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WS279: From The Back Of A Box Truck To Real Estate Partnership with Kris Kaufman

RES 279 | Real Estate Partnership

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Many real estate investors got their start in the business from odd places. Kris Kaufman’s real estate journey started in the back of a box truck working for a college. After officially creating a partnership with a lifelong friend and formed Firm Foundations, LLC, Kris finally worked himself out of a job. He tells us this very interesting narrative and drops some great insights about getting started in the real estate business. Kris talks about the importance of spending your time wisely on education, knowing when you need to go into a partnership and maintain it, and understanding fair market value before and after completion. He also gives tips for negotiations that can help get you through a better deal.

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From The Back Of A Box Truck To Real Estate Partnership with Kris Kaufman

Our guest is Kris Kaufman. Thanks for being here, Kris.

Thank you, Whitney. Glad to be here.

I’m excited to hear Kris’ story. I’ve heard he’s a very interesting story about how he got into this real estate business. He worked at Franklin & Marshall College on the facilities and operations team. He had to sit in the back of a box truck driving around campus completing work orders. That was from 2008 to 2017. He got started in real estate in 2012, purchased his first single-family home with cash using a line of credit on his personal residence and grandma’s money he says. He joined forces with lifelong friend, Dan Gotwalt, in 2015 creating a partnership, Firm Foundations, LLC which propelled them forward within the industry.

By the end of 2017, he had worked himself out of a job, that’s what most of the readers are dreaming about. They’ve obtained over 100 doors of multifamily, flipped over 40 residential properties and are developing a large-scale office building in Downtown Lancaster. Most of this being done in the back of a box truck during off-peak hours working for the college. His strong suits are negotiation, underwriting the deal and he understands the fair market value of a project before and after completion. Kris, thank you so much for your time. Give the readers a little more about you and let’s get right into how you got started.

[bctt tweet=”There’s a sacrifice that’s made to keep things successful.” via=”no”]

Basically, I was working from Franklin and Marshall College and I would buy things. I had my own Lego business. I was buying used Legos and reselling them to people who wanted to buy Lego. I’d buy low and sell high. I always had a passion for finding things, buying low, selling high and in negotiating the deal. I started thinking about what’s something that I could buy low and sell high and probably make the most money at and have the most flexibility of my time. I fell into real estate. I commissioned myself to start learning real estate and I was the lowest man on the totem pole with the crew that I was on in the college. I sat in the back of a box truck for the better part of ten years.

As we went from work order to work order and if there weren’t any work orders, I sat back there doing nothing all day. I basically learned real estate in the back of that box truck. Everything I could from wholesaling to flipping to syndication, anything that I could saturate myself with to learn real estate. I did that for four years in the back of the box truck. I started negotiating deals in the back of that box truck, which was not always fun. By the time, I was reaching the end of my career with Franklin Marshall, I was negotiating million-dollar deals in the back of a box truck. I remember the people I worked with would look in the back of the box truck as I was back there negotiating and have this look of, “What in the world am I doing back there?”

I did that for about four years at Franklin and Marshall and then I worked myself out of a job. It’s basically how that happened. It was constant deal negotiation in the back of the box truck. I had a business partner who I signed on with, who is Dan Gotwalt. We had complimenting problems. I was able to find deal flow, but I literally was only making about $30,000 a year, so I had no money. Dan, my business partner is great. He is a people person 100%. I know he had $300,000 just on a handshake. He had $300,000 sitting there on a handshake that he had to place. We had complementing problems. I had a few deals under contract with no way to finance them. He had $300,000 and the rest is history. We formed a partnership, Firm Foundations was our original LLC. It came together and the first deal went great. It was a couple of flip properties. From there, we just kept growing.

I wanted to back up a little bit in the back of that box truck. You used your time wisely. You started educating yourself. You had some downtime. You were even getting paid during that time and so you’re using that time. Tell me, how was the best way that you educated yourself during that time?

RES 279 | Real Estate Partnership
Real Estate Partnership: Knowing the value of the property you’re looking at is paramount.

Podcasts and YouTube videos. I’m sure I ran across your podcast, Whitney, at some point or fashion. I was listening to everything, everything that I could listen to. I was listening too back there some podcasts and YouTube videos. I was reading books. Rich Dad Poor Dad was an amazing foundational book. Not many nuts and bolts, but it was definitely something that got you motivated that I’m sure everybody’s talked about. Millionaire Real Estate Investor by Gary Keller was another big one. Those are the books, but essentially podcast, to be honest with you. That got me going and propelling me forward.

