Journey to Multifamily Millions

From Corporate Burnout to Financial Freedom with Kris Morin, Ep 109

August 29, 2024 • Tim • Season 1 • Episode 109

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Welcome to the Journey to Multifamily Millions podcast, where we discuss money matters with experts! 

In this episode Kris Morin, a co-founder and head of investor relations at Three Peaks Capital reveals his inspiring path from a high school teacher to becoming a successful real estate syndicator, navigating the challenges of the 2008 recession, and transitioning from house flipping to multifamily investments. Kris shares powerful strategies for raising capital, leveraging social media for investor relations, and navigating the commercial real estate market during uncertain economic times. 

This episode offers invaluable insights for anyone looking to diversify their portfolio, grow their real estate investments, and achieve financial security. Whether you're a seasoned investor or just starting out, Kris's journey and actionable advice will leave you motivated and better equipped to scale your real estate ventures.


Episode Topics

[001:09] Meet our guest, Kris Morin
[04:41] Flipping Houses: The Early Real Estate Journey
[08:43] Building Three Peaks Capital
[15:37] The Buy Box Strategy
[21:38] Networking and Finding Investors
[26:29] Current Trends in Commercial Real Estate
[32:22] What is one red flag every investor should look out for?
[33:04] What is a myth about the real estate business?
[35:15] Connecting with Kris



Notable Quotes

  • "Real estate continues to be a theme that rises to the top again and again." - Kris Morin
  • "Flipping is really a very risky game." - Kris Morin
  • "We don't have 2000 units. Like some of the guys out there, we buy slow and buy right." - Kris Morin
  • "A 70-unit in Connecticut may be a lot more expensive than a 150-unit in Arkansas." - Tim Little
  • "If you buy a 10-unit apartment building versus a duplex...you're taking on, some people say, more risk." - Kris Morin
  • "People have given up just waiting for rates to drop... and they're coming to the reality that like, hey, deals need to get done." - Tim Little



👉Connect with  Kris Morin



👉 Connect with Tim

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https://podcasts.apple.com/us/podcast/journey-to-multifamily-millions/id1634643497

[00:00:00] Kris Morin: In a sense, I was already doing syndications in a sense, without even really knowing what that model really was, without even really knowing how it works. But the benefit to me was I amassed a portfolio of dozens of units, to the tune of a little more than a hundred units that I also self managed, which gave me great real estate experience. Management experience. I learned where all the landmines are, right? all the hardships, anything a landlord can go through, I went through, which positioned me really well. Eventually, when I realized there's so much demand for this service in the market, which ultimately pushed me to become a syndication operator. 

[00:01:09] Tim Little: Hello everyone and welcome to the journey to multifamily millions. I'm your host, founder and CEO of ZANA Investments, Tim Little. And on today's show, we have with us Kris Morin. Kris is the co-founder and head of investor relations at Three Peaks Capital, where he helps professionals nationwide diversify their portfolios and secure robust financial futures. Kris, welcome to the show.

[00:01:32] Kris Morin: Tim, thanks for having me excited to be here.

[00:01:33] Tim Little: And it is great to have you. So we're going to get into all the work that you're doing at Three Peaks Capital. But before we go there, Kris, please tell us more about your background and how you got started on your real estate journey.

