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Show Summary
In this conversation, Kevin Kozak discusses his investment strategy focusing on long-term rental housing, particularly Class C properties. He emphasizes the stability of investing in properties that have been around for decades and the challenges faced by new construction in meeting affordable rental prices. Kozak highlights the potential for profitability through the renovation of vintage properties, allowing for competitive rental rates without the pressure of new supply in the market.
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Kevin Kozak (00:00)
lender to actually fund the whole down payment for the project. And what we’ve done is given up 5 % equity in the operating agreement where we pay a monthly interest only fee for the two or two and a half year hold period while we stabilize the project. And then kind of how we get them out of the deal is upon the refinance and return of capital, our operating agreement says that they will relinquish that 5 % equity back to us.Kristen Knapp (01:58)
Welcome back to the Real Estate Pros podcast. I’m Kristen and I’m here with Kevin Kozak, who’s an investor out of Columbus. We’re going to talk about long-term rentals, scaling quickly, how to build a team. We’ll get into a lot of good stuff. So thanks for being here, Kevin. Amazing. So, you know, you’ve been able to do a lot with your portfolio in a relatively short amount of time. I want to go back to the beginning and talk about how you got into real estate, how you fell in love with it.Kevin Kozak (02:10)
Thank you.Yeah, watched a bigger pockets video in probably 2018 on the burr method and the ability to recycle capital. And personally, I just love the idea of being able to physically add value to a property versus a stock that I had no control over. So that’s really what kind of drew me towards real estate in the first place.
Kristen Knapp (02:41)
Amazing and talk about kind of getting into the industry and scaling to where you’re at now.Kevin Kozak (02:46)
Yeah,so our first kind of two investment projects were in central Ohio in 2021. One was a flip and one was a burr. And both of those came from direct to seller marketing. So that I think is a important aspect of kind of our journey so far has been, you know, we didn’t enter real estate with a ton of money behind us or personal capital. So finding great opportunities that we could raise money for or bring partners in has kind of allowed us to scale our portfolio pretty quickly. So predominantly our
long-term rentals have been acquired either with creative finance or the BRRR method and we’ll typically bring in like a private lender or private partner to fund either the down payment or the total project amount and then we’ll try and recycle that capital as fast as possible by renovating the property, bringing it to stabilization, refinancing with a long-term lender and then finding something else.
Kristen Knapp (03:39)
Amazing,and talk more about your direct to seller marketing approach.
Kevin Kozak (03:44)
Yeah,so when we first started, did have a little bit heavier of an outbound approach between cold calling, texting, direct mail. Since then, we have shifted away just with some of the compliance issues around calling and texting and general laziness, I’ll say, where we still send out a lot of mail. We put a lot of time into our website SEO. We do some paper lead and then ⁓ just really focusing on one specific market has allowed us to actually acquire deals via
just referrals. So those are kind of our main lead sources now. And I do some kind of targeted calling to portfolio owners or larger multifamily owners where it doesn’t make sense for me to call all day, but having a pretty specific list of ⁓ high quality targets is kind of what we do for our marketing.
Kristen Knapp (05:33)
Absolutely, and talk about kind of where you’re at now and the amount of units you’re, you under that you have and that you’re managing.Kevin Kozak (05:41)
Yeah, so right now we have just under 400 units that I’m an owner in. So 250 of those, I’m a majority owner and we actually have a separate management company that we manage everything under. So that is, we kind of treat ourselves like a third party owner that just helps keep things separate. Tenants don’t know who we are from an ownership standpoint. And then the other 150 or so units are just partnership deals that we have third party management on.Kristen Knapp (06:10)
Amazing. So talk more about that self-management process and the challenges that you have with it and the upside of doing yourself.Kevin Kozak (06:17)
Yeah, so in just from 21 to 23, we had a lot of complaints with third party management. We were doing weekly meetings. You we had a portfolio to protect at that point and just weren’t didn’t feel like third party management cared enough, did enough work, communicated with residents, jumped on top of maintenance. So at the end of 2023, we gave six months notice to the management company that we were using for the bulk of our portfolio. And in April, twenty twentywe actually took that back over from them ⁓ under our kind of management umbrella. And that’s really given us a lot of operational control between seeing expenses, being able to direct maintenance, crews, communication. We went pretty tech heavy on the front end so that as we continued to scale, we wouldn’t have to continuously implement more softwares and processes. So we just kind of grew with the, or set it up with the intent to grow.
the first place. right now, yeah, we have 14 employees. So that’s kind of a little chaotic to think back to the beginning of last year. We hadn’t even started managing yet, but we have several in-house maintenance techs. We have a designated like heavy turn crew, four guys that handle a lot of those like reposition unit turns, heavy unit turns if someone trashed a unit, and then they’ll also kind of jump over to some of our flips as well.