Millionaire Real Estate Investor and obviously Rich Dad Poor Dad, I have heard them numerous times. The Millionaire Real Estate Investor, I need to get that myself. I have not read that one yet.

That was definitely more nuts and bolts. Once you read that, it gives you more of the information you’re seeking if you’re into nuts and bolts. It’s not just theoretical.

I wanted to ask you about this partnership as well. A partnership is something that I’ve seen done wrong so many times. I’ve done it wrong. I feel like I’ve done it a lot better but it came from learning some things the hard way. To elaborate on how you all knew, I know you said you all had complementary skills, which is great but how did you know that because it’s like a marriage. How did you know, “This is what we need to do?” I’d love for you to elaborate on just how that propelled you forward.

[bctt tweet=”If you’re better together, you’ve got to do whatever it takes to stay together and keep pushing forward.” via=”no”]

Dan Gotwalt, who was my business partner, he was my brother’s best friend growing up, so I actually knew him. He went to the same school. It’s not like I just met this guy and I didn’t have any idea of who he was. I knew who he was. I knew his character. It’s very important to know whoever you’re going into business with, you have to know their character. Also the stars got to align. Their same life goals need to be aligned. I think that’s huge. Dan has five children. I have three children, all young kids. Family is the most important to us, so that aligns perfectly. You don’t have somebody who’s driving hard to get all of this work done. Our goals are the same. You’re absolutely right, it is a marriage. Even in the short time we’ve been partners since 2012, we’ve seen so many partnerships that were good partnerships that collapsed and imploded.

If you go into it knowing that it’s a marriage and it’s like that, it’s similar to marriage. You can go into a marriage and it could be perfect, but there’s always going to be a time when you get to that point where it’s, “I’ve got to sacrifice here.” There’s a sacrifice that’s made to keep things successful. With our partnership, that’s what it is. It’s us knowing our strong suits but knowing that we’re in it for the long haul. We are together. When we’re together, we’re better. That’s what it is. If it wasn’t for Dan, I would not be where I am now and that’s a successful partnership. If you’re better together, then you’ve got to do whatever it takes to stay together and keep pushing forward. Our growth goals are the same. I don’t know if that lends itself to it. There’s no science to it. It’s just pushing.

You mentioned you’d known him for a long time but either way, you have to know his character and that’s so important. As much as you all having complementary skills, you’re talking about you’re much further along because of partnering with him. You talked about how it’s propelled you all forward. Would you say that’s because you all are able to split the tasks, you’re able to focus over here and he’s to focus on that or because you got each other to bounce ideas off of? What are a few things that partnership has made the difference?

RES 279 | Real Estate Partnership
The Millionaire Real Estate Investor

What we’ve seen is yes to your question. It is because of what we can push and pull back and forth. You’re in it together. If a place burns down, you’re together. It’s not just me and that helps with stress immensely. This is for the people out there that don’t have a partnership. What I’ve seen is people take you seriously. If you have a successful partnership and you click together, whenever you’re networking, whatever you’re doing, both Dan and I, we feed off of each other and people take notice. It has tremendously helped us in deal flow. It has helped us in capital raising because whenever you’re in a partnership, even investors, even in syndication, people look at that and they say, “These guys have made it. They like each other. They like being around each other still.” It goes a long way when you’re raising money because they think if you’re able to do that, it just gives you credit. That’s all I’ll say. I don’t know. It’s given us major dividends in being in a partnership in our networking.

I’ve never heard anybody take that turn on it or say that. That’s interesting. It’s something that you’re bigger than just you as well. You’re a company and that’s awesome. I’d like to dive in a little bit into part of your bio that talks about understanding the fair market value before and after completion. Would you elaborate on why that’s important and maybe how we could do the same?

It’s important because it doesn’t matter what you’re doing, it could be a flip. I always tell people that Dan and I have been all over the board with our deals. We’ve done flips residentially and we’ve done flips on a multifamily basis, whether it’s 20 or 30 units. Knowing the value of what you’re looking at is paramount. If you’re looking at a flip, you’ve got to know the value of what that flip is after you complete the renovation. If you’re looking at multifamily, you got to know what rents are market-wise, and you’ve got to know what they can be, “Can you push the rents? Can you do some little things here and there to help the value of that property and then resell it later by raising rents or minimizing expenses?” If you’re going to learn something, if you’re just getting into this, if you’re just getting into syndication or you’re going to be a sponsor, that’s the biggest thing you can learn. What is the value of that property now and what is it whenever we’re done with it? Whether it’s a one-year term to five-year terms to ten-year terms, you’ve got to know what the value is going to be.