[00:01:46] Kris Morin: Yeah, sure. My real estate journey for me really began around the great recession, or at least leading up to that around 2008, 2009. rewind a little bit. I'm a young consultant at a firm called Accenture. Some of the listeners may be familiar. I was a management consultant traveling the country, working with some of the biggest companies in the world, solving some of the most forward thinking problems at the time. So by all means, as a young 20 something, I had it made. and the benefit for me was I was making all that I was traveling and I was doing quite well. I was moving through the ranks quickly. And,I had a realization very early on that I think folks tend to get to maybe later on. And that was, all that achievement was coming with a great deal of sacrifice. I wasn't leaving time for myself, my health, my sanity, right? I was working long, long hours, early mornings until late evenings. I was on a plane every single week. I'd leave on Monday morning, go to some other part of the country, come home on Friday, and I'd blink my eyes and I'd be gone again. And it came with a lot of sacrifice and I was burning out. I was having this revelation that,is this what it really takes to,to ultimately become successful, continue to earn more and earn titles and money. and I started to question whether or not that was truly something that I did want or whether that was sustainable. I was 27 ish at the time, 26. And to think that I could do that for 30 more years, just. It wasn't feasible. And already I was getting discouraged. I knew I couldn't save my way into retirement. I certainly didn't want to continue to sacrifice for that long. Now put that thought aside for a second, because now here comes the great recession. Then I watched a great deal of the American population, particularly the boomers and others at the time have half of their net worth ripped out from underneath them. I really noticed. And right at this time, I'm having this revelation in the side that, man, I can't bear the thought of doing this for another 30 years. And then imagining that if I did, there could be this event that could tear half of it away from me or worse or more. I just knew there had to be a better way. I could, I just couldn't accept that. I would knowingly accept that level of risk, And put myself in that situation. I knew that there had to be something that could be done now. and I'd be doing myself a disservice if I didn't. I started to research, what are the wealthy do? They have a heck of a lot more wealth than me to preserve, Ray Dalio is famous for saying,Ray Dalio, founder of one of the largest hedge funds in the world said, preserving wealth is harder than making it. and these guys, like I said, have a lot of wealth to preserve and a lot of wealth to be gained. What are they doing? And so he started doing some research and there's a lot of public data out there and of course, real estate. Continues to be a theme that rises to the top again and again, acquiring different types of assets that produce income, traditional private equity, real estate, private equity, this whole world of alternative assets. real estate, I just knew it had, it was something I had to figure out. I didn't even know if I would like it, but I knew it was something I had to figure out to add additional income streams, build that kind of, that layer in that kind of protection that would shield me from those types of economic losses. because again, I didn't want to be a victim of another great recession. So that was really the Genesis of a real estate journey for me. I continued to work, obviously continued to do really well over the next decade. and as far from a real estate perspective, I followed the blueprint. I think a lot of people are fed and that is, Hey, you got to go flip houses. You gotta make these sums of money and then you can turn around and buy a multifamily. the benefit for me,I was just extremely driven. I was pretty savvy. so I figured out how to leverage local universities to feed me college interns who could take phone calls from my marketing while I was some other part of the country doing work. And then I created specific incentive contracts with contractors and realtors who could visit properties and do scopes of work for me, basically everything I needed to do to establish a flipping operation. And so I started flipping houses, it was going pretty well, fast forward, 2015 ish, we're well past the recession, and I'm doing quite well in my career at this point. My business is firing on all cylinders, but I am burning out even worse than before because anybody who's flipped houses knows it can be great money, but there's a lot of risk involved. You can lose money too. And not every deal is going to go perfectly. and it's a very active role. You're a marketing expert, you're a salesperson, you're and there's a lot that can go wrong, right? Again, it's an active role and I think that's the one thing I really want to emphasize. And I remember hanging up the phone, I was in Richmond, Virginia in a hotel room and I live in Connecticut and most of the deals I was doing were in Connecticut. And I remember thinking, Man, this isn't passive income. This isn't why I got into real estate. I don't even want to do this anymore. and I let the business run itself out and,all the projects that were going, I let them run themselves out and I took about a year off. I just focused on my career. that didn't last long. I got the itch again and I came back and started a family. Yeah. And I'll tell you some, so really from 2016 until the current date, I started buying multifamily and I started, of course I started small. I was buying three units, four units. I had a rule. I didn't want to go less than four. If I could just, more units is better. You have a couple of vacant units. You're still, it's still profitable. and that eventually morphed into this real estate private equity, which is more focused on middle market, small commercial today. But,I think for me, the light bulb, I'm glad the light bulb went off, that multifamily real estate is truly the path to wealth. but I regret not doing it sooner. So anybody out there who's thinking, Oh, I got to flip houses and buy multifamily, if that resonates with you, I would say, You don't necessarily have to do that. If I could do it all over again, I would jump into multifamily. there's lots of ways that you can, you can hack your way into a deal. If you don't have the income, you can raise it, you can borrow it, you can partner in lots of ways to do it. I wouldn't focus on capital as being the limiting factor. so I would urge people to get into multifamily. If anything, do that first, build up your cash reserves, build up your equity, because flipping is really a very risky game. you could do that later. That's something you can absolutely do later. So I probably would do it. and reverse order. But that's, that's really the short version of the story for me. But, when I got into multifamily, it was, I didn't use my own money. Sure. I had my money, but I always like to keep capital on hand, reserves for emergencies. And I figured out early on when I was flipping houses, cause, What I really didn't tell you is going all the way back to my roots. I was actually a high school science teacher at one point in time. Point being, I didn't come from money. I didn't make a ton of money. I didn't come from an entrepreneurial family. I grew up in a small farm town. Like I just want to paint the picture. I had no advantages here. not an entrepreneurial bone in my body from a family's perspective, but I figured out how to raise money. It's easier than the listeners might think. And basically, the same way I would for a multifamily syndication, I was raising capital from other people, creating personal agreements with them where I would provide them a specific amount of interest or return on their money. I'd go buy their properties, manage them, improve them, and eventually sell or refinance them and return all of that capital to investors. And In a sense, I was already doing syndications in a sense, without even really knowing what that model really was, without even really knowing how it works. But the benefit to me was I amassed a portfolio of dozens of units, to the tune of a little more than a hundred units that I also self managed, which gave me great real estate experience. Management experience. I learned where all the landmines are, right? all the hardships, anything a landlord can go through, I went through, which positioned me really well. Eventually, when I realized there's so much demand for this service in the market, which ultimately pushed me to become a syndication operator. having the business acumen that I had built over the years at that point in time, I was, acting executive director for a 4 billion company in Connecticut, combining all the operations and business and economics experience that I had with the real estate acumen that I had, I knew I was ready then to really start borrowing money at scale and lead a company that could buy and acquire and manage real estate profitably. So that's three peaks today now focused on acquiring, we're boutique in a sense that,we don't have 2000 units. Like some of the guys out there,we buy slow and buy right. Like I say, we're also a boutique in the sense that we don't attack 200, 300 unit properties at a time. That's institutional territory where we're much more competitive and effective and the 30, 50, 70 unit range. That's historically been our benchmark. and we're able to acquire these properties and key markets across the U S underpin with good market fundamentals. I'm happy to talk about what I think that means. and we reposition them and we've done a really good and effective job at strengthening these assets, and returning that capital back to our investors. So that's really a, I was going to say a short version of my story, but that also feels like a long version of my story, but that's about all of it. In a nutshell,

