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Show Summary
In this conversation, Mark Khuri shares his journey from a finance background to becoming a capital manager focused on recession-resilient investments. He discusses the importance of capital raising, his investment strategies, and the asset classes he finds most promising, such as mobile home parks and self-storage. Mark emphasizes the need for financial acumen in real estate and addresses common concerns about investing in this sector.
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Investor Fuel Show Transcript:
Mark Khuri (00:00)
mobile home parks are the most affordable housing solution in the country. So that’s a long-term trend that we get behind as far as the lack of affordable housing. So supply demand, Econ 101, you have a very limited or declining supply of mobile home parks and a growing demand. So long-term.⁓ should be doing quite well in mobile homes. We continue to do well in that space. They’re very hard to build a new mobile home park in a desirable area that is actually affordable due to zoning restrictions. A lot of cities, municipalities would rather a developer build something that can produce a lot more tax revenue and income for the city. And so you’re just not allowed to build them in most places anymore.
Dylan Silver (02:19)
Hey folks, welcome back to the show. Today’s guest is a capital manager based in Oregon who focuses on recession resilient investments. Please welcome Mark Khuri. Mark, welcome to the show.Mark Khuri (02:33)
Thank you Dylan for having me, good to be here.Dylan Silver (02:35)
I always like to start off at the top mark by asking folks how they got into the real estate space.Mark Khuri (02:42)
How I got in, sure, I was sitting in my cubicle, working at W2. I was in finance for number of years and a coworker sitting in his cubicle next to me pulled up a spreadsheet. He said, hey, come check this out. And so we love spreadsheets, so I’m looking at this spreadsheet. I said, what is this for? He was looking at something outside of what we should have been doing just to be transparent. So he had a…pro forma projection that he put up for a, I think it was a four unit property in Southern California, showing how much money he was gonna make. And it was unbelievable to me. mean, I think it was probably unrealistic too, just to be transparent, but I was looking at the first kind of real built out, well built spreadsheet of how much profit and cash flow he was gonna make on an acquisition down the street from our office. And so that was a very quick memory of
Dylan Silver (03:26)
Right.Mark Khuri (03:41)
One of the first times I dove into underwriting and looking at projections.Dylan Silver (03:46)
Do you remember what type of deal that was? Was it ⁓ office complex? What was he looking at?Mark Khuri (03:52)
It was a fourplex multifamily that needed some renovations and retenanting and some heavy lifting, but yeah, was apartments.Dylan Silver (04:01)
Walk me through, getting into the real estate space coming from a finance background. ⁓ Was it a very much dive and head first into it? Hey, how do I make a new career out of this? Or was it a slow drip, progressive, ⁓ easing your way into the real estate space?Mark Khuri (04:21)
⁓ yeah, it was a little more slow for me. I worked in corporate America for about eight years before going full time into real estate. But I started investing on the side, ⁓ three, four years into my W2 job, bought ⁓ a single, excuse me, a condo and moved into it, house hacked a bit. And then I took some money out of it and bought a fourplex with my brother. partnered up. then my parents and I and my brothers all partnered up putting our own capital in. We.Dylan Silver (04:41)
Yeah.Mark Khuri (04:50)
We’re starting to buy stuff distressed on the courthouse steps. is what 18 years ago now. So a lot of short sales, REOs, foreclosures, all bank owned stuff. And so by 2010, we had built up a small portfolio of just family money and myself and my father were operating it and really doing all of the GP work, if you will. And I was hooked. So I’ve left the W-2 and went full time into real estate just to…Dylan Silver (04:56)
Yeah.Mark Khuri (05:20)
using that experience from myself and my father as well, who’s been an investor since the 70s.Dylan Silver (06:14)
Finally, someone on the show who dove in and invested during the crash. I’ve done 150 of these episodes and I have so many people who were on the sidelines or they were a mortgage broker and then it wiped them out and they had to pivot. You mentioned family being involved since the 70s. So when they saw this happening and when you saw this happening, was it kind of like, okay, we’ve got to be active now because this is really like a black swan event that’s happening.Mark Khuri (06:41)
I wish it was that clear to us, be honest with you, Dylan. It was not. There was definitely a lot of fear, uncertainty, hesitation. At the end of the day, we made some smart buys during that timeframe that were distressed in nature. But the key to our success, I think, is we just never sold anything at the wrong time. And so I was buying in 2005, right, which was pretty much the run up to the peak of 06, 07.But we’re also buying in 08, 09, and 2010. And so I didn’t sell that 2005 property till 10 years later. And at that point, you the market had bounced back. And so that was a big part of learning is don’t get yourself in a position where you have to sell at the wrong time. That’s how you can lose money in real estate.