Kristen Knapp (07:26)
Wow.How interesting, so at the beginning of the year, you guys weren’t even managing and you’ve been able to hire all of these employees and kind of make it a well-oiled machine. Can you talk about how to hire? Like what are your hiring tips? I feel like that’s one of the hardest parts.
Kevin Kozak (07:57)
YeahYeah, that’s definitely a good question and continuously learning on that front. ⁓ We were actually fortunate enough to purchase a property where we inherited our first maintenance technician and ⁓ older guy, he has really, you know, shown us like that age isn’t necessarily that important. He runs circles around some of the other guys that we’ve hired and fired over the past year and a half. So, ⁓ yeah, we got lucky on that one from there. Since we’ve been a part of a
of
local real estate investment groups in central Ohio. That’s where kind of our next two hires came from. We also have done some job listings on Indeed and I would say I guess my best tip is you don’t hire the first person that checks the minimum boxes. We made that mistake ⁓ with one maintenance guy and it lasted three weeks before we had to let him go. So definitely like take your time. Yes it’s going to take time to find the right person but ⁓ that’s
definitely paid off for us and kind of being a little bit more selective on who you decide to work with. But yeah, I would say referrals have been huge there, just being active in those other groups and another investor says, hey, I know this guy’s looking for more of a full-time opportunity. That’s where a couple of our current employees have come from and those have worked out really well so far.
Kristen Knapp (09:55)
Yeah, I do feel like referrals are the best way to hire somebody, especially if it’s a referral from somebody you already trust. How do you kind of build up your network to get these people in your circle?Kevin Kozak (10:07)
Yeah,so a couple of things again, because we’re so hyper focused on a specific area outside of Columbus, we’ve had the opportunity just over the past couple of years to connect with other business owners outside of real estate and then also just attending general real estate networking groups. I think those are probably two of the easiest or low hanging aspects to get in touch with some of those people that are in the same geography.
Kristen Knapp (10:33)
Yeah, absolutely. And you mentioned being very focused on a specific geographical area. I would love for you to talk about kind of the strategy there, because I know that there’s two strategies. People can go wide or they can go deep, and kind of your strategy with going deep.Kevin Kozak (10:48)
Yeah. So in 2021, I actually, I had coffee with a real estate investor who he’s an older gentleman, been investing for 30 to 40 years. And we had kind of toyed with the idea of starting to market to Kentucky and Indiana. And at the time we had already started purchasing properties in a couple of counties outside of Columbus. And he just said to me, you know, you’ve got a good thing going. You already are kind of building momentum. Like why spread yourself too thin? then, and then.really what he said was, why don’t you just suck the oxygen out of that market? And that was probably the best advice that we got, especially that early. We immediately stopped marketing to any other states and now we just market to three specific counties of less than 500,000 people. So that has allowed us to kind of compound not only from like, we’re talking to a lot of owners over and over and you know, we purchased the five unit at the beginning of this year that I had been speaking with the owner for four years.
So you kind of build momentum from the marketing side, but then also a lot of the projects we’re doing are heavy repositions that involve ⁓ the building officials from a zoning and building department standpoint. And that has allowed us to build relationships with those people that really can make your life very difficult or very easy. A good example I have is a three unit full gut project that we have. It’s commercial, so it’s supposed to go out to the state for engineered
Kristen Knapp (12:07)
Yeah.Kevin Kozak (12:16)
Drawings and state level permits and because it’s still just the three unit the city Made the internal call to say like hey, we know you guys we know you’re gonna do good work We’ll keep this in house. You don’t have to go to the state so that that I think is a benefit of focusing on one area and actually building relationships on a long-term time horizon versus Casting that broader net and which certainly can work, but I think from a long-term buy and hold standpoint We get a lot of operational efficiencies by beingKristen Knapp (12:42)
Right.Kevin Kozak (12:46)
so hyper focused.Kristen Knapp (12:48)
Andyou’re able to manage the units because you’re close to the area.