[00:09:46] Tim Little: No, that's awesome. And there's so many valuable lessons to pull out of that, right? Just straight from the beginning, you talked about 2008 seeing 2009, seeing all these people lose half their money. And I was in an interesting position myself at that time because I was in the military and I was just getting ready to get out of the military in 2008 and go into grad school, which I don't know. I guess you could call that a positive because I was going to,I was in business school and I was seeing all of this stuff happen in real time. The unfortunate part is even the professors had no idea what to think because it was so unprecedented. At the time, it was truly one of those like black swan type events that there wasn't a whole lot of historical context for. So it was certainly interesting from that perspective. But even I got hit right because I had a retirement account in the military and even that. Had lost half its value. Luckily it was early enough on. I think I had 40, 000 in there, which was a lot for me. At the time, it had gone down to 20 and I was like, Oh man, that really hurt. But it was just one of those things where you just move on and you're like, all right, let's go on to the next thing. And then you talked about your time in management consulting. Which is something I looked at too, coming out of grad school, with my MBA and everything, I was like, okay, I'm looking at the three letter agencies, the BCGs and everything. And I was like, I'm going to solve problems. Cause that's what it essentially comes down to, Is for management consultants you're paid to solve problems. And I felt like that lent really well with my background as a military officer. Because it was very similar to that. regard. So I was doing all the case studies and everything. I'm glad in retrospect that I didn't wind up going down that road because of the burnout aspect that you talked about. I think that is a young man's game because they know they could just drive you into the ground. And when you're into your twenties, there's a high threshold there, right? I, at that point I was in my thirties by the time I graduated grad school. So I don't know how long I would have been able to grind it out. But, it was interesting to hear you talk about that. And then. The other part, which I want to key in on because of the flipping, right? We hear a lot of people talk about getting their start and flipping cause it's real estate, right? And it's one of the things we see the most. It's like the flashiest. HGTV and all of that stuff. but I think, unless they start doing it, they don't realize how active it is, which is, I think, the point that you were hitting on. It is not passive in any way, shape, or form. Which makes it, I would argue, very difficult to do with a full time job. It sounds like you were able to do that, but I have to imagine, like you were alluding to that just the time alone, trying to deal with all those things from contractors to loans, to, to everything else outside of work hours. it was really weighing down on you at some point. Is that the case?

