Cash Flow Isn’t Enough: The Real Estate Investing Mistake That Can Wipe Out Your Profits

Kyle Duelund (00:00)
two rules of thumb when it comes to capitalization. One is if you’re buying real estate, you should have 10 % of your portfolio’s value liquid available somewhere that you can deploy within 48 hours. So you buy a single family home for $100,000. Fantastic. Congratulations. But have $10,000 available somewhere. Line of credit, credit card, business partner that

Within 48 hours, you can free up capital to change a roof. roofing a couple of windows because there was a big storm. Who knows what can happen?

Michelle Tack (02:04)
Welcome everybody to Real Estate Pros podcast. I am your host, Michelle Tack the podcast leader and have a great operator today that will be speaking with Kyle Duelund. Kyle, do you want to have a take a shout out to the team?

Kyle Duelund (02:19)
Hello everyone, it’s a pleasure to be here. Hopefully I can provide you some great value in a short amount of time.

Michelle Tack (02:24)
Kyle, thank you for that. What I really enjoyed about learning about your business is that you’re doing something fairly unique, which is that you’re taking a lot of primarily Canadian investors, but also overseas ⁓ investors, which is great. And particularly getting investments going in Ohio and also have, in addition to that, a sober living.

⁓ facility and I know that the properties that are being bought are one to four units. How about you describing your business for those that may not come from your world, i.e. getting foreign investors and ⁓ great opportunities into Cleveland and other areas in Ohio?

Kyle Duelund (03:12)
Beautiful. Absolutely. It’s my pleasure to do so. So basically what we do our specialty is teaching investors to invest outside of their backyard. So the remote real estate investing system process really forcing people to become business owners instead of business operators. Now, of course, it’s nice to have both hats and both skill sets, but at the end of the day, especially if you’re looking to scale, you’re going to have to remove yourself from operations, remove yourself from being an operator and become more of a business owner.

And so, being Canadian myself and my partner, being Canadian, we started and we specialize in helping Canadians invest in US real estate because the opportunities are just so much larger and more varied and diverse in the US than they are in Canada. We can get into that maybe some other time. ⁓ so we started there and over the years, because we’ve been doing this over a decade now, helping foreign nationals invest into the US, we realized that it’s not just

Canadians that can invest in the US, but we have the Europeans, Australians, anybody really? And fairly recently in about last two, three years, we’ve also been focusing on the California investors, the New York investors, the Florida investors who want to invest where the numbers make more sense. ⁓ And for us, our number one criteria is cash flow. We want there to be money left over at the end of every month after paying all of our expenses, taxes, insurance, management, maintenance, mortgage, utilities, and even the shit buffer budget.

of at least $100 per month per thousand square foot of real estate purchase. So we’re really padding the budget. We’re making sure we’re not skipping any expenses and we want cashflow. So really in a nutshell, that’s what we do.

Michelle Tack (05:40)
That’s awesome. Help me understand, given the fact that it is, you’re dealing with diverse people, right? From different countries, mainly Canadians, go Canada, I’m half Canadian, but also from Europe and overseas. How do you keep your business running, operating smoothly given the fact that, you you’re on different time zones, you may have different infrastructures that you have to deal with. Can you talk a little bit about the operational side of the business place?

Kyle Duelund (06:10)
Yeah, absolutely. And it didn’t just happen overnight. Like I said, it’s been over a decade that we’ve been perfecting the systems of our own business, not just the real estate investing business, but the teaching and the supporting of the real estate. But we do have, you know, infrastructures and systems, coaches that are on the West Coast. Obviously, we’re Eastern time zone here in the U.S. I mean, Cleveland, Ohio is where headquarters are now, even though I am Canadian.

But we also have staff that’s out in the Philippines. We got staff a little bit all over around the world to help support Round the Clock.

Michelle Tack (06:44)
That’s great. know, as what caught my attention also is your ability to be diverse and taking some of your passions and being able to execute on that. Can you talk a little bit about, which I thought was fascinating, the four sober living facilities and what you’re doing around that in the area in Cleveland?