Kevin Kozak (12:51)
Absolutely, yeahthat’s a huge piece of it.
Kristen Knapp (12:54)
Yeah, you feel like, does it ever feel like you’ve kind of exhausted those areas or is there just always new stuff popping up?Kevin Kozak (13:02)
Yeah, that’s that’s there’s definitely not like a massive surplus of opportunities. We’ve been consistently able to pick up around one larger project a year from our marketing efforts. Would we love to have two or three? Yes. But at the same time, we’ve been able to continuously add units to the portfolio. And ⁓ the way I think about it is a lot of these mom and pop sellers that we’re talking to, they’re ticking time bombs that might not be this year next year, but in five years, if we stay consistent,We’ll keep chipping away at the supply and the marketplace. And then also just kind of aligning like our personal growth goals. You we’re not trying to get to 10,000 units. We have some kind of lifestyle goals for where the business will take us and some family goals that’ll give us the time freedom to do those things. yeah, that I think, you know, if someone had the goal to go to 10,000 units and was looking at three counties of 500,000 people that might not be
the best fit but it has worked for us and kind of aligns with our vision.
Kristen Knapp (14:04)
amazing and I’d love for you to talk about you know you’re in mostly the long-term rental game. I would love for you to talk about kind of the opportunity there and why there’s longevity.Kevin Kozak (14:57)
Yeah, so I’m definitely a lazy person. I like looking at strategies that don’t require a pivot every three months based on changes in the industry. think Airbnbs have been very popular over the past several years. again, when I look at opportunities from an investment standpoint, I like looking at the things that have been around for 50 years and are going to be around for another 50. And to me, like Class C rental housing, long-term rentals is reallylike the safe long-term strategy that probably isn’t the most profitable from a unit profit per door. But again, looking at the new construction coming online, builders just can’t construct properties that rent for $800 a month due to the cost of materials and labor, land acquisition, development, and all of those aspects. So for us to be able to buy a 1970s vintage apartment building and renovate it from 1970s
vintage to today, still make money charging $800 to $900 a month in rent just allows us to not really have new supply competition in the marketplace. So to me, one of our rental screening qualifiers is if someone makes three times the monthly rent and with a price pointed a unit that’s at that price point, we’re talking about someone that can make $15 or $16 an hour working 40 hour weeks over the
course of a month and can still afford our unit. So I just don’t think that’s going anywhere and you know if things pull back on the job market side someone that’s making 25 an hour and is now making 20 can still afford our rentals. So to me that’s the security you know we maintain a very high occupancy our collection percentage remains really high so those are all things that are kind of reassuring for the long term to me specifically focused on the long-term housing.
Kristen Knapp (16:52)
Absolutely. I’m gonna wait for this plane to go by that’s so noisy on my end. Just one second.Kevin Kozak (16:57)
No worries.Kristen Knapp (16:58)
Okay, yeah. No, I think that’s so important because I think a lot of, know, whether it be new developments or renovations, I feel like people kind of go for that luxury market. And, you know, I’m in Los Angeles and I feel like that’s all that’s popping up is like these luxury areas in honestly cities that don’t really support that. So I do think it’s so important for people to provide affordable housing.Kevin Kozak (17:26)
Yeah, I totally agree. you know, I can certainly understand why that’s what builders are building. They might as well try and achieve peak market rent when the cost to build from a finished standpoint will be so comparable between, you know, trying to stick to that lower end. just doesn’t make sense with the cost to build right now.Kristen Knapp (17:45)
Absolutely. So you’ve been able to scale very quickly with your business. I’m curious about maybe something you’ve learned along the way, maybe something didn’t quite go your way that you can share with people.Kevin Kozak (17:59)
Yeah. ⁓ I’ll yeah, two different parts, I guess. So one thing that we’ve kind of learned and my, my main partner and I are both younger guys were in our twenties. And so when we’ve looked at some opportunities to bring on partners, we’ve, you know, had a misalignment of goals for the project from a, a hold time, I guess I’ll say where, you know, some partners want to recycle their capital pretty quickly, sell the project and three to five years and keep rolling. Andfor us, we’re building the portfolio to give us that passive income monthly where we can kind of live the life we want with no actual intent to sell any of these properties. So that was a lesson that fortunately, I would say we’re still early in our journey. We learned that soon, sooner than later, where we don’t really do any outside partnerships anymore. And not that we’ve had any partnerships go poorly, more so just we are on a 30 year time horizon. And that’s not very common for a lot of investors.