[00:12:56] Kris Morin: it was, but I was good about removing myself from that process as much as I could and making sure that any time spent was on the more critical items, looking at, projects where we might be, on, or potentially running over budget and inserting myself and having conversations to make sure that the train stays on the rails. What I really did was I mentioned, forming relationships with universities to feed me interns to do some of the basic tasks that they could do. I hada realtor who also had some flipping experience who I created an arrangement with him where I basically said, Hey, you're going to be my guy. You're going to check on these properties at this frequency. and ultimately you're going to be compensated based on performance. And it was a sliding scale. And, if we ran over budget, like this guy wasn't getting paid, So he had real incentive to, to make sure it worked. And I found creative ways to remove myself. without being reckless and removing the controls necessarily. And so I could watch it from a distance and stay over the top. But,I even had, given somebody a power of attorney to sign and close, deals for me while I was away. Sometimes deals closed while I was away. I was really good about establishing sort of a streamline operation. And at the time, different types of workflow systems really, I would say only emerged in the last 10 years. They didn't really have anything back then that would have been super useful. Like I just even think of something like a monday.com where you can track all the tasks. And like I said, assign things to people and see where they're at. I literally ran all of this off of Google spreadsheets. Google docs on the cloud. so it was very archaic in that sense, but I did with, I used the tools that I had at the time, but I think it's one of those instances where if you just think about what do you have at your disposal, what's important for you to pay attention to what aligns to your skills and interests and how can you quickly find somebody else, to take the things that, that don't align. And, I'm thinking right away of a book, who, not how, and it's right behind your head. That's the whole premise of the book, right? There are people out there who can do those things. And I just wanted to steal a moment to call that out because that's a little bit of what I'm alluding to here. And that was critical to my success earlier,

[00:14:45] Tim Little: Yeah. And that makes a lot of sense. And don't get me wrong, like you certainly can make money in the flipping game. And I've known a few people have been very successful at it, but the things that I've noticed that made them very successful were teams and systems because they had those teams and those systems in place and they were very good at both building them and running them. they were able to reach the scale that. That offset some of the risk that you talked about with not every deal working out. and just the time required to commit to it. I, obviously I'm biased towards multifamily. I would still argue that, Other forms of investing within real estate like multifamily, syndications, et cetera, are more tax advantaged.  But again, these are all like taxable events. So there's ways that you can find to offset those impacts. So I won't get into the weeds on that stuff, but let's talk a little bit about your company and I thought it was interesting, so many folks are like, a hundred units plus, like we don't even look at it if it's less than a hundred units. And you specifically called out that you guys are in that range right before that. You said 30, 50, 70 range. And I guess the problem with unit count is it's relevant in some ways. but not necessarily in others. And what I'm thinking here is price, right? So like a 70 unit in Connecticut, maybe a lot more expensive than 150 unit in Arkansas. So what is the correlation there? And is for you guys, for your buy box, for lack of a better word, is it based more on that unit count or are you looking more. at the price based on what you think you can raise from investors, et cetera.

[00:16:35] Kris Morin: It's a little bit of both. it really is a little bit of both. Like you said, there's definitely a huge discrepancy in market type. And I think you chose a really good example,70 units in Connecticut probably does equate to 150 units in some of those markets. It was a combination of Unicount from a Unicount perspective because,the deal just naturally the pricing is higher, but it's too big for the small landlords and it's small enough where the really big guys, they're not paying any attention to it. So it allows us to be more competitive. it's also a more challenging space, not only to come. Not to compete, but to manage, So for those folks who aren't aware, one of the, one of the attractive, one of the reasons why operators will draw the line and say 80 or a hundred units is because now the property generates enough profits where it can sustain itself. I can afford a full time leasing manager on site, full time maintenance manager. That's all these people do. They wake up on Monday morning. They were reported to your property only. You got 50 or 70 units. You're underneath that threshold. You're, you've got a partially allocated leasing manager from a property management company. That person is spread across multiple properties, probably within the area, so it's not unreasonable.

