The Wealth Building Formula

Whenever I search for guests to interview on my podcasts, I’m always looking for unique and innovative people who have overcome difficult obstacles in their careers and have succeeded in their field. I find that these are the ones who are able to inspire my listeners, often offering concrete suggestions and strategies that can help others succeed no matter what type of business they’re in.

That’s why I was pleased to have Ken Van Liew as my guest. His book, “The Modern Wealth Building Formula,” is a treasure-trove of stories, anecdotes, and proven tactics that have enabled Ken to enjoy unprecedented success. I know he has helped many others move up in their own fields, and I’m hoping his approach and advice will help you as well.

Overcoming Limited Experience and Limited Capital

Like many new investors and sponsors, Ken faced some of the same issues that I did when starting out, which included finding and convincing investors to participate in a deal despite having limited experience and limited capital. You have to bridge the gap of limited experience and let others know you have the skillset to make the deal work, but you’re bringing in investors. To raise capital, you need to put your ego aside and have a conversation with potential investors and find out what’s important to them.

In his book, Ken relays how he put himself next to others with money. He was in his 30’s when he put together his first deal, and he ended up making his first investor his partner. Ken raised $400k and earned income from development and construction fees. He believes that everyone knows how to do something, and his approach is to look at things as a puzzle and try to put the pieces together to make it all work.

You don’t have to know everything. Hire or partner with others who have knowledge that you don’t have and build a team with those who have specialized knowledge. Ken found, as I have, that when you put your own skin in the game, surround yourself with advisors, and can show deal flow, you’ll attract investors.

Building His Company

Like everyone else starting a business, when Ken started his company, he needed capital. Ken’s approach was to go “all in.” That was how he tackled the fact that he didn’t have the funds to start or build a business. He gave up a good-paying job and put all of the money that he raised at risk by hiring people, telling everyone he was building a “dream team.” That included hiring an engineer, an architect, a planner, and a land use attorney. He extended himself by several hundred thousand dollars, and fortunately, the deal went through.

Ken’s philosophy was to take what I call informed risks. I’ve done similar things, paying a lawyer “hard money,” which is a non-refundable deposit, prior to taking a deal to investors. Unfortunately, the deal fell through. As a sponsor, you don’t earn any money until you actually close the deal. Having a deal fall through at the last minute has happened to me several times, and it’s what I consider the cost of doing business.

Starting Out Local

I’m currently living in Rhode Island after moving east from southern California. However, my multifamily properties are located in Texas, Georgia, and Florida. I asked Ken if he felt that he needed to remain local when he was first starting out, and he responded that by starting out local, he knew the area and which questions to ask.

Ken felt that when starting his company, it seemed that everyone was trying to take advantage of him. If a problem develops, it can be inconvenient if you have to fly to a property instead of getting into a car and driving for an hour. It’s critical to be smart when building your business, including budgeting for air travel if needed, or hiring what he calls “relationship managers” if needed.

I’ve found that investing out of state is a smart approach, as you’re not limiting yourself to local properties, and there are excellent investment opportunities in other markets. What you want to find is a strong real estate market, one that has good population growth, job growth, and rent growth. You also want to invest in a market that’s located in a landlord-friendly state. That simply means there are laws in place that enable landlords to evict tenants who don’t pay their rent, and don’t put unreasonable restrictions on landlords.

In addition, you want to invest in a market that has opportunities to implement value-add deals, which when completed, can boost the monthly rental income as well as help the appreciation when the property is ultimately sold. There are a several tools available to you to help research the markets you’re interested in investing in, including www.census.gov and www.citydata.com. You’ll also want to research property appreciation, to help analyze long-term prospects for the property, which can be done online.

I also have discussions with out of state brokers, because they’re the ones who know the market best. They understand which properties are selling, along with the prices that they’re selling at. Brokers are an integral part of investing out-of-state, as they have the most market knowledge.

Another key resource is to talk to is a property management company. If you make an out-of-state investment, a property management company is the one who will be responsible for leasing, collecting rents, and managing the maintenance of the property. They’ll also become a key part of any value-add renovations and upgrades you do, and they will be responsible for all the logistics involved in the timing as leases expire and new ones are written.

Looking Past Covid

Thanks to the vaccines that are available, the Covid pandemic is finally winding down in the U.S. Many investors are wondering where to invest their money in a post-Covid environment. Ken pointed out that 42% of Americans are retiring with less than $10,000, which makes choosing investments even more critical for people who no longer earn an income.

Regarding asset classes, Ken is a believer in industrial, land, commercial, and multifamily. He feels that there are many opportunities out there, and that investors should do their due diligence before they move forward. At this point, he advises to steer clear of retail, which comes as no surprise. Major retailers have been decimated during the pandemic, and many malls are sitting empty and looking for ways to repurpose their physical plant.

I’m in agreement with his assessment, but my focus is on Class B multifamily properties with value-add potential. Prior to the pandemic, people were overbidding on multifamily properties just to get into the game. Now that there are more properties on the market, things have calmed down, and prices are more stable. Historically, multifamily properties have performed well, and should continue to do so.

Summary

In Ken Van Liew’s book, “Modern Wealth Building Formula,” he shares how he became a real estate developer and investor. When starting out, his approach was to talk to potential investors in order to find out what was important to them. He put himself next to others with money and raised enough capital to start making deals. His philosophy is that everyone has a skillset, and you don’t have to know everything - you can hire or partner with others who have specialized knowledge.

When starting his company, he went all-in, giving up a high-paying salary and investing the money he raised in people that helped him build and scale his company. He was building his “dream team,” consisting of an architect, engineer, a planner, and a land use attorney. Like me, he takes informed risks. I’ve been involved in deals where I’ve put down “hard money,” non-refundable deposits before even taking it to investors, and ended up losing money. It’s part of doing business, and fortunately, I’ve been successful anyway.

While Ken believes that investing locally is better when starting out, I’m a proponent of investing out-of-state in strong markets that have high population growth, high job growth, and high rent growth. Looking forward, Ken recommends industrial, land, commercial, and multifamily, and recommends avoiding retail when it comes to asset classes. He believes, as I do, that there are many opportunities available. Investors should do their due diligence and keep moving forward.

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About the Author

Ellie is the founder of Blue Lake Capital, a commercial real estate investment firm specialized in multifamily investing throughout the United States. At Blue Lake Capital, Ellie partners with both institutional and individual investors to grow their wealth by achieving double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.

A defining factor of Blue Lake Capital’s strategy is founded in utilizing machine learning/artificial intelligence throughout the course of all acquisitions and asset management. This advanced technology enables the company to produce accurate and data-driven forecasting for all assets on a market, property, and even tenant basis. In doing so, Blue Lake is able to lead commercial investments with the full capabilities of today’s technology.

Ellie is the host of REady2Scale , a podcast that highlights honest, insightful, and thought-provoking discussions on the multiple approaches for successful real estate investing.

She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.

Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.

You can read more about Blue Lake Capital at www.bluelake-capital.com and learn more about Ellie at www.ellieperlman.com.