Hello Guys and Welcome to week 13 of the Crushing it in Real Estate Podcast! Rich brings over 19 years of experience in Real Estate working as an agent, investor and developer! Join us this week as we sit down with Rich Kwok to discuss powerful strategies on how to strategize and construct strong real estate deals to prevent you from losing money on your next deal!
[0:02] Intro: Hey everyone, and welcome to another episode of Crushing Real Estate with Bryan Pham, where we interview real estate professionals around the industry. If you enjoy this episode, please subscribe to the show and leave a very positive review. We released an episode every single Sunday, so stay tuned. Enjoy.
[0:21] Bryan: Hey guys, welcome to another episode of Crushing Real Estate. Today we have a very special guest, his name is Rich Kwok. Rich is a real estate investor here in the Bay Area. He’s also a real estate developer and flipper and a full-time real estate agent. Rich, welcome to the show, thanks for accepting and coming on. Can you tell us a little bit more about yourself?
[0:46] Rich: Thank you, Bryan. Yeah, I’ve been in real estate for about 19 years and I started as an agent, I’m still the agent, I’ve also had a lot of them investment properties. We started flipping in 2011. Yeah, so we’ve been through a lot of different flips and, you know, pretty much I started as an engineer and now I pretty much live, breathe and practice real estate.
[1:21] Bryan: Wow, that’s really cool. So, you mentioned that you started as an engineer? Was that what you studied back at UCLA? And how long were engineer for before you decide to make that switch to real estate?
[1:33] Rich: So yeah, I went to UCLA for computer science, I graduated, worked for about two years, I had done part time work at the college during my whole at my school. So, total was about five years, I guess, basically, starting with customer service for dial up modems, today, so I hope not aged myself too much. But, yeah, I learned how to talk to people, how to be patient and then when I graduated, I was a software engineer working for a lot of the startups, IPOs startups.
[2:18] Bryan: Wow. How did you make that transition over from Tech to real estate? What caused that turning point for you?
[2:27] Rich: So, to be honest, when I graduated, I was pretty ambitious. I’m still very much ambitious but I met a co-worker that was making 100,000, back in the day, you know, it was a lot of money. And I said, okay, let me go ahead and try to make that my first year out of college. I remember my first job, it was about $35 an hour, which was pretty good at the time. And then, so I started to look for contract positions, because they’re paying so much more. So, I secured a really, really good contract, almost about $120 an hour. Yeah and it was basically a contract for HP, 9/11 happened, and then the companies decided to get rid of contractors. So, essentially, I had the option of either going full time, maybe making about $80,000, maybe working for the same company, instead of contracting or doing something else. And when you’re young and you make a lot of money, you know, 200 or $250,000, there’s not a lot of opportunities that you can see because everything is going to be kind of a downgrade. I had the expectation, I was driving a really nice car, I had my first house right away, as I was making a lot and saving a lot so real estate seemed the way to go. So, I selected unemployment for about eight months, I got my real estate license, as well, during that time, I studied, went to my classes and then that’s how I got into it.
[4:22] Bryan: That was really cool. Did you invest while you had your job, or did everything come afterwards?
[4:30] Rich: I mean, I only had my house. You know, to be honest, I did have two cars, good, old Mercedes, because I was young, I didn’t know where to spend my money, right? So, I do think about investment properties, I wasn’t knowledgeable at all about investing at all. I just, I was actually trying to save enough money and lock it into a CD or something to where I wouldn’t have to work. And I know that was kind of, that’s a very ambitious, you know, at age, I was 24 at the time. Yeah but then what happened is, all these CDs like there, they would pay somewhere between 6% or maybe 10%, you know, if you invest in like a mutual fund and then eventually, as the market shifted, then they started to reduce those CD rates. So, you can’t really rely on that to feed you just the interest and live off the interest. So, I basically started in my career of selling houses. You know, I had my savings, but I had to sell houses and full time I try.
[5:40] Bryan: That’s really cool. It sounds really similar to myself, as well, right? I did study computer science back in college but unlike you, I didn’t quit cold turkey, I started investing while having a job. I’m too afraid, you know, to hear the story that you didn’t really invest before that and became full time real estate was like, wow, how did that happen, you know, that’s pretty cool to hear.
