All Forum Posts by: Sam Kwak

Investment Info:

Large multi-family (5+ units) buy & hold investment in Aurora.

Purchase price: $250,000

Cash invested: $1

8 Unit Multi-Family Buy & Hold with No Money Down Acquisition using Contract for Deed. Apparently Bigger Pockets doesn't let me put "ZERO" for Cash Invested... We negotiated this into an owner financing acquisition so no bank financing was involved in acquiring it.

Now, we did have to do some work to it. We raised that portion of the funds through a partnership in which we gave equity & share of the cash flow away in exchange for the rehab money.

@Account Closed We love you too :)

The popular buzzword seems to be the “Cashflow” these days. Cashflow this and Cashflow that…

Don’t get me wrong here! I LOVE Cashflow and I fight for it everyday with all of my investments. And if you are a fan of cash-flow versus accumulation, congratulations! You’re way ahead of the game. A good percentage of today’s Americans still hold on to the adage belief of accumulating a nest egg when it is better to have a hen that lays all the eggs periodically.

But… Here’s what most gurus AREN’T telling you about creating passive cash-flow in your life. Whether that’s real estate or in a business:

TRUE CASHFLOW TAKES TIME TO BUILD

(GASP) What? It takes….TIME?!?!

Well, yes! Everything takes time to build and stabilize. In a very rare instance are you ever going to have cashflow from day one. Unless, you’re buying a premium on a business or a turn-key rental property. But you had to pay EXTRA for it. And typically, a turnkey business or real estate will also have a negative yield in your first one or two years due to the upfront premium. OR You may have bought a seller-financed notes in which you still may have temporary negative yield due to setup costs.

When you first purchase a rental property, whether that's SFR or multi-family, you are not going to experience positive cash-flow right away. In most instance, there's a "downward dip" in your yield and negative cash-flow in the first 1-2 years. The main cause of this is that you may have bought a property that had poor management from its previous owner. It takes time for a property to shake off the momentum from a poor management. Assuming that you're a great manager, it takes time to train or turn the units around with new and better tenants. Another reason may be due to repairs. In your first year or so, you may have to make repairs or upgrade any outdated maintenance items. Such as leaking toilets, outdated kitchen, broken utilities, evicting a squatter, etc.

I remember listening to all kinds of podcasts and watching YouTube videos in buying rental properties yet NO ONE talked about this. I was in a major disappointment when my first couple of rental properties didn’t cash-flow for the first 1-2 years. I had to spend extra money to make repairs, replace tenants, raise rents, and get the property at a optimal condition before I saw my first positive cash-flow. But, was it worth it? Heck yes! It created stability and the value of my property went up not only due to the repairs or upgrades but it was performing with good management.

This is also true to any business. Good management with a great leadership serving the employees or the team makes all the difference. It adds tremendous amount of value to the business and it will definitely make a positive impact on the bottom line.

The mistake that I see consistently within the real estate investing and the business world is that investors cash-out way too early. Instead of making all the necessary repairs, updates and adjustments in the beginning, they squeeze out all the cash-flow they can find without paying much attention to the condition of the property or the tenants. While this may put extra dollars into your pocket temporarily, it will have a devastating result in the long run. Same goes for a business. You can undercut your employees, your team, sacrifice the culture in order to drive more profit but ultimately you will pay through employee turnovers, slow productivity and conflict management which costs MORE money to fix.

Friends, remember this… It ALWAYS costs more to react to problems than to prevent problems early on. For example, it costs MORE money and emotional energy to repair a busted pipe during winter time than investing money to make preventive maintenance on those pipes.

This is simply a reality. Most gurus won’t tell you this nor many books will because it will burst your pipe dreams. It is counter-intuitive to what the gurus are selling you which is FAST results. Your hopes and dreams for a FAST cash-flow would be broken. But what I am telling you is real as it gets. There’s no such thing as immediate cash-flow and profit from day one. Very rare does that happen.

Here’s how you can get around this…. Ready???

You can’t… But… You can expect this happen and prepare for it. You can, however, learn as much as you can about the business to become a good steward and a manager of your investments. That’s how you set the bar in your financial success. Through accumulation of knowledge, you’re investing in yourself… The best real estate between your two ears.

Set your expectations and standards to a long term approach. Know that you’re going to play a long term game but it is going to be 100% worth it to your time and money in the future. This is why we call it an investment not a lottery ticket. 

