Episode 13 with Kevin Polite
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HIGHLIGHTS FROM THE PODCAST:
1:14 - How Kevin Polite began in real estate, learn about his first deal
5:59 - Kevin's focus and his strategy 12:35 - Mistakes to stay away from with investing 14:43 - How important is it to network when first start out in the real estate community? 21:05 - Atlanta market now - up and coming areas that people should be thinking about 27:51 - Ultimate goals for Kevins' company in the next 10 years 32:04 - Kevin's thoughts of the build to rent style Contact Info: kevinpolite.com [email protected]
FULL TRANSCRIPT OF THE PODCAST AUDIO:
Kevin Polite: One of the number one things is making contact. Also, networking is one of the most important things. You can find your contractors. You can find your subcontractors. It's also a good way of finding out what's going on in the market. Spencer Sutton: All right, everybody. Welcome back to another episode of the Atlanta Real Estate Investor Podcast. And I am your host Spencer Sutton. Now usually I have Matthew Whitaker with me, but he is not able to be here. So I'm going to take this solo, but I'm excited today because I've got a guest here. His name is Kevin Polite with HausZwei Homes. Is that right? Did I get that right, Kevin? Kevin Polite: That's correct. Yeah. Spencer Sutton: All right, good. And I was just telling Kevin earlier I think this is going to be a great interview because our last episode we interviewed a big institutional buyer with John, and then now we're coming to Kevin. And Kevin is more of a ... It's not a big institution. He represents a vast majority of investors out there. They're building their portfolio. They're buying 10 and 20 and 30 properties. They have a goal. Maybe they're flipping some houses. And so, Kevin, welcome to the show. I'm excited to dive in with you. Kevin Polite: Hey, Spencer. I'm glad to be here. I'm looking forward to it also. Spencer Sutton: All right. Well, good. Well, let's just kick off. I mean, I love stories and I just like to hear people's background. So I'd love for you to tell us how you got started in real estate and then maybe tell us about your first deal. Kevin Polite: Sure. It was based on my longest W2. I was working at the Atlanta Journal-Constitution, the main newspaper here in Atlanta. And the last couple of years that I was there I was the real estate advertising manager. Part of my duties was to be the liaison between our reps and the real estate community. And so a lot of my reps had the largest real estate agencies, the largest builders, condos had started booming here. So I worked a lot with them. Being around them all the time and seeing what they do was part of my job to better understand their needs to help us sell more advertising to them. So that's what piqued my interest there. Kevin Polite: But we all know what happened to the newspaper industry, and I foresaw all that coming. So I started buying and selling back then. I think it was 2008 that they laid off pretty much 80% of their staff. And I took a package and actually used some of that money to buy my first property. Spencer Sutton: Did you really? Kevin Polite: Yeah. Kevin Polite: I mean, I continued working for a couple of years, but during that time I started buying and selling. One of the emphasis of me starting was that there was a house on my street where an investor had bought it. And this was during the downturn so at that time you could still get them pretty cheap. And then I saw the job they had done, and I had just remodeled my own home. I mean, we had hired a GC and everything, but we were basically in control of telling them what we wanted, what we wanted to do, picking the architecture and all that, architect rather. And so after I saw the job they had done and then the job that I had done on my house, I was like, "Well, I think I can do that." Spencer Sutton: You were like, "I think can do that to a different house." Kevin Polite: Yeah. Spencer Sutton: Awesome. Kevin Polite: So we ended up buying a house two doors down from that. And at the same time in another neighborhood we bought a buy and hold there. And when we finished the buy and hold, initially we were going to sell it. And that neighborhood reminded me of where I live now, which is what we used to call an up and coming neighborhood. We bought because it was close to town. You could get into work real quick, but we saw how the neighborhood was changing. And that neighborhood that we bought in first reminded us of our neighborhood 10 years before. But that's how I started. I mean, I was in that field before and got a lot of interest in it, talked to a lot of people. So I had contacts and folks that I could always call back and ask questions with. So that's basically how I got my start. Spencer Sutton: So let me ask you this. Do you think you would have gotten serious about it and started buying and selling had the Atlanta Journal-Constitution started downsizing and you were like, "Hey, I see the writing on the wall?" Or would you have just remained in your role with that company? Kevin Polite: Well, hindsight's 2020, but at that time, newspapers were booming. The