[6:03] Rich: Yeah, thanks. And the path was pretty simple, too because I realized that my clients were making a lot of money because I was helping them buy and sell their houses. So, one year, they would buy the house for 400,000 and then two years later, they would sell for 600. I knew right away that they’re making more money than me, so I better also get started investing myself.
[6:26] Bryan: Yeah, I like that a lot. So, flash forward to your first deal, right, after you came like full time real estate, what was the first deal like and how’d you find it and how’d you become a part of it?
[6:39] Rich: So, I was pretty nerdy, you know, being an engineer and I was actually looking at loan guidelines and my first deal. I did a couple deals together, so my first deal was a condo and it was also a four plex. And the four plex, I realized that it was in a special area, a census tract area, so I basically come in with about 8% down.
[7:08] Bryan: Oh, wow, what’s the census tract area by the way?
[7:12] Rich: I guess every 10 years, there are certain areas that qualify for special incentives from the government. And a lot of lenders are supposed to lend or provide looser guidelines, so, I think they call it a CRA incentives now. But yeah, I started to read those guidelines and I’m like, oh, this is actually pretty cool and buy an apartment building with more units. And I could borrow a whole, a big amount of money at around, I think it was 6%, which was really good at the time. Actually, it was no, 5.125%, everything else was 6%. And this is like a 40-year fixed at 5.125%.
[7:52] Bryan: 40-year fix, wow.
[7:54] Rich: Yeah. So, I figured, okay, if I can somehow take advantage of this program and my Risk is very little, the apartment building was about $160,000 and 8% of that, you know, with closing costs is about 80,000, right? So, I’m leveraging a big amount of money with very little down payment for myself. And then the condo I was living at the time, so there were some first-time buyer incentives, things like that. So, it got a really good rate of like, 30 year fixed, maybe around five and a half percent, so those were my first two deals done almost simultaneously.
[8:36] Bryan: Wow, that’s really amazing. Because most people would lend money first or be a part of one deal, but you decided, hey, let’s be a part of two deals at the same time. That’s really cool.
[8:49] Rich: Yeah, it’s interesting. Last year, we got a Starbucks, but we also got a development project so sometimes we do 1031 exchange into two deals, which is allowed. One deal typically is less risky, and the other deal might be more, risky. So, we kind of divide the risk into two but it’s totally allowed under the 1031 rules.
[9:09] Bryan: Wow, I did not know that. I just learned something today. Thank you, Rich, appreciate that. Okay, so you kind of hopped into two deals, can you tell us what year this was to, kind of have some sort of perspective, when this all happened?
[9:25] Rich: What year it was, this was around 2005. So, yeah, basically, after I lost my engineer job, I had sold my house, I only had it for about a year and then, so this was me re-entering the real estate market after that, after 2000. So, these two projects, these two investments were around 2005.
[9:50] Bryan: Okay, wow, that’s really, really cool. And then fast forward to now, I mean, I see that you’ve been doing some real estate development projects, and real estate flipping projects, and that takes us to the topic of this podcast, which is how not to lose money on a deal? Can you give us some advice on like your, throughout your experience, like, what kind of tips, what kind of expectations we should have on, how not to lose money on a deal? We’ll start with real estate development first, and over segue over to real estate flipping.
[10:25] Rich: Sure. So, as you know, you make money when you enter the deal, not when you exit. And we are very, very careful when we enter developer project, we always are, we’re definitely not the smartest people in the room, we rely on a lot of other people. So, when we prepare our analysis, we will ask for the seller’s analysis on the development project, will ask for the bank’s analysis, we’ll engage another bank and incorporate their analysis. So, sometimes we’ll spend as much as almost two weeks looking at a spreadsheet, and tweaking it, trying to figure out the risk. And we also tried to figure out the exit, so for example, if the market were to crash, can we exit? Can we hold onto the property? Can we rent out the units? So, it’s a, we have to do a lot of forward thinking, to try to capture as much risk as we can. A lot of that comes with experience but again, we’re also relying on people that are a lot smarter than us with our analysis. And then, you know, we invite those peoples, if they want to be a partner, they can, no pressure, because then they would have analyzed it, they would have blessed it in a sense. And then the last thing that applies with all deals is we prefer to meet the sellers. So, it’s something that a lot of people, a lot of flippers may not do, we always want to understand why they’re selling, you know what’s going on. I am a person that likes to understand, you know, why people do the things they do, as selling is pretty tough. You know, you’re giving up a baby that you worked on for a year, you know, or a couple years. Why are you doing that? So, I want to meet them face to face and I’ll use my gut feeling to determine if they are exiting because it’s a really bad deal, or if they have a genuine need to sell.