How are you determining what the value is going to be now as opposed to at the completion or when are we going to sell it?

We do a lot of research on the frontend. I’m trying to give you an example. We had a building come to completion. It was 25 units. The landlord was paying for all utilities. It was all two and three bedrooms and the rents were about anywhere from $200 to $300 under the market. We bought into that at I think a 9% cap. It was right around there. That’s a no brainer because no matter what, there’s not too much downside. Even if you fail miserably, you’re still going to make money. That’s generally just looking at it. We could have bought that at a 6% cap and probably had done really well for ourselves. Also, what we had to do was go in there and I knew what the market rents were. We went in and we renovated each apartment. I think we put about $4,000 to $5,000 in each apartment.

[bctt tweet=”Your investors are the gold so you’ve got to protect them.” via=”no”]

We bought that whole place. I think we bought it for $525,000. That’s 25 units and sold it for $1.1 million in three years. It’s a small one. Whenever you get into multifamily and you’re getting into syndication, it’s not necessarily like a residential property. You’re not looking at what the market’s paying for one little house. You’re looking at what are the rents and what are the expenses? That’s where you can really play around. It’s where you can have a lot of fun. If you can minimize expenses, we put all the utilities back on the tenant. We raised rents about $200 a month by renovating the apartment. That plays a huge factor in the value of that building. I don’t know if that answers your question.

That sounds like a fabulous deal. I wanted to ask you, your part of the partnership is the deal-making and negotiations. What are some tips that you have for the actual deal-making and negotiations and maybe some things that we experience every day that you can help us get through to negotiate a better deal?

I’ll give you maybe one that’s never been heard of because it happened to me. There’s a particular realtor that I was dealing with who would be silent on the other end of the line. I would call him to go over price and terms on a building and he wouldn’t say anything. He literally would be silent. I can’t take that. I would sit there and start rambling and I literally would ramble and that $1 million offer would start increasing. That $1 million, we could probably hit $1.5 million or maybe $1.1 million and he would be silent until he got the most out of me that he could. I took that and to this day I’m like, “If somebody is going to be silent on the other line, I will be silent.”

It’s constant learning. Negotiation is a science. It’s a game, so to speak. What I would encourage anybody that’s getting into it is know your numbers. Go in there with your numbers, but also know that some of these guys on the other line, they’re sharks and they know what they’re doing. You’ve got to go in there. That’s one thing that people can employ is just being silent. If somebody is silent, wait until they talk. Let it be awkward. That’s what I would say. I’m trying to think of other things in negotiation. Whitney, it’s knowing your numbers. If you know your numbers, it’s not that hard. It’s not that difficult as long as you stick with them.

I’ve heard of that tactic before and I’ve seen it used and most people are very uncomfortable with any silence. They have to talk. It’s neat that you felt it used on yourself and now you’re very aware of that. Watch out for the silence. Kris, what’s been the most difficult part of the syndication journey for you?

The most difficult part honestly is just ensuring that your investors are protected. Your investors are the gold, so you’ve got to protect it. We want to work with these guys in the future. We don’t want it to be something that they never work with us again. Having quarterly reports are huge and making sure they get paid first every time, no matter what. That will pay dividends in the future. We’re working on a project in Downtown Lancaster where we weren’t going to pay our investors. I think we had given them eighteen months before payments started. We were able to push that up to six months into it. They were extremely satisfied. Like what you do with Life Bridge Capital, the more you can give back, it pays huge dividends. There are so many people out there in the world that can take and they still make tons of money. How much more if we’re giving back are we going to be rewarded? That’s how I look at it. It’s just giving as much as you can, make sure your investors get paid. I’m a firm believer in just doing those things. If you’re persistent, rewards will follow.

The first thing you mentioned, ensuring your investors are protected. I hear all the time in “the market.” How are you ensuring your investors are protected? Maybe give us a couple of examples.