[00:17:38] Tim Little: Sure.

[00:17:38] Kris Morin: But that's the same for the maintenance person. And a lot of times you're outsourcing additional work when you're doing unit turns. And so you don't have somebody who's available at your beck and call to go turn unit units vacant.  Hey, can you come and update it? We have to get heads in beds right away. You may be,you're really succumbing to,any labor shortage pressures that might be experienced in this particular market. And we felt that where, the contractors that are qualified to work for us say, Hey, we can't get there for at least two weeks, but then we'll turn the unit right there.  Those types of pressures that you face. So there are unique challenges to managing smaller properties. But, aside from that, and,we have the networks, we have a lot of expertise and experience in this space. So we do particularly well there. So that's why we target it. But, getting back to your question, our buy box is typically going to fall in the Indiana space. You're looking at anywhere from three to 5 million, if we're buying and you're talking 50, 60, 70 K a door, if we were buying 20 units and Seattle, at 200 plus K a door, it's 5 million just for 20 units. that does change a little bit. And we like that space because the equity that you're raising at any given time is, a million and a half to two and a half million. it's, I wouldn't say it's easy, but it's. A lot easier than raising 25 million, right? to get more deals done. It's just,it's just a different business model. And like I said, we do really well there. And a lot of,what we found a lot of retail investors out there, LPs who invest, they also have an appreciation that, with scale, there are benefits there, there's lower risk because, I always say, if you buy a 10 unit apartment building versus a duplex. you're taking on, some people say to me, Oh, Kris, I'm going to start small and safe. I'm going to do a duplex. I'm like, you're really taking a lot more risk. You have one vacancy. You're potentially in the red, right? You're dipping in your own personal paycheck to float the expenses and pay back your investors. That's not the case. So the larger you get that, that expense decreases, but then it gets to a point where. if you're not really good with your management, you're not really good at managing property managers. any small deviation in your business plan, the bigger that property gets, the bigger that deviation gets. So it's an inflection point where that risk compounds again. So there's a sweet spot and I believe it's in the 30, 50, 60 unit range where. if you manage it you can really control the risk a whole lot more effectively than you can on 150 units. So I went on a little bit of a tangent there. It's a little bit of philosophy, but I think based on experience too, there's really a number of reasons why we target that space. And, and prices are a part of it, but it's not the whole story. Hopefully that makes sense.

[00:20:32] Tim Little: yeah, no, absolutely. And like you said, there's nuance there, right? It's multiple reasons. yeah, I did want to hit on, we've talked a little bit about raising capital and when you were giving your background, you talked about it being relatively easy for you to raise money from other people. And I'm assuming you're talking about, when you were getting started mostly for those flippings, but obviously you're doing a lot of raising money now for these larger syndication deals. Talk to me about, I, cause I think a lot of people are listening or Hey, I don't know anyone who has money, right? that's the first thing that comes to mind, whether it was, me, when I was looking at a duplex and didn't have anyone to partner with, or anyone I knew who had money who would trust me to do the deal, take care of it and kick them off profits, or the people who are just getting started, doing the syndication side of things. They're like, Hey, that'd be great. But I don't know a lot of rich people. How did that start out for you both at that low level? And then how did that kind of evolve, once you got to the syndication side of things?