[12:33] Bryan: Well, I really like that approach a lot. I think you’re right, like flippers, we don’t really interact with the sellers that much, we interact more with the listing agent and we kind of take the listing agents word for it. And I really liked that perspective where you’re like, hey, I want to trust my gut feeling by reaching out to the seller themselves to kind of talk to them, to understand why they’re selling. So, to me, like, that’s a part of the human relationship approach to real estate investing that I myself haven’t thought about yet but that’s a really good tip, appreciate that Rich.
[13:07] Rich: Yeah and here’s something that I did this week, which is kind of, it’s kind of weird, I didn’t think it would work. But I asked the seller, listen, if, this one development project said, hey, you know what, in a couple months, you know, if you get your cash and we can manage the project for you, because most of the sellers for development says, oh, I got too many projects, you know, I don’t have time to manage it. I asked them, would you be willing to reinvest in the project? And, in this particular case, the seller said, yeah, absolutely. You know, I like working with you and Lana, and I’m happy to even though we just met, you know, I’m happy to reinvest. So, it tells me that the project is a win, you know, they’re really wanting to reinvest into it later on. You know, in some capacity, they can be consultant, you know, they may not be a principal, but at least they’re willing to kind of stay on in a sense, and so that really verifies and reinforces my gut feeling.
[14:10] Bryan: Yeah, that’s a really, really good tip, it’s the seller decides to stay on to the project, obviously, it’s not going to be a bad project. And what they’re telling you tends to be the truth, because unfortunately, in this field, like people will say a lot of things to awkward the project or miss, like, they won’t tell you exactly the accurate information to hear, like that kind of affirmation where they’re willing to stay on, it’s a great tip for all of us to hear.
[14:39] Rich: And you’ll find that, you know, many times the reason that the seller selling has to do with the external factors, not necessarily what they want to sell, but maybe someone in their partnership is making them sell or maybe, you know, it’s in a trust, you know, or something’s happening to where they still care about the property, but they just are being forced to take this action. So, you know, for me, I always wonder, why are they doing that? Because 15:05 [inaudible], they got to expose it on the market, and they worked on it for so long, you know, two years is Menlo Park, you know, the solid worked on for two years, you know, why are they giving that up, you know? So, long story short, you have to rely heavily on your gut feeling and you also have to make sure you check references. That’s whoever it gives you that deal, you want to know, because we’re, so we are all connected somehow, right? For example, I’m sure you know, Sean, Paige, a lot of people that that we know. So, if I can tap into the network to check out a person, then at least I’ve satisfied it. So, if something goes wrong later on, then I would have checked out that person, whether it be the agent, whether it be the seller, or at least I’ve done my due diligence.
[15:54] Bryan: Okay, well, that’s also a very good tip and they’ve, which is segue over to real estate flipping, like, what kind of advice and tips would you have for us not to lose money on real estate flipping compared to real estate development? Is it sort of the same process?
[16:11] Rich: Yeah, actually, you know, I started to realize that these hard money lenders have green as they are, they make a lot more money than flippers do sometimes. You know, if we know that, you know, and no offense anyone, but if we know that, then why do we continue to use them? What I found is that the key thing is that many sellers are willing to give you a 30-day escrow or 35 day escrow, it’s just that no one asked. Just because the agent can earn a quick commission on a cash sale, doesn’t mean you have to be cash. On many of our flips, you know, we’ll say, okay, you know what, we’ll close maybe in 21 days, and rely on a good retail bank that can push that closing and go conventional. And then, of course, you save on the hard money fees, you save on the interest rates. But yeah, I mean, I have another project where the hard money lender made almost $100,000, on, you know, that particular project. And it was just because things like, things weren’t pre negotiated. For example, if you have to use hard money, then ask for an 18-month term instead of 12 months just in case something happens. Otherwise, you’re paying for extension fees that can be as much as 1% for each extension. So, when you buy the property, if you have to use hard money, can I refinance right away? Can I go conventional? Because many of the lenders, you know, we’ll allow that.