The current project that we did, we just have LPs, so we didn’t do a PPM or anything like that. They’re LPs in the business. They got a chunk of equity, but then they also get a return on their money monthly. We’re the sponsors. We sign on the dotted line. The only money that is at risk as to the money that they put into the deal. That’s huge. I think the quicker we can pay them off and they just get to their equity stake is what we’re aiming for. It’s constantly just trying. If you don’t have to take that money as the sponsor and you can just keep giving it back to the investor, get them paid off, get them out just so that all they have in that deal is their equity. They’re going to come back to you and say, “Let’s go fund that next deal.” That’s how we protect them. We’re in the risk business. That’s what we do. You can’t protect everything. There’s always a chance that something’s going to go south. The more that you can limit that risk for your investor and say, “I’m paying you first as much as I can and I don’t need this money right now as the sponsor.” That’s how we do it. We just limit it that way. As you know, in syndication you make money in fees, management fees, managing the sponsorship and whatever. We’re still making some money. It’s just not as much as our investors and that is okay.

[bctt tweet=”If you’re persistent, rewards will follow. ” via=”no”]

What’s your best advice for caring for investors? Outside of what we mentioned, what’s the top thing that you do to care for them?

Communication, at least with the investors we’ve had so far. As we grow, this probably isn’t going to be a possibility as much. I don’t know. We do get on a friendship level with our investors and we communicate constantly. Even the passive investors will occasionally say, “Is this something we could throw out to the investors and let them choose let them be part of the deal, get them active?” The more you can communicate with them, if things ever go south, they’re going to trust you and they’re going to trust that you did everything possible to make sure that they didn’t lose their money.

What’s a way that you’ve improved your business that we can all apply to ours?

I would honestly say networking. We didn’t network a whole lot. Dan knows a lot of people, so he had a lot of people in his pocket. We haven’t had the need to do that. As we’re growing, we’re thinking big here. We’re looking at syndicating some much larger deals. The networking aspect. I’m starting to realize how much networking plays a part. Let’s be honest. That’s why you’re doing this. It’s a networking tool. Networking is huge. We’ve been going to seminars. Not long, but I’ve seen the benefit of the networking that we’ve done, even in getting on a podcast evidently.

What’s the number one thing that’s contributed to your success?

In all honesty, I’d say our belief system. Both Dan and I have a belief system and we believe in God. I believe that his favor has been on us. The biggest thing in success has been what I talked about our partnership. I’ve just seen so many things, so many opportunities come out of our partnerships. That would be the number one thing.

Kris, how do you like to give back?

Both Dan and I have large aspirations. We do like to give to missions. I value what you do, Whitney. I know my wife and I are contemplating adoption. We’ll see. I don’t know. From the time you contemplate until the actual fruition, I don’t know how long that takes, but we see how long that takes. Primarily, it’s in little ways that we give back. You can pay it forward in any way you want to pay it forward, whether that’s buying a meal for somebody out there whenever you’re at a business meeting. We do a lot of anonymously, which we find great reward in. It will come back to you. I fully believe that the more you pay it forward, that will come back. It’s a little way here and there.

Thanks for sharing that, Kris. Tell the readers how they can get in touch with you and learn more about you.

Our email is FoundationalInvestors@Gmail.com. You can reach me there. You can also reach me on BiggerPockets. I am still on BiggerPockets. I still utilize that here and there. That’s pretty much it. We don’t even have a website, believe it or not.

Kris, thank you so much for your time and sharing your expertise. I appreciate how you’ve shared what you’ve learned and even the importance of watching that silence. Thank you again and I appreciate the readers. I hope you’re learning and sharing it. Go to Life Bridge Capital also to connect with me. I’m happy to help you if I can. Go to the Facebook group, The Real Estate Syndication Show.

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 About Kris Kaufman

RES 279 | Real Estate PartnershipI worked at Franklin and Marshall College on the Facilities and Operations team (had to sit in the back of a box truck driving around campus completing work orders) from 2008-2017. I got started in real estate in 2012, purchasing my first single-family home (cash) using a line of credit on my personal residence and grandma’s money.

In 2015, I joined forces with lifelong friend Dan Gotwalt, creating a partnership (Firm Foundations, LLC), which propelled us forward within the industry. By 2017, I had worked myself out of a job. To date, we have obtained over 100 doors of multifamily, flipped over 40 residential properties, and are currently developing a large-scale office building in downtown Lancaster. Most of this being done in the back of a box truck, during off-peak hours, working for the college. 

My strong suits are negotiation and underwriting the deal. I understand the fair market value of a project before and after completion. 

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