[00:21:33] Kris Morin: Yeah. That's a great question. I think we all have the same reaction. And I was there too. I don't know anybody with money, but that's just not true. And anybody who's been through the process, we'll tell you that. and if that's really true, you don't know who your friends and family know. I always say there, we all know somebody and be like, I'm making this up, Dan knows everybody and everybody seems to know Dan and everybody loves Dan. he's the most connected guy in the world. And Dan might not have money, in your head, Dan's the most connected guy in the world. And everybody responds positively to him. Be great to get on the phone with Dan and say, Hey Dan, I'd love to catch up and share something I'm doing. I just wanted to see if you know anybody who may be interested. Dan's a social connector and influencer. Dan's absolutely going to refer you to one or two people who are going to show a legitimate interest. Point is we all have connectors in our network. I think you need to do a good job of sitting down and thinking about who those people are, and then just having the courage to really talk about what you're doing and who you're looking for and how it can benefit those people. If they were to get involved with you as a joint venture partner or a passive investor, you will absolutely get referrals. People will say, Oh no, I won't. I can't. I can't. That's just a story you're making up in your own head until you've tried. Don't tell me you can't. That's what I tell everybody that I mentor and the ones that do, they end up raising money. And they're like, that was way easier than I thought. The other thing is just get in the habit of talking about what you do all the time. I literally used to raise money from coworkers because I'd come into work on a Monday. What's the first thing everybody does? They make small chats. They're trying to avoid getting into work. And everybody's what'd you do this weekend? And Right. I always want to be the first person to ask because they always say, Oh, yeah, after they're done telling their story, they say, what about you? Even if I was at a Red Sox game, right? I'm a Northeast guy. I'm from Connecticut. I go to Boston all the time. Even if I was at a Red Sox game, I literally would lie. This is the only time I don't, I'm not a big liar and but I would say, Oh, I was looking at real estate. I'm really getting into this real estate thing. I'm going to buy a multifamily. I've got a bunch of mentors. I'm really excited about it. And they'll be like, wait, what? I didn't know you were into that. And here's the kicker. You'll find that if you just talk about what you're doing, not like you're bragging about, you're not asking anybody for money and you're talking about all that you're learning and you're talking about how you're bringing on mentors to make sure that you don't make any risky decisions. They're thinking that's super interesting. You know what most people are going to say to you, I've always had an interest. I just never knew how to get started. The reality is. I always joke, everybody and their dead grandmother wishes they can get into real estate because they know it creates more millionaires than any other business model in the world. So once you start talking about it and you start educating people, there's a real opportunity for them to get involved with you. You can do all the heavy lifting. It will blow you away. How many people are interested? And let's say I've got 20, 000. I've got 30, 000 and you'll just start piecing deals together. And eventually you'll meet people as your track record builds, who will step up and give you a hundred thousand or 200, 000. It goes from there. Now, let me just build on the story one more time because. that's 14 years ago. Facebook was maybe a thing, but it wasn't the tool for influencers that it is today. If I were starting over, I would be spending, and I'm a big Facebook guy today. I raised millions of dollars on LinkedIn and Facebook now today. So that's a part of my current raising strategy. But get on Facebook, announce what you're doing. I just looked at another property, super excited. Here's where I'm at on my journey. Just said, no, you like, you can go to a deal. And go home and just talk about why it didn't work.And now you're doing a couple of things. You're making people aware that you're on this real estate journey and you're showcasing your expertise to them because you're showing all the reasons, all the ways you broke a deal down and why you said no. And what do you think happens the day you call them up and say, Hey, I've got it. I've got a deal here. I think it's a good one. Do you want to go in? They've just watched, they just have. been exposed to your expertise and watch you say no to a hundred deals. Now you're saying one is great versus they don't ever even know you're on this journey. They know nothing about you being a part of real estate. They don't even think you're an expert. You call them out of the deal. And you're like, Hey, this is what I'm doing. Do you want to invest? I can be like, what? You're in real estate. I'm not going to give you 50, 000. Like they have to go through that journey. But it's a great way for you to pull them through this journey with you to know, and trust you without ever really actually even talking to them. Social media is just the greatest tool again, people will shy away from it. then if people know what I'm doing, then they might also see me fail and they start making up all these crazy stories in their head, that aren't true. and nobody really cares that much about you. So I think you have to get over yourselves. Now I'm starting to sound like Gary Vee, but the reality is be courageous, believe in yourself, share your story. you'll be amazed at how many people will reach out to you and message you and say, Hey, I might be interested in partnering with you. So just a couple of tidbits there. I think anybody can do it.