[17:48] Bryan: So, we got to check with them the prepayment penalties to make sure that you know, Rifai as soon as possible. I have a question about that though, I think for flipper cases, like in real estate rehabs, most cases, banks will not lend on these houses, so how would you negotiate with the bank or would you just go for projects, a very light rehab, where banks would still lend them?
[18:13] Rich: Well, in general, I would say, in our flipping history, we don’t take on projects that have substantial rehab, it’s just way too risky. So, the most that I’ve seen us do is add a bedroom on a flipping term, Cisco, which has a definite exit, you know, of three to four months’ timeline. But we generally don’t take on substantial rehab because if it’s in such bad condition, I’d rather tear down the house, redevelop it, go modular, and get that thing back up in six months. I don’t want to deal with mold issues, I even look at the windows of the house. So, I look at a house that needs some work, I try to see if the windows which is going to cost somewhere between 15 to 20 to $50,000, if the windows already double pane. So, that tells me that at least that part is done, which is a major cost. And then we can just focus on a light rehab. But there’s definitely are banks out there now that will lend on properties that are in surprising condition. So, it’s out there, the banks are hungry for deals and you might not get maybe a 4% interest rate, but you’ll probably get somewhere between 5 and 7%.
[19:35] Bryan: Okay, wow, that’s a really good tip, I never really thought that. Every time I’m going for a project, I always put like 10 days closing, an all cash offer and no contingencies but you’re suggesting that hey, like we can negotiate with a hard money, which means that we can, like you make a 12 to 18 year term to reduce the risk for extension. So, essentially, you’re not paying the points of funding and you’re suggesting that we can go to the banks and be like, just try trashing the banks like, hey, like, would you guys be willing to lend them this, fix your house, you know, like, that’s a really good tip for all of the flippers and real estate investors to hear.
[20:17] Rich: Yeah, when you go to the property, take videos and photos, because the key thing is that you can send that to your loan officer and you can ask them, hey, this is the video the property, feel free to show it to the underwriter, here’s some pictures. And they might say something like, okay, well, that unit might not be legal, you have to take out the stove and cap the gas, so you have a plan of action. You know, and then think about it this way too, if your deal is 14 days, then you’re going to pay two points to your hard money lender, then why don’t you give those two points to the seller, raise your price that you’re offering them, in exchange for an extension for two weeks so you can go conventional, right? Because you’re going to pay those points anyway so let’s say on a, it’s a million-dollar deal, you’re borrowing 800,000, that’s 16 grand. That 16 grand is probably going to make the seller happy for giving you an extra two weeks and then one thing I always like to think is that, the key thing is your credibility, right, so as long as you have credibility, hey, you know, I have this portfolio, I don’t back out, that’s the biggest fear that a lot of sellers have, in conjunction with that, because you have a really good track record, they’re probably going to give you that extension, so you can go conventional.
[21:36] Bryan: Oh wow, these are really good tips. Can you kind of help us understand this in real world scenarios of cases where you were in a bad position or good position and how did you overcome it?
[21:50] Rich: Sure, there is one, what I realized is that what Lana and I are good is figuring out an exit in case stuff goes wrong. So, we’re good at devising plans and executing on plans, I guess faster than a typical person would. So, one flip that we, got stuck holding, we don’t know if we’re going to lose yet, so hopefully we don’t. But I did not go to the property and we got stuck holding a property in San Francisco that was purchased with hard money. And it was pretty crazy, it was like it was one bedroom on each level.
[22:34] Bryan: Oh, wow, how many levels were there?