that we’ve interacted with. Now on the other side of that, I’ll share maybe just something about how we’ve purchased some of these larger apartment buildings or mid-size 35 to 50 units. A lot of investors I think that I’ve spoken with struggle with giving up equity in those types of projects where they don’t have the million dollar down payment. And so how we’ve been able to structure those and retain equity for ourselves in its entirety is bring on a private
lender to actually fund the whole down payment for the project. And what we’ve done is given up 5 % equity in the operating agreement where we pay a monthly interest only fee for the two or two and a half year hold period while we stabilize the project. And then kind of how we get them out of the deal is upon the refinance and return of capital, our operating agreement says that they will relinquish that 5 % equity back to us.
And so that has worked well because
It kind of solves the piece for the lender of well, where is this million dollar down payment coming from? it’s coming from a partner but because that partner has less than and it depends by lender But most of the lenders that we work with anyone that has more than 20 % equity in the property or in the entity is required to sign on the loan as a grantor and Because we’re only giving up 5 % they don’t have to sign on the loan. There’s no additional You know things that they’re responsible for so
Kristen Knapp (20:02)
Yeah.Kevin Kozak (20:25)
We’ve done that on several projects now. And in the event that, you know, the project goes over the timeline that we had thought about or over budget, ⁓ we actually have like just a couple other pieces written into the operating agreement from an extension standpoint to buy us more time. And most of those investors that we’re working with, we’ve kind of worked them up the ranks of funding a $50,000 project and slowly increase that amount so that now they’re comfortable working with us on those much larger amounts.out.
Kristen Knapp (20:56)
Yeah,I mean, I think that’s a really good tip for people. That’s a very practical tip that people can actually utilize in their own business. ⁓ think it’s just, I think it’s so…
interesting that you guys are able to kind of set yourself up for this long-term vision and I think it’s important for people listening to kind of figure out what they want out of their portfolio. I think a lot of people starting out in the business or even just in the business just are like I want money and they don’t really have the vision of what they want from it.
Kevin Kozak (21:29)
Yeah,and I do think I’ll say I have contemplated this over the years, the past couple years of, hey, what if we just sold everything and owned our six unit, eight unit and 10 unit and had them paid off and cash flowed $15,000 a month. And I think that’s probably maybe great from a short term, like, hey, I’m making this much a month. But one of the biggest benefits of owning real
estate is the debt pay down that your tenants are really paying when you kind of zoom out and look at income expenses. And so by having a larger portfolio that might not cash flow as strongly as you’d like, you also have to take into account the debt pay down on an amortizing scale, which is only going up. you know, right now we pay about $17,000 a month in principal on our loans, which we would give up by selling everything and just
having three paid off, you know, smaller multifamily properties.
The cash flow is what allows you to survive, put some money in your pocket month to month, but long-term wealth is really equity and that just takes time. yeah, hopefully that’s not news to too many people, but it definitely was for us listening to bigger pockets in 2018. I’m thinking we can buy 10 units and make $10,000 a month. That’s just not the case in real estate, but it is a sure thing on a long-term time horizon.
Kristen Knapp (22:52)
Yeah.Well, I think that’s so important to call out and I think that’s very helpful for people. Yeah, you’ve been able to, you know, talk about self-managing your units and scaling quickly and building longevity, ⁓ which I think is so important in this industry. So tell people where they can find you.
Kevin Kozak (23:20)
Yeah, I’m most active on Facebook, Kevin Kozak, K-O-Z-A-K. I try and post a couple times a week just relevant things that we’re doing in the self-management or general real estate world. So yesterday’s post was ⁓ just about a five-star review from a tenant that we evicted. So try and put some humor out there and share some actual things that we’re dealing with in our business. ⁓Kristen Knapp (23:45)
Amazing.Well, I really encourage everyone to check Kevin out and kind of follow along in his journey. So thank you so much for being here.
Kevin Kozak (23:53)
Thank you for the opportunity.Kristen Knapp (23:55)
And thank you everyone for listening. We hope you learned a lot and got some inspiration for your own business. So we’ll see you next time.