[00:25:59] Tim Little: Yeah, no, I think all that is golden. I concur completely with all that stuff. The biggest hurdle I think for most people is the mental block. once they can get over that and again, talk about, like you said, what they're doing, what they're into, then it becomes part of their story. Then people start to know them as that person as opposed to Gary from work or whatever. Now it's Gary, that guy from work, is also in real estate and then pretty soon you become Gary the real estate guy. Now I'm starting to digress. But, all Talking about the real estate market.  I do want to hit on that real quick before we move on. because things have been strange. I'll just say in commercial real estate. Cause for a while, I felt like we were in the boom times, anybody could go out there, invest in a multifamily syndication and double their money in less than three years. It was amazing, right? Cause Red prices were going nowhere but sky high in, in a lot of markets. I won't say that's true in all markets. but I think we all have to recognize that it was because of another black swan event. In this case, COVID that just created these circumstances that likely aren't going to be seen again. And so it was like, what comes after? And what came after were obviously, much higher rates,for lending,which throws off calculations, for preferring purchasing new properties, values of some properties started to level out and maybe go down. And these properties that guys thought they were going to sell for one number, they're now getting five, 10, 15 offers for numbers that are Much lower than what they wanted and expected. And so we ran into this point in the market where we were stuck. The buyers weren't willing to pay what the sellers wanted. And the sellers weren't willing to sell for what the buyers were willing to pay. Based on real concerns, right? arising from that. cost for materials for people, the rates for lending insurance. All of these things were real considerations that were driving the cost of properties up. And so they needed to therefore offer less in order to make money for themselves and their investors. All that to be said, I'm curious, where do you think? We are now because I feel like people have given up just waiting for rates to drop as an example And they're coming to the reality that like hey Deals need to get done So do you think within the next year or two where we're going to start to see a jump in deal flow? within commercial real estate

[00:28:34] Kris Morin: I think in the next two quarters, you're going to see a jump in real estate. I think there's a lot of sellers who need to sell. Like you said, the expenses have jumped, taxes, insurance, operating margins have shrunk, right? Profits have shrunk. and they're at a point in time where they're ready to exit. They need to exit. And so it's really only going to take a rate cut or two, which I think we'll see, at least one before the end of this year, and I think you're going to start to see a lot of properties hit the market. I think a lot of sellers understand. They're just not going to achieve their performance. Like you said, buyers and sellers aren't meeting right now, but I think the disparity is just too far and I get it. So a seller shouldn't sell at a loss, but, I think you're going to see the inventory hit the market and that's only going to continue to grow as rates go down further, provided that they do. There's, recessions and economic volatility are a funny phenomenon. It's a social phenomenon more than anything else. consumer spending is two thirds of the United States GDP. And as long as consumers are still not only confident, but selfish, they're willing to, can, they're willing to incur debt to have the material goods that they want. That's only going to contribute to an elevated inflationary period. And, just recently, it's July 30th, 2024, just for folks to benchmark whenever they're listening to this, they just released consumer spending reports and it's still pretty elevated concerning inflation is coming down, that, that can raise an eyebrow, Hey, are we potentially going to.Kind of, cut rates and then we're going to see something like we saw at the end of the late seventies, early eighties, where all of a sudden inflation surges back. and the reason why I say that's possible is because if you look at the percent of consumer wages that are being saved versus what's spent and you look at, modern times versus COVID,consumers aren't necessarily making more, the money that was pumped into the market during the stimulus from COVID that's essentially been burned off. What you find is consumers are actually saving a lot less. They're spending more of their income and they're leveraging credit a lot more. And so that's a scary situation to be in. So when the consumers are confident and they're willing to spend, that could absolutely contribute to another spike in inflation, which would, then Not maybe the Fed doesn't necessarily reverse and hike it again, but certainly that would be a reason to pause for the cause and hold rates longer through the, through next year, which from an economist perspective, which is a lot of what I've done as a consultant over the years, that's really feasible right now. so it's just,I think we're going to see some properties hit the market, but I think there's still enough out of balance that folks shouldn't jump to conclusions that we're in the clear just yet.