[22:36] Rich: There were essentially, there’s two levels only. But in San Francisco, there was, they were renting out the bottom separate from the top. Which you know, at the time, we didn’t know this, but we were basically, we basically had rent control in place, you know, when you do that. So, we had to, when we bought it, we had to pay for the tenant’s, relocation, and so forth and we got stuck holding it. And I kind of delegated a looking at the property and I totally regret that. I had sold a house about two years before that had one bedroom on each level, it was a new house in Fremont and that was like the toughest house that I got. It was basically, I had to basically sell to a family that had a teenager, two kids, but one teenager because the downstairs bedroom isn’t right outside. So, whoever you know, is downstairs have to be responsible, you can’t put young kids on the bottom. But that was super hard to sell, it took me six months almost to figure out that I got myself to carry back a small loan to get that house sold. So, fast forward to this flip, we ended up buying this property and we had a bedroom on each level. And they were, it was really hard in San Francisco to re-architect the plans, it’s not like here, you got big lots. So, essentially, we had to figure out how do we can add a bedroom on either the bottom level, or the top level, but in this particular case, we had to sacrifice a dining room. Now the records in San Francisco are pretty old, so initially, they had it as a three bedroom and they don’t update their records so we kind of got–
[24:21] Bryan: Lucky? Basically, that’s pretty lucky.
[24:24] Rich: Yeah, but at the same time, we had hard money, so every single six months, we’re getting extension requests from the hard money lender and basically, we had to get out of it. My partners wanted to keep the loan, but it was costing us a lot more, so we had to figure out, okay, are we going to sell this thing or are we going to keep it? So, we had to make a decision, to give an example I’m looking at an email like a month extension is about three grands, one-month extension, that does not count the interest for that. So, it was pretty, pretty crazy. Three-month extension is at $8400. So, like, I guess, you know, and the other thing is that we can’t default because the loan will go to a default interest rate of 12% or 14%. So, I had to convince my partners to hold on to the property, we’re going to add a bedroom, so we take it, we have to take it off market and then rent it out because we can’t refinance both on the market. This decision was a very, very, very slow. So, at the same time, you know, when we’re thinking about this type of stuff, and my partners, sometimes they have full time jobs, the loan interest is accruing. So, we had to hold on to that property, we were able to push the rents to I think 4500, which is a big push, and then we refinanced it to a conventional loan. But it was really, really tough because we, in order for us to refinance, we need a letter saying that the loan is, you know, not in default, blah, blah, blah and then it’s also held in LC, we had to deal with title stuff, etc. So, long story short, we kind of know that when we sell this house, for the first time we try, it’s very hard, unless you have a roommate situation where people are buying together, nobody wants to have a bedroom separate from the main bedroom. Well, the first thing we do is take it off the market, get an architect to add the bedrooms. I think we did that for under 10- grand, which is amazing, we converted it into a bedroom. And then because we have a mortgage interest, we have to rent it out. So, believe it or not, after everything is said and done and the refi is complete, we’re losing, like 50 bucks a month. Yeah, it kind of worked out, it’s amazing but that allows us to try to sell it when the tenant leaves. So, the point is that there was a lot of different situations that were going on. You have to be really, really nimble and adaptable but you have to get out of hard money otherwise, that would have just killed this deal.
[27:26] Bryan: Yeah. Wow, that’s really creative, to be honest, and very informative as well. But I do have a question, though, in terms of when you were refining it out from hard money to conventional loan, did you find other external partners to help cosign for the loan or were you guys able to refi on your base off your income already?
[27:50] Rich: Most of our partners are able to qualify for it so, really, the variable here was the fact that it was held in LC. And obviously there are there are tax implications for taking properties and outside of LCs but ultimately, we figured out, you know, and we made everyone comfortable with it, so we didn’t have to bring external partners.
[28:19] Bryan: Yeah, wow. What was that process, like taking the property out of LLC into, I’m assuming someone else’s name for the conventional loan? What was that process like?
[28:32] Rich: It’s pretty straightforward. You go down to the county, you record it, you potentially pay transfer tax. But again, you know, if we kept the hard money, we’re paying $8400 every three months. So, the transfer tax and the impact, you know, is very, very minimal. You have to have a good team behind you to support it, so, partners may not have the resources so I would introduce them to attorneys, or CPAs, because every CPA or every attorney might have a different opinion, right? So, I have to present okay, then this is a potential ramification of doing this. But, you know, knock on wood, everything is stable so far, that market is kind of recovering and we will hopefully exit that one spring of next year.