Kyle Duelund (07:04)
Well, absolutely. so sober living residences are a fairly newer venture. It’s been less than a year that we’ve dived in, but we’re actually up to five residences right now. And instead of renting long-term or renting ⁓ more traditional ways or flipping whatever, what we’re doing is we’re renting by the room or even by the bed. So it depends if it’s a level two or a level one sober living facility, but we’re renting as low as $97 a week.

to people who are on their sobriety or recovery journey. So we’re taking people from off the street, we’re taking people from shelters, we’re taking people from ⁓ reentry centers, from treatment centers, you know, almost right outside of the emergency rooms. And we’ve contacted the over 100 nonprofit and profit, you know, institutions and organizations, I should say, in the greater Cleveland market to be known. We mind homes, we mind recovery.

is that particular business. now it’s been an intense six, it’s been eight months now that we’ve been just getting the word out there that we exist and we’re creating partnerships all across the way to create that front end funnel of residents that they’ve seen. All the organizations have seen the quality of the housing we produce, our community directors, know, the support, the accountability ⁓ to help people become sober and stay sober.

And this is one thing that you don’t even know actually, it’s called the key to freedom. Not only do we want to provide safe and affordable housing and sober housing for these people, we want them to become homeowners in the next five years. So from the street to their own home, pride of ownership and really anchoring in that core piece of, I think what makes life living a little bit is the pride of ownership.

You know, and actually this is a really conservative estimate because actually I can do it in two years. In the U.S. there are incredible home ownership programs. No down payment, no credit, bankruptcy in the last three years, it doesn’t matter. There’s incredible programs available in the U.S. for American citizens. I can’t tap into it because I’m Canadian, but I know of them and I can help people, you know, achieve that dream.

Michelle Tack (09:24)
That’s awesome. You know, as we were talking previously, you know, and you just referred to briefly when you start another segment of the business, although it’s not your main focus, but it certainly is a focus for you. Things get complicated, right? You’re now have two focus areas. ⁓ Can you tell me maybe about a situation? It can be with either piece of the business where a situation arose.

Maybe it was a deal going sideways that you had to ⁓ figure out pretty pivot quickly, whether you were able to save it or not, but you had to pivot quickly and make other maybe uncomfortable decisions. ⁓ Can you talk to you maybe something like that? Or if it isn’t that something that resembles something like that in your recent, like the last year of your business. ⁓

Kyle Duelund (10:53)
Absolutely. yeah, of course. And after 10 years, you certainly have stories to share. And when you said things that go sideways and things that go a little bit according to plan, the first thing that came to mind was our first mobile home park that we purchased out in Michigan. And we’re very good at finding great deals at cash flow and that we buy at a discount, that’s fine. But that doesn’t mean it’s 100 % foolproof, fail safe.

And I always remember this first one that we bought a mobile home park just under 30 lots for under $30,000 out of pocket. And it was cash flowing thousands of dollars a month. however, what happened over the next year was that we realized that there were some problems with the water lines. So even though…

We had inspected, we had done our due diligence, we knew the water lines were older, but we also had proof and receipts that the previous seller had invested over $100,000 to fix them. So we were like, problem solved. Well, turns out that $1,000, that portion was solved, but that wasn’t the whole system. And so the other older lines started breaking and then we were just spending all of our cash flow into fixing this problem that just kept on, oh, we fixed one, another one breaks. We fixed one, another one breaks. And every time you…

bring out an excavation company and replumb under the ground, especially in the winter, well, you’re five, $10,000 every pop. So it’s real nice that your park is cash flowing $3,000 a month. If you’re out $5,000 every month, well, not really so cash flow positive. And so the big lesson here is, ⁓ thankfully, we were able to sell, full disclosure. There was plenty of opportunity and upside in the park. So if you buy it right, if you buy it at a discount, you buy something that cash flows,

That’s your first safety net. That’s the first protection in anything. Second thing is if you are starting into larger assets, mobile home parks, apartment buildings, multi-million dollar assets, you never want to under capitalize. You always want to make sure you have enough money not just to buy the thing, not just to optimize, but to handle any sideways misfortunes that can happen.

A series of unfortunate events is a movie, but it can also happen in your real estate business.

two rules of thumb when it comes to capitalization. One is if you’re buying real estate, you should have 10 % of your portfolio’s value liquid available somewhere that you can deploy within 48 hours. So you buy a single family home for $100,000. Fantastic. Congratulations. But have $10,000 available somewhere. Line of credit, credit card, business partner that

Within 48 hours, you can free up capital to change a roof. roofing a couple of windows because there was a big storm. Who knows what can happen?