[00:30:51] Tim Little: Yeah, I think you're right. Much to the Fed's chagrin, this American consumer has been very stubborn, and this revenge spending, slash YOLO spending has gone on much longer than anyone expected, and again, we have this weird dichotomy where people say that they're I'm That they're the financial situation is really bad and you're like, okay, but your spending doesn't reflect that like they're still spending as if the financial situation is really good. So it's bizarre. And that's why it's taking so long for the inflation to cool down. I think we might be there. But like you said, the feds worst nightmare is he takes his foot off the gas break, whichever you want to consider it. And. And then we go back into, inflation or God forbid, hyperinflation again. I, and I think your other point is important too, that the one thing I didn't bring up when talking about these buyers and sellers are, the ones that are in bad situations, distressed sellers who will have to sell. They don't have a choice in the matter. It, it's, they will have to sell. And so that'll create some deal flow in and of itself. All right. I thought that was an awesome rabbit hole to go down. I love that stuff. But, we do need to transition to the turbo round. So I'm going to ask you three questions that I ask every guest that's on the show. I just asked for a quick, honest answer. Kris, you ready?

[00:32:18] Kris Morin: I hope so. Let's go.

[00:32:21] Tim Little: All right, let's do it. What is one red flag every investor should look out for?

[00:32:26] Kris Morin: If an operator is not willing to pull back the curtain. And, talk about a project where some things were going wrong, and the decisions that were made and how that ultimately landed and then show you the financial statements that go with it. That's a big red flag. we could sit down all day long and show you, here's our proforma and here's where we landed. And we could show you quarter by quarter. So you can see where maybe our payroll expenses were elevated or insurance taxes or whatever. And I can very specifically talk about the decisions that we made to get things back in line. And so you can see that whole narrative play out through the numbers. And so if somebody is not really willing to talk about things that have gone wrong, that's a red flag. And if they can't show you the numbers, that's a red flag too, because no project goes according.

[00:33:01] Tim Little: No, totally agree on the transparency piece there. All right. What is a myth about this business that you would like to set straight?

[00:33:08] Kris Morin: I'll tell you one that resonates with me. There's a lot of influencers online that will tell passive investors. vet the sponsors. Yes. That makes sense. Ask them how many deals have gone full cycle. That makes no sense at all. Anybody could have bought a deal between 2012 and 2022. And, the market alone made rookies look like heroes. So don't focus so much on deals that went full cycle because they could have made a lot of mistakes that got swept under the rug and they just got lucky. And so what you really want to look for is again, going back to what I talked about before. Let them show you where mistakes happen and how they corrected things.you get a view into the maturity of their operations when they share the financials. But really what you're looking for is the expertise of the team, not only within real estate, but in business economics, right? All of those things matter because rookies will tell you population growth and job growth is what drives real estate markets. And that's just not true. If that was true, every deal in Dallas would be rocking right now. Deals are going belly up in Dallas right now, right? Because slope supply is the great equalizer. And rookies don't understand that they should be looking at supply. I'll stop there. I guess the myth is, don't think that deals going full cycle is your measuring stick for a good operator versus a bad one

[00:34:07] Tim Little: Got it. All right. And final question. What does success look like to you?

[00:34:12] Kris Morin: success. What does success look like to me? From an operating perspective, success to me is, bringing a full cycle, being as transparent as possible. Providing timely and clear reports to our investors so they understand, what's going on, where are we to plan, and then ultimately, delivering that return to them, whether that's above or below or right on, but getting them there comfortably so that they reinvest again, because I think ultimately folks just want to know, is my capital being preserved? and just, the degree to which we can hold their hand and be as transparent as possible. To me, that's a very successful. I'm

[00:34:44] Tim Little: There you go. yeah, lead that investor through the entire process. And I think that's especially true with those first time investors. if you treat them right, if you treat them with respect and guide them and educate them, because I think that's the other thing that, a lot of times we don't talk about, especially first time investors, they're seeking. education as part of this process. And that's what we owe them, for their hard earned money. All right. Kris, this has been awesome. Please tell our listeners how they can get a hold of you. And if there's anything else that you'd like to share with them.

[00:35:15] Kris Morin: a big social media guy. Connect with me there, LinkedIn or Facebook, just Kris Morin K R I S M O R I N. You can also find me at threepeakscap.com or email me there. I'm super responsive, happy to share resources. I had a lot of people help me along the way. So

[00:35:28] Tim Little: All right. we'll have all that information in the show notes, Kris, again, I appreciate you coming on and I look forward to continuing to see you do big things on your journey to multifamily millions.

[00:35:37] Kris Morin: Thanks for having me.

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TIM LITTLE (FOUNDER/ CEO)

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