[29:21] Bryan: Wow, congratulations. Cool, that’s a really cool story. And for our listeners, Lana is Rich’s wife.
[29:31] Rich: Yeah, many people don’t know and different last names.
[29:34] Bryan: Yeah, for our listeners to know about. Yeah, that’s a really, really crazy story. Like, a lot of good tips and advice so far. I really liked it.
[29:44] Rich: Yeah, so the summary is don’t go in with hard money and without an exit, that’s one of the rules. The other thing that I mentioned too, is that, you know, as I touched on earlier, not every opportunity is an opportunity. But if you think about how tedious it is to sell a house or sell a development, everything on the market that’s put on the market is some type of distress sale, a divorce situation, partnership breakup, somebody could have passed away and the kids got the house so everything on the market is a distress sale, it’s just coming in at the right price and the right timing. So, that’s another thing that I realized is that it’s so tedious to sell your house, you got to stage it. So, you know, you got to, even if you don’t have to stage it, even if it’s an ugly house, you’re dealing with, maybe code violations, things like that. So, many people don’t have the appetite for it. and that, therein lies your opportunity. If you’re going to take, you know, help the family out, fix it up. Everybody should win in a situation that’s a distressed sale, not just the investor.
[30:49] Bryan: I agree. In terms of finding your deals, I’m assuming that you kind of source your own deals, and you kind of have first-hand perspectives, since you’re also a real estate agent to kind of know which property to go after?
[31:02] Rich: Yeah, I would say, so I’m a little bit different. So, obviously, at least, so my thing with Sean, the training, you know, like, I could pick up the phone, get comfortable, and call fellow agents and say, hey, do you have any deals? And 9 times out of 10, usually, they have deals that the house might not be ready, etc. So, we have deals all the time where the seller is debating, should I fix it up or should I, you know, should I just put on the market, right? And of course, we tell them, okay, Mr.Seller, you fix it up, you’re going to get a lot more money. But many times, they don’t want to, they would actually rather just do a quick sale. And that’s something that, you know, I always want to try to achieve the highest price for my clients so I want to push, push, push, push, but at the same time, sometimes the seller says, you know, what, Rich, I don’t need to get 1.2 million, I’m happy with a million. And obviously, we don’t flip our own, our retail deals, because that’s a conflict of interest. But there are agents that are like that, where they have portfolio sellers, and the sellers just want to get rid of it. So, essentially, you know, I used to go out in the field, kind of crazy, I sit on the field and visit broker offices and I said, okay, what am I selling today? Like, okay, if I have an exchange coming, then I’ll have some money so do you have any deals? So, I would go face to face with a network of brokers, and basically sit down with them. And I found that many of them will call me now and say, hey, Rich I got this deal, this is what my seller wants, I think it’s too high. I say, okay, well, you know, send me the analysis, I’ll give the analysis, and I’ll give you an answer right away. That’s the key thing, is being able to give your deal source and answer right away because nobody wants to waste time or burn time. So, I go out in the field, I get the deals, I rarely actually do calls, cold calling, but I know I can. There’s a lot of deals out there, you just have to do your analysis super-fast. So, you have to have a good team behind you, that can pull comps, that can figure out the rehab costs, and then you have to go potentially fundraise in case you don’t have enough. So, that’s just the cycle. So, it’s like we spend, maybe, I don’t know, we spent some time, we kind of do different modes, where we’re in rehab mode, you know, right now working on a couple of different projects, all of them are flips. And then we go out and get more deals and then we go rehab mode. So, I’m sure that, you know, a lot of investors are like that. But you always have to have a running pipeline, and you have to have someone to manage the existing pipeline.
[33:51] Bryan: Okay, and for our listeners that don’t know the video, so Rich Kwok and Sean Penn, he did a YouTube video cold calling real estate agents, I’ll also include that in the show notes as well but it’s a very good walkthrough introduction, how to cold call real estate agents to find real estate deals.
