She was a boom. I’m like, “Mom, you are awesome.” She always believes in me and she has been the reason that I’m able to do this now and to be able to be on platforms like yours, share my story, inspire and educate other people. That’s amazing and it’s thanks to her.
I’m grateful for my broker Cory because he has 1,000 clients and every single person wants to work with him because he’s so good but he prioritizes me as a client because I work hard for him back and I closed. I’m grateful for him. I’m grateful for my friends who support me and put me in a great mindset. I’m grateful for the people around me the most because that’s where I get all of my energy, inspiration and my drive. When you are not around the right people, the people who don’t quite understand you like, “Why do you want to do that? Aren’t you happy with where you are?” Those questions are tough for me to be around. I can’t do that. It’s way too much energy. I’m grateful for who I have been able to surround myself with.
I can resonate with that for sure. What has attributed to your success and continuous growth?
It’s the ability to focus and always do goals audits because I can see a lot of people getting caught up in the hamster wheel, “I’m doing this because it’s working.” I can see how it would be tempting for me to even do that. I could have kept flipping, I was doing well with it. I could have kept buying single families and doing well with it but I always did a goals audit and said, “What do I want my life to look like? How do I want to feel in my life? How do I want to think and what is going to help me get there?” Change is good but also being honest with yourself, always challenging yourself to level up and continue to educate yourself in the next thing that’s going to get you where you need to be.
Lastly, what do you now know that you wish you knew at the beginning of your journey?
I wish I knew what the market was going to do because I think I would’ve gotten into commercials a lot earlier. I wish I knew real estate more in-depth. I would have literally skipped single-family entirely and went to apartments because I looked back at all the apartments that I was looking at when I was first learning about it. I was like, “Maybe this is a good deal.” Now I’m like, “Remember this one that I’m driving by? I could have bought this.” I wish I would have done this sooner and focused on it but then again, if I had done that, I wouldn’t have gotten my Doctorate degree. That’s something that I’m proud of and no one can take away from me. I think everything happens for a reason but more education can never hurt anyone. More educated earlier on.
Thank you for sharing your story. I enjoyed it and learned so much about your journey. If my readers want to learn more about you, what’s the best place they can go?
They can follow me on Instagram @KimberlyMarie920. They can follow my renovation page for my buildings and my little triplex @RedDoorRenovation. If you want to email me if you have any questions at all about Indianapolis market investing or anything, I’m here to help. You can email me at Kim@RedDoorRenovation.com.
Thank you so much, Kim. I appreciate it.
Thank you so much for allowing me on your platform to share my story. I appreciate your time.
You are welcome.
- Kimberly Marie – Instagram
- Gardner Property Group
- @RedDoorRenovation – Instagram
About Kimberly Marie
Kimberly Marie is a Doctor of Physical Therapy, published model, an astute real estate investor based in Indianapolis, IN. She started her journey investing as a residential fix & flip and buy & hold investor in her surrounding neighborhood all while practicing as a physical therapist.
Kimberly has spent the last 5 years of her journey becoming an expert in Indianapolis real estate, the acquisition process, construction, and now buying and operating multifamily apartment buildings, which is her primary focus.
She leverages her decade of experience in the physical therapy world to foster strong relationships with her team and investors to get deals done. She is the final decision maker for all business operations including new acquisitions, dispositions, and investor relations.
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