I remember it was last January of 2018. I got the call… My handyman calls to let me know that one of our vacant properties that we were rehabbing at the time had the pipes burst. I was both frightened yet calm. I knew this would happen but I didn’t prepare for it. The heat didn’t work on the property and the temperature has fallen below 10 degrees here in Chicago. I remember driving over to the property. Unlocked the doors, walked in and all I heard was the water gushing in the basement. As I walk down the stairs, I could hear it… The water dripping down the busted pipes right onto the floor. Luckily, the floor was not finished but I knew this is going to cause some trouble down the road with mold. Had I knew how to prepare for this, it would have saved me time, money and energy. A lot more than what I had to spend on fixing it. Luckily, I learned a few lessons from this and don’t make the same mistake like I did!

Before we discuss how to deal with pipes bursting and its aftermath, let’s talk about how we can prevent the pipes from bursting in the first place. If you live in an area where the winters can be frigid and harsh, you probably dealt with this before. If not, be prepared to deal with it as an investor.

Last winter, I worked with my management company that deals with over 200 units in their account. Of which, I own 75 units. For those that don’t know me, I live and invest in the greater Chicagoland area. Sometimes we experience a temperature as low as -10 degrees Fahrenheit. Below is a video of an example. This isn’t my situation nor my video but this is just to show you what a burst pipe looks like.

In 2017 winter alone, We dealt with over 10 units that had their pipes burst. It was a nightmare of tenants not getting access to running water. Though the units may have had proper heating, the pipes leading up to the units may be exposed to the cold.

One particular property we had was vacant which made it all the more miserable since no one was in the property to heat it. Even worst, the property had no gas because we were still making repairs. This was something that simply lacked pro-activity… It costed me more money to fix the copper pipes as well as the damages that had occurred to the property. Here’s how I could have prepared the property for the harsh conditions…

• If it’s vacant, turn the water main off.

If the property is vacant, shut the main off and make sure you run the water to empty the pipes from any water. That way, the water won’t freeze inside the pipe and thus bursting the pipe. I had failed to do this and it costed me hundreds of dollars in repairs. Another way that i could have prevented this was to make sure we had adequate heating in the property. I could have repaired the gas pipes sooner and had heat to the property. It was another costly mistake…

• Check for the pipes close to the exterior walls.

Despite having the adequate heating in the property and your tenants are occupying the unit, you may have pipes running between the exterior and the interior walls. Especially pipes that run closely to the basement walls. Basements are generally cooler so pipes are exposed to the freezing temperatures much more than the other parts of the property. Make sure those pipes are insulated and are winterized. Another way I’ve seen landlords and homeowners prepare for the freezing temperature is installing a plumbing system that keeps the hot water flowing constantly to keep the pipes warm. This is called a two pipe system. While it costs little more money than your traditional plumbing, it can be beneficial in ways that your hot water will always stay warm and it keeps the water circulating with warm water, thus keeping your pipes warm.

• Educate your tenants.

You can keep your tenants aware of the pipes bursting and how to properly check the pipes. By working with your tenants and keeping the communication open about this issue, you can take proactive actions to prevent the pipes bursting. It is also in the best interest of your tenants to have running water so your tenants will understand.

Now… What do you do AFTER the pipes have Burst.

Supposed you didn’t read this article or simply ignored it… Have no fear! Sometimes, it may be inevitable that the pipes have busted. It may be no fault of your own or you couldn’t have prepared for it. But you can still be proactive about how you can respond to the problem.

• Shut the water off!! And fast!!!

First, shut the water off. This should he obvious. But if your pipes burst, you’ll start having the water gush every where. Not good… This can be damaging to your walls, structure, potential carpet/flooring damage. It will cost you more than just the pipes and the enormous water bill. If the water main is broken or frozen (happened to me), you’ll have to have the city or the village shut it off from the street. You cannot repair the pipes with the water running.

• Call your handyman/plumber.

If you don’t have a handyman/plumber to call, call someone ahead of time and build that relationship early. Call them around October-November to find out if they have experience in repairing burst pipes. Most of them do. Introduce yourself and let them know you’re calling ahead in case the pipes burst over the winter period. That way, you can get in touch with your handyman/plumber right away without hesitation. Sometimes your plumber may be dealing with other customers and it may take 2-3 days just to get to you. In this case, have a backup plumber/handyman who can make the repairs.

• Check for secondary damages.