[34:14] Rich: Yeah. And then the other thing is to make sure that you’re partnering with the right people. So, I look back at the deals where, I wouldn’t say we lost but I would say we didn’t work and you know, there wasn’t payout. And it was just because sometimes the people that, if you delegate your control to someone, pretty much putting your fate in their hands. So, that includes if you have funds, and you say, hey, you know, I want to invest in this flip and then you’re relying on the other person, you’re not checking references, many of the times, the opportunity, or the person that’s in charge of the deal, may not even view you as a partner. So, they might view you as a funder or an investor. So, that means that if you don’t build your controls in place, then you position yourself to lose, either time or money because of that. So, make sure that you check references on your partner, and make sure that you build in some key controls in your operating agreements, make sure you do weekly accountability calls, you know, things like that.
[35:25] Bryan: Okay and it’s also, yeah, I mean, that’s a good point. I mean, you also want to be really upfront, to be in the project, to be like, hey, like, we’re going to delegate this and that together, we’re going to work together or, in some situations, you are just a private money person, you know? So, I think it’s good to have that communication up front and to be clear before you start the project, otherwise, it’d be very confusing. I’ve been in this situation before.
[35:52] Rich: You know, you have to have your weekly calls. Even if you just view yourself as an investor, you have to have your weekly accountability call. Even if you’re investing 100 grand and everyone else is investing half a million, you know, it’s your money, you have to hold it, you have to hold other people accountable. You can even build things. If you’re a pure investor, you can say, hey, look, based on this timeline here, I’m going to invest this much right now, I’m going to invest this much, you can basically build a draw schedule in there. And, you know, the, if they really need your funds, then, you know, at least you’ve got some control mechanisms in place. And the other thing is, because reputation matters in this business, you always want to do the right thing. So, that means that we’ve had deals where we’ve personally taken the hit and of course, we pay the investors, whatever, you know, whatever we promised them, you have to do the right thing, because this is your investor pool. I remember going to a seminar one time and even a thank you card, you know, for helping you know, with your deal help, because relationships are so important. You never know when that investor you need to rely on for a future project. I had them in the park development and that was a little crazy. It got, we took on six partners for that project and it was just too negative last year, I don’t remember but the market kind of shifted.
[37:16] Bryan: Yeah, it hurt a lot of us here in the Bay area.
[37:19] Rich: Except for Menlo Park. So, in the news, you know, every day they’re hearing, oh, markets crashing, you know, recession, blah, blah, blah. And so, it was really stressful for me, because I want to make everyone happy in this herb but then I got negative partners that are saying, you know, it’s doom and gloom, and let’s dump it, we had just bought that land for 5 million, and they wanted to dump it for four and a half and everybody would lose. And what’s weird to me is that everyone was okay with losing. Everyone was okay with losing a couple hundred thousand dollars, except for me and Lana. And I have to say, okay, well, you know, I’m looking at my stats, Menlo Park, I had to get really intimate, I had to know Menlo Park by heart. So, I had to know, their most recent sales, because if I don’t, partner would say, hey, look at this sale, it shows that the market crash. So, long story short, I had to get an investor to buy out the negative partners which I didn’t even think of as an option, going out. I thought, okay, you know, what dumped the land, that was what everyone wanted to do. And I said, you know, hold on, guys, you know, I tested the market, you know, the value was not that great. I realized that if I can bring them, buy out the partner, do the right thing and pay them what they paid into the project, versus taking a hit, then, you know, they’re happy, because it’s those two partners weren’t my relationship, they were someone else’s relationship. They get paid back their interest, we get on a new partner that’s positive and so that’s how we still have the project today. Otherwise, we would have lost, probably everyone would lost somewhere between 100 to $300,000 on that project. It’s very stressful to be the only guy that says, hey, you know what, hold on, let’s think of another way to do this thing, okay, you have to be, when you have those accountability, weekly meetings, you realize that the group is going towards a losing mindset, you have to change that. And, you know, I had no idea since I had no idea how to do this but I knew that with good attorneys, we could rewrite the operating agreement, we could create a buyout schedule, basically make them comfortable, and then bring on people that are more positive and that are that are, you know, willing to, to believe in the project. Of course, you know, luckily for us, you know, Menlo Park is holding steady, at a roughly about 1400 square feet. We just got the appraisal in, our evaluation was about 13.8 million exit for three houses, an appraisal came back at 14.5. So, you know, I’m not, I don’t say like, look, I don’t rub it in and say, look, I was right the whole time, because I didn’t predict the market. But at least we held firm, and we were able to take it to the next step, and then get partners that really wanted to. So, we kind of view things a bit differently now, where, you know, given our experience, we don’t want to find, we want to make sure that we have the control mechanisms in place so that stuff like that can happen, you know, the negativity can be contagious. And most products will fail, if somebody is of the mindset of, hey, you know what, we’ve already lost. That’s something that’s hard to change so make sure you partner with people that are positive, and that genuinely have a goal to win. Because, otherwise, they might say, sadly, take you down.