And on one property, that’s not so scary, but think about it when you start buying a million dollars worth of real estate. 10 million, 100 million. 10 % is a big chunk. And just because you own more real estate, doesn’t mean you’re all, I’m all good. I don’t need no buffers anymore.

Michelle Tack (13:43)
Absolutely.

Actually,

you need more then, right? Because you have a bigger portfolio that could go awry.

Kyle Duelund (14:03)
And so I’m speaking from experience, know, don’t get too big for your britches. That 10 % is vital. The second little rule of thumb is if you are getting involved in larger renovations or value add projects, in addition to the 10%, I want you to have 50 % more than what you think that renovation is going to cost. So for example, we, last year we got this close to buying one of the millionaire row mansions here in Cleveland. This is into it. Yeah, it’s really, really awesome.

That purchase was about $600,000 for a 20-some room property. We’re going to make it. It was an incredible project. I’m little heartbroken about it. But the point is, we had originally budgeted $800,000 for this renovation. But after due diligence, being in a historic building, and blah, blah, blah, it ended up being well over $1 million. And so if we had just squeezed in with that $800,000, and now we need $400,000 more. Yep.

Michelle Tack (14:53)
If we

Kyle Duelund (15:00)
It’s a lot less fun to ask for money when you need it.

Michelle Tack (15:03)
Absolutely.

Kyle Duelund (15:05)
then upfront say, the target is 800,000, but let’s make sure we have an extra 40 % in case. And I’m of the opinion to even pay for that assurance, even if your investors or they don’t need to deploy the capital, pay them one or 2 % for money they don’t even have to move just in case it’s there. And if they do have to move it, make it extra nice for them, then I’ll pay you instead of a 12%, I’ll pay you 15 % on that money, whatever the case. But have it there in advance.

Michelle Tack (15:09)
Or absolutely.

Kyle Duelund (15:33)
Because when you need it, that’s not the time to start making calls.

Michelle Tack (16:17)
Absolutely. know it’s something that you you’re doing some really interesting marketing things which I want you to talk about but with that I also know that you’re focused on growing your network. Can you address those two items for me please for us?

Kyle Duelund (16:32)
Absolutely. One of my favorite ways and honestly the best ways that we found to grow our network and build those relationships and grow everyone’s businesses is by the use of bus tours, which we do two to three times a year here in the Cleveland market. We did do them in Florida pre-COVID, but now we really focus in Cleveland. Now that we’ve moved here and this is our full-time operations home base, we love to do them here in Cleveland, which is basically we bring people from out of state, out of country to spend a weekend with us here in Cleveland.

And we tour different areas, different neighborhoods of Cleveland, different suburbs of Cleveland. We also show the difference between a long-term rental, a short-term rental, a mid-term rental, a sober living, a mobile home park, and ask like a five plus unit, a one unit, a two. Like we give as much of a sampler of what a market can give you in one weekend. And we show the runs of each.

Michelle Tack (17:22)
to

Yeah, I think that what that does and you know this is that it really gives a very complete picture of the neighborhood, right? And you feel alliance. Help me understand, know, everyone is interested in networks, what we do with them, what have you. And I would say that the top of the network is really what’s important. The folks that you may, ⁓ you know, be consistently, they’re giving you leads or not, but are preparing to. So can you talk about

what you’re doing in your network today and maybe what you want to be doing in the future with the network.

Kyle Duelund (17:58)
Oh, well, we are, well, one of my 18, 19 companies, well, 18 in the US, 19 total, is education and building a community around that education system. So we are very, very pro building a community, pro providing value to one another. Even our lead flow, our deal flow, we teach what we call the gatekeeper marketing system, which is not to look for deals.

it’s to look for the people who are looking for deals and build as many of those relationships as you can. Because one of those people can be responsible for 10 deals a year. Right? How many of those people do you really need? And if you are buying 10 deals from one person, how motivated and how happy will they be to come to you first for their next deal that they find rather than just open marketing? It’s a lot easier to resell someone than to sell someone for the first time. Like, no, that’s definitely one thing

Michelle Tack (18:49)
Absolutely.

That’s great. That’s great. Tell me about what’s your next big opportunity? We sat down on, gosh, it’s June the 8th already, June the 8th of 2027. And you look back and said, I’m really happy with these opportunities. And again, as we’ve spoken before, you define what opportunities are. But what would that look like in a year from today?