Dylan Silver (07:30)
I mean, at this point, and we’re talking 2008, 2009, 2010, there’s, I’d say, more interest in private equity and in people who are coming in, because it’s so hard to get any type of financing and lending at this point. When people are seeing your projects going well, and you’re talking about doing projects with your family, I believe you mentioned, was it a duplex with the brother or a quadplex?Mark Khuri (07:54)
Yep, exactly.Dylan Silver (07:56)
Are people coming up to you and saying, Mark, hey, how do I get involved in this? Or is that later down the line?Mark Khuri (08:02)
A little bit. Yeah. But again, my main job was a W-2 was in finance and ⁓ my father is a surgeon by trade. And so they saw what we were doing on the side and that’s essentially how we expanded capital raising in 2010, and we just went out to some friends and colleagues and shared with them more on what we were doing and how we, pivoted outside of my, my W-2 career and started our company. And that’s how we first started raising capital. So yeah, very much. ⁓just sharing our process, our portfolio and the strategy and also the why now. again, it was a very scary time for people. so even those that were interested were quite hesitant to say the least. And it was a really hard time to raise capital nonetheless.
Dylan Silver (08:40)
Yeah.want to ask you about being a capital raiser, being a fund manager but also a capital raiser. I think a lot of people who are in the real estate space have exposure to this but…
You know, people on the outside may think, I’ve got to have extensive finance background in order to raise any type of capital. I’ve heard all different perspectives. I’ve had people on this podcast who’ve come from Wall Street. And then I’ve had people who, you know, were farmers and were doing, ⁓
farm to table type of commerce that way. And then they ended up selling a business raising capital in a separate ⁓ realm and realizing, hey, I can do this. So I’m curious to get your perspective and also how you got experience in raising capital, what were maybe some of the obstacles along the way as well for you.
Mark Khuri (09:42)
Yeah, look, I’ll say one thing. Raising capital is one step in the process, right? It is ⁓ obviously essential in order for investments. You have to have the capital. ⁓ But really underwriting analysis, due diligence, vetting, very critical, very critical. And so when you’re asking the question about raising capital, you see people from all different walks of life and backgrounds that can raise capital, ⁓ but really experience track record.⁓ financial acumen are probably more important in order to avoid all the pitfalls in this business and the deals that are very aggressively underwritten versus those that are conservatively underwritten and operating partners that, you know, may not be a good fit versus those that are. That to me is where I spend most of my time, Dylan, not quite as much on raising capital. I’m more of a deal junkie, if you will, and analysis and underwriting and trying to find
know, every day we look at two to three deals and opportunities out there, we invest in five to eight a year.
So, you know, what is that? 99 % of the opportunities out there we pass on because they have too much risk ⁓ that we’re not comfortable with. And we just don’t think that most of those deals have a high likelihood of meeting or beating the projected returns. That’s the goal of all this, right? And so if you can’t come away from…
Dylan Silver (11:39)
IMark Khuri (11:42)
analysis saying, I think this one’s really going to meet a beat the projected returns and you don’t know how to get to that conclusion, you need to ask for help or be working with a team that does know how to do that.Dylan Silver (11:54)
I wantto pivot a bit and ask you about recession resilient asset classes. I am a Texas licensed realtor. There’s some that asset classes that I really love personally. I’m not sure how recession resilient they are. I think this idea of having a recession resilient investment is of course going to be attractive to a lot of people. So which assets do you?
like to invest in and for folks who may not be investing with you directly, would you recommend folks take a look at for that kind of recession proof investment?
Mark Khuri (12:26)
Yeah, there’s a few that come off the top of our head that we invest in regularly. The first one is mobile home parks. We also invest in triple net industrial sale lease back properties. And that’s a mouthful. If you don’t know what that is, that’s very niche, but we could explain more. But we also invest in some multifamily. Not all. Many of it is still, I would say doesn’t pencil very well and not that interesting, but some of it is.We also invest in ⁓ self storage and private real estate debt funds. And so all of those are, I would say our main focus for recession resistance.
Dylan Silver (13:00)
Yeah.wanna get a little bit granular on self storage and mobile home parks. Maybe give away some of the gold, but not all of the gold here, Mark, because this has been very hot. can say as a Texas realtor. ⁓
People of course have lots of land and you’re also dealing with mobile home park owners who themselves may be looking to retire or get out of the business. And so a lot of the mobile home parks that I’ve seen are older, but you’ve also got an increased demand or maybe a way to revitalize the space. And then mobile home parks are different from RV parks, but then it’s a similar type of space. And I’ve seen all different types of ways where people are getting into the RV park space.
as well. mean you can take out SBA loans and self-storage. So I’m curious to get your take on these kind of land plays and how what really sets them apart.