[40:51] Bryan: Wow, that’s some really powerful words and tips and advice. Really, really appreciate that Rich. As we’re coming towards the end of the show, I usually ask people a couple questions, just based off yourself, you know, I just want to know, I just want to give a viewer like a good sense of who you are, and how you are as a person. So, the first thing is, how do you keep yourself motivated after all these years in investing? Do you have any morning routines? Do you have any affirmation that you practice? Like, what do you do to keep yourself going every single day?
[41:27] Rich: Well, I, those of you who don’t know us, I have three kids. pretty young, five, three, and three, I have twins. So, it can be quite tedious to balance to balance this career, and then also the kids. But the kids are the way keep us motivated because if we can teach some of these valuable concepts to our children, like check references on partners, use your gut feeling, do the right thing, if we can kind of pass that along to our children, at least, you know, our legacy will have these values moving forward. So, I think that motivates me significantly. And then also, you know, I started kids like in life, so for me, I’m, if I can build a passive income portfolio that generates, you know, maybe 200,000 a year passively, then no, it’s great. So, that’s basically it. So, we can, you know, bond, I can travel more, enjoy life. So, that’s a really good motivation. And then also, teaching, helping and teaching, I mean, it’s why I’m doing this podcast right now is because there’s always lessons that you can learn. So, I love, even if the client doesn’t buy anything, I love being able to present that there’s opportunities that they may not have seen. So, I met with the seller for this new development that we’re acquiring right now and he’s like, okay, I’ve never bought a Starbucks before, I’ve never bought a, you know, I’ve never had the multifamily before. So, he’s willing to learn from me, I’m willing to learn from him. You know, we have the right mindset. So, even if when he sells this to me, there’s still going to be a relationship there and an opportunity for everyone to learn.
[43:12] Bryan: Yeah, that sounds really, really cool. And I guess the final question to end the podcast is, Rich, what is your favorite book?
[43:21] Rich: So, I really love Rich Dad, Poor Dad. I love the book called Cashflow Quadrant, because it’s not as theoretical, it teaches you that if you can, if you think of investing an income as quadrants, then, if you can generate income from all the quadrants, then great. For example, you need to add value to income, otherwise you can’t get a loan. At the same time, if you have money, you need to invest it, so you need to you know, learn how to draft investments, you know, and you know, watch out for your money so they can grow, so I love that. My favorite non real estate book is Ender’s Game, I love that book because I actually went to military school growing up, so it kind of, it’s a pretty interesting book, so Ender’s Game is one of my favorite sci fi books.
[44:20] Bryan: Okay, well maybe know that, hey, Rich, how can our listeners find out more about you and reach out to you?
[44:27] Rich: You can find me online, you can go RichKwok, I’m out there. I am happy to send anyone a private video I have that talks about investing in commercial projects, things that are out of state that might be more lucrative. So, if you just Google my name Rich Kwok, you’ll see me out there or my website RKwok.com. I love helping people. I don’t mind sitting down with anyone and you know, helping them invest.
[44:54] Bryan: Cool, awesome, Rich, hey, thank you for all your tips and advice on how not to lose money on deals. It’s a really, really informative and great podcast. I appreciate it, thank you for being on the show.
[45:06] Rich: Thank you, Bryan for the opportunity. Yeah, all right.