Kyle Duelund (19:16)
I would say there’s two big things, two big, because there’s a lot of other things we like to keep busy. But one is the sober living. We really want to launch that. In fact, just this week, we’re finalizing the last piece of our certification for sober living. So it’s perfectly legal to run unlicensed sober living operations, which we have been since the beginning. But this week, we’re finalizing our certification to be on the registry, to tap into government funding and so forth, et cetera. So that’s really exciting.

Within a year from now, I expect to have at least a dozen residences running and just having a nice flow, having a wait list of people, which is waiting for us to prep another property, furnish another property and get them going. So that’s one goal within a year. That’s going to be fantastic. And we’re even building

a parallel business of managing those properties so that other people could potentially

hire us as their management company for Sober Living because that’s a business in and of itself. The manage of a niche strategy. Like you can’t have just any manager. don’t hire a mobile home park manager to manage a single family home. don’t. I don’t. Apartment manager to manage an Airbnb. You know, like you need specialized management if you’re doing specialized niche investing. So that’s one thing that we’re building, we’re developing. So that’s really, really exciting. The Sober Living side and the management thereof. The second

really big thing over the next year is that we are actually consolidating all of our partnerships at this time. Over the past, I guess it’s 11 years now, we’ve been selectively taking partners, investors, and building mini partnerships. So maybe we have five properties with this partnership, 25 with that one, whatever. But now over the years, we’ve built a lot of these partnerships and I’m not enjoying the scaling process of having all those smaller. So we made the decision.

that over the next year, we’re going to recombine them all. We’re going to be, building basically a mini fund, REITs, indication, call it what you want. We haven’t defined exactly how it’s going to happen, but we’re just going to put them all together and all of our partners will have the opportunity to join at the ground floor of that newer, larger conglomeration together. So we’re building the, you know, the equivalent of a PPM in Canada and OM and offering them random, et cetera. So we’re in the process of that. within a year’s time, I think,

all of our partnerships will have been eaten up by this large one and any investors at the ground floor are going to have the best piece of that pie for the future growth. So that’s really exciting as well for me and for others who are looking for a more passive approach into their real estate investing.

Michelle Tack (21:51)
think that’s fantastic Kyle. As we wrap up here would you provide your information for people that may be interested in purchasing in Cleveland or investing with you and spell that out as well. ⁓ I’d appreciate it.

Kyle Duelund (22:08)
yeah, absolutely. Now, since I have so many businesses, think the easiest and most streamlined way to get in touch with us is to go to our website, jkrealestatepartners.com. Jk for Janie, Kyle, Janie and Kyle. We founded this whole madness 10 plus years ago. So jkrealestatepartners.com.

And from there, you can see when the next bus tour is. can see if you’re starting into real estate and you kind of want the foundations of how to invest remotely, build systems, not a job. You can even attend what we call our Cash Flow Blueprint, which is a two-day weekend training where we set the whole foundation for you. We even bring important members of our power team, our real estate attorney to protect ourselves. If you’re for a national double taxation, could be a really important consideration that you don’t want to.

have imposed on you. So Canadians, it’s very easy to be double taxed if you don’t do it right. So we teach all the remote real estate system. And so we actually have one coming up in about a month’s time. I don’t know when this is going to air, but anyways, we have them fairly regularly every couple of months. So we got the intro level, we got the more passive level. And if you also have a hundred plus units, well, we just meet you where you’re going. You’d only want to focus on mobile home parks.

There’s a lot of mobile home park opportunities in the US and we have experience in that as well. So go to our website, let us know what you want, what you’re looking for. And from there, we’ll just plug you into the right solution or at least explore different solutions that might be a right fit for you.

Michelle Tack (23:42)
So can you spell out your website please?

Kyle Duelund (23:44)
Yeah, J-K-R-E-A-L-E-S-T-A-T-E P-A-R-T-N-E-R-S dot com.

Michelle Tack (23:58)
Thank you. Thank you very much. I like you looking up to the right there. ⁓ You’ve been a wonderful ⁓ contributor. Thank you very much. ⁓ Thanks to our subscribers that are listening and those that are not subscribers as of yet and you’ve found value to this podcast. We hope that you join us. Again, Kyle, thank you very much for participating. Much luck in the future.

Kyle Duelund (24:22)
Thank you so much. was a real pleasure. I’m happy to come back anytime.

Michelle Tack (24:26)
Thank you.