Mark Khuri (14:03)
Yeah, I mean, we’ve been investing in both mobile home parks and self storage for about 12, 13 years now. Dylan,mobile home parks are the most affordable housing solution in the country. So that’s a long-term trend that we get behind as far as the lack of affordable housing. So supply demand, Econ 101, you have a very limited or declining supply of mobile home parks and a growing demand. So long-term.
⁓ should be doing quite well in mobile homes. We continue to do well in that space. They’re very hard to build a new mobile home park in a desirable area that is actually affordable due to zoning restrictions. A lot of cities, municipalities would rather a developer build something that can produce a lot more tax revenue and income for the city. And so you’re just not allowed to build them in most places anymore.
And so that’s a moat around the asset class from a supply standpoint, which is great, very hard to find in real estate. Not the same case with self storage. Self storage is very easy to build, generally speaking. It’s the lowest cost, one of the lowest cost types of construction you can build due to how simple it is, right? Walls and a roof and no plumbing and sometimes electricity, right? But no gas, et cetera. They go up fast, they go up cheap.
Dylan Silver (15:48)
Yeah.Right?
Mark Khuri (16:10)
and they compete with the old stuff. So you have to be very careful in self-storage with new supply. It can greatly affect the performance of existing assets, but similarly to mobile home parks, you tend to see a long-term sustainable demand in that sector. And if you hold long enough, you’ll probably do quite well. ⁓ And so those are some quick snippets on both asset classes. Happy to share more if it’s helpful.Dylan Silver (16:38)
I want to ask you about folks who may be ⁓ apprehensive about real estate in general versus some other investments that they can put in, namely Wall Street. I ⁓ think a lot of folks may want something tangible, but they also are worried. Well, what happens if there’s a crash? How long do I really need to hold on to this for? I don’t know anything about managing a storage facility. How do I get involved? And I would kind of say to them, well, then you got to go to Mark Khuri, because he’ll manage it for you. ⁓advice to those folks who may be a little apprehensive about getting involved in real estate knowing that it’s uncertain and it’s illiquid.
Mark Khuri (17:18)
Yeah, so you nailed it, right? The lack of liquidity is what differentiates it predominantly from other traditional investments like private, excuse me, public equity stocks, et cetera. So you have to be ready to hold, you know, three, five, seven, 10 years, depending on the business plan. At the same time, there’s some differentiating factors that we love and prefer. One of them is you can really analyze down tothe dirt that the property’s on and get a very good understanding of the supply, the demand, some of the market trends that might be in your favor and that specific location. And then of course you can earn passive income from it. That’s something we focus on. We’re looking for investments that are already built and stabilized. We don’t do new construction. We like to have year one income, you know, three, four, five, 6 % is quite common for all of our deals for year one income.
And then we want that to grow, right? We’re looking for, you low to mid to high teens range of average annual ROI while forcing appreciation. That’s the other part. You can improve the properties. They’re essentially businesses. You can grow the value and there’s lots of ways to do that. That’s the type of investments we like to focus on. And so I think although there’s a liquidity premium that you have to be looking for because you don’t have liquidity, there’s
Dylan Silver (18:28)
train.Mark Khuri (18:45)
⁓ counter to that you have hopefully a better return and you also get a lot of tax advantages, bonus depreciation, passive losses and of course if you want to be active like you mentioned managing the property, the tenants, the toilets, great you can do that or if you want to be passive and invest in more of a fun style investment those are available as well so it allows people to get into real estate under their own kind of conditions andcomfort levels while still reaping all the benefits.
Dylan Silver (19:18)
We are ⁓ coming up on time here, Mark. Where can folks go if maybe they have a deal that they like your feedback on, or if they’d like to reach out to you, make contact with you?Mark Khuri (19:29)
Sure, yeah, mean, again, our company name is SMK Capital Management. Our website is smkcap.com. And for folks who are looking to learn more about some of the passive investments we’re doing, we have a ton of information on our website under the Learn section as to investment examples, types. ⁓ People can reach out and connect, share opportunities, look at the ones we have, see if there’s a good fit.Dylan Silver (19:56)
Mark, thank you so much for coming on the show here today.Mark Khuri (19:59)
Yeah, my pleasure. Thank you, Dylan.