Check to make sure where the water went. If you have a drain, you should be fine. But, check your walls, floors, studs, carpet, etc. You may have other damages if the water leaked into areas where it shouldn’t. This is a much bigger problem than the pipes or the water. Water damages can lead to weakened structure and mold issues in the future. Make sure your drywall is dry. (As the name suggests) and if it’s not, make sure you dry it. You can also rent dehumidifier from your local hardware store or simply buy one to keep your property dry.

Before winter season hits, make sure you are prepared! Especially if you live in areas where the temperatures can drop below freezing temperatures!

@Caleb Heimsoth I would lie if I were okay with a FTC complaint and a complaint to my state's Attorney General. I would love to provide you records and say "I told you so!" but by disclosing documents on the internet puts me, my brother and my partner in serious jeopardy. I've done this before out of my own pride and ego and it didn't end well...  Feel free to send my attorney a quick email. https://www.mconradlaw.com/

Thanks guys!

Hi Guys... It's Sam Kwak here! The supposed 'scammer' according to Michael. Surprised I just found this now! I really appreciate the love and kindness here! Would love to make a statement in regards to this post.

I do recall Michael attending one of our events that Daniel and I hosted down in San Antonio. He gave me a really great impression and seemed like a wonderful individual. Michael didn't seem like a person who would have an interaction with us and make a post on Biggerpockets. 

We DID infact flew down there to host an event to talk about concepts of real estate investing and we did talk about how we were able to acquire a 24 unit multifamily without using our own cash or credit through owner financing. We also talked about how we even negotiated it. And like Michael said, we did introduce the audience to an education service that helped me and my brother to get to where are today. We have 75 rental units and have done several flips in the last 4 years of being part of the education service company called Renatus. We are currently working on an 18 unit and a 4 unit acquisition using Owner Financing.  To be transparent, my brother and I also have a marketing company that is contracted with Renatus to help them find more students in exchange for 50% commission. We are also a student of Renatus and have been like I mentioned and we are excited to see all the results and the fruit of our labor thanks to information we have learned. Clearly, Renatus may not be a good fit for everyone or some may never see the value... We apologize to Michael if we didn't do a good job of presenting Renatus in a way that explains all the benefits and the features 

I have no problem seeing individuals invest their dollars in to learning more and acquiring knowledge from other individuals who have experienced success. I personally made the decision to enroll in Renatus as a student because I saw the value of being able to exchange money (unlimited resource) with more time (limited resource). If I was on my own, I knew it would take YEARS to figure it out. I certainly would not have been able to acquire 75 units on my own that quickly. This is just an opinion but my decision to enroll probably shaved 10-15 years of figuring things out on my own and I don't think you can put a price tag on that. I see time as a more valuable resource than money. If I want to become financially free to have more time freedom, doesn't it contradict my goal if I'm making a decision from the mindset of valuing money over time? Clearly, the "Pro" members here saw the value of BiggerPockets and decided to pay into their subscription of $39/mo. to save more time and achieve their goals. I hope people understand that Biggerpockets offer free things/training so they can sell subscriptions. It's a simple marketing... Give, Give, Give.. and then ask! Right? And I have no problem with Biggerpockets' business model and clearly it's working for them in raking in it! Good for them! 

Clearly, this wasn't a good fit for Michael and we wish him the BEST of luck and I really do wish him all the SUCCESS in the world. 

As far as Kevin Hill's comment. I ALSO recall meeting Kevin in Bourbonnais as I used to live there. I own four properties there myself. I used to attend a local university that is in Bourbonnais, IL as Kevin has mentioned. Part of our strategy to acquire rentals is call properties that are listed "For Rent" to see if the landlord/owner is interested in selling. In fact, we recently bought a 4 unit apartment building this way by calling For Rent signs. The message is... if people don't know your name, you aren't marketing hard enough. I'm glad to hear that Kevin knows me. It means my marketing efforts have been paying off. I also wish Kevin SUCCESS and MASSIVE GROWTH in his business down in Bourbonnais. That's an exciting market due to the new ramp that is built between Manteno and Bradley. 

Bottom line, I'm really glad i found this post because it tells me that our brand, The Kwak Brothers, is growing. I invite everyone to do some research about who we really are and who Renatus is.... My brother and I come from a humble beginning as immigrants to this country in 1999. We didn't speak much English nor did we understood the culture. But through hard work and getting connected to the right group of people within the Renatus community, we are blessed and fortunate enough to where we now have 75 rental units under our belt! If you're all about hard work, dedication, perseverance and patience... We're RIGHT THERE with you! I wish all the success in the world!