internet had just come out, and it was funny. My director at the time was saying 10 years from now that no one will be using newspapers. They won't be using print. They'll all be buying their ads online. And we're like, "Oh, that's just crazy." Spencer Sutton: That will never happen. No. Kevin Polite: But we had lifetimers there that were there for 30 and 40 years, so I saw myself retiring there. But when I saw the internet coming, I learned as much as I could about internet advertising. And it's funny. My next two jobs after that before I went full-time with real estate were in internet advertising, so I saw the things coming, but probably would have still been there. Spencer Sutton: Yeah. No, I get it. It's really interesting how different events in life will change your direction and give you new vision for different things. Spencer Sutton: I think that story is really interesting. I was reading your bio, doing some research, Kevin, and what I found out was that you are hyper-focused in certain areas in Atlanta. When we're talking to new investors, they're always asking, "Hey, where should I buy?" We're just very transparent and say, "Listen, you need to really focus probably on one area and get to know it very, very, very well." Talk to us about why you chose and focused in Decatur. And I saw some zip codes listed in your bio. So tell me a little bit about that and what your strategy is there. Kevin Polite: Yeah, sure. I remember one of the best things I've heard was when someone asks you a question about real estate, the best answer is depends. So when folks ask me, "Where should I get started?" I always say, "Well, depends on how much knowledge you have now, how much capital do you have, how much do you know about real estate." And one of the things that I always try to do is stick with what you know, keep it simple, the K-I-S-S rule. And I was familiar with this area and I saw how it was growing. And one of the other things I wanted to do was more than just get an investment, I wanted to make a change in the neighborhood. So one of the areas that we started growing in was Decatur 30032, which ironically was the most flipped zip code in the United States back in 2017, 2018. Spencer Sutton: Wow. Kevin Polite: But we started investing there in 2011, and I figured if I could buy a number of houses in that neighborhood, I could buy a couple to flip and then also buy and holds. And the flipping would help my rentals become a more secure neighborhood, invest, increase the rents. Plus, I was familiar with that. We mostly get 1950s, '60s brick ranches, kind of the mid-century brick ranch style. And that was something I was familiar with. And a lot of the homes I can walk in and close my eyes before we buy them and I can tell you where the bathroom is, where the bedroom is, what I'm going to do when I take out this wall here. Spencer Sutton: Yeah, absolutely. Kevin Polite: That was the impetus of that was just we wanted to go in and obviously make a profit but also make a difference. One of the neighborhoods I'm in, Meadowbrook Acres, we got involved with the neighborhood because I always made sure the neighbors know who I was, which helps. During that time people were still stealing HVACs for the copper. None of our pallets has ever got vandalized because we made sure we knew all the neighbors and the neighbors knew us. So they looked out for us. Kevin Polite: I remember getting a call at 12 o'clock in the morning saying, "Kevin, someone's at your house." And it turned out it was our HVAC guy who liked to work at night in the middle of the night. Spencer Sutton: He wasn't stealing. He was installing. Kevin Polite: Yeah. But I thought that was cool that someone was looking out for us. Spencer Sutton: That is awesome. That is great. And I'm really interested. I mean, this is a great strategy for anybody listening because what Kevin is saying is, "Hey, I would buy a property, do a great rehab and flip it to increase the property values. And at the same time I'm buying and holding rentals in the area." So tell me, what's the difference? How do you decide what's going to be your flip and what's going to be something that you put in your own portfolio? Kevin Polite: It just depends on the cost of the acquisition and the market at that time. One of the last houses that we bought there was ... I was fixing a house to do a flip on. I'm very conservative so I don't grow real fast because I want to make sure we have the right amount of reserves and we got the funds for CapEx. You never know when an HVAC will go out or something like that. But we were working on a house on this one block and two houses over a tree fell on the back of a house, a couple of houses down. And the neighbor saw the sign that I had in the yard and came over and said, "Hey, can you tell us how much it would cost to fix up this house?" And I was honest with her. I was telling her different scenarios and everything. And then she turned around and said, "Well, do you want to buy it?" I was like, "Yeah, sure." Spencer Sutton: Yes, 100%. Kevin Polite: That being involved in the neighborhood helped me pick up another deal. Spencer Sutton: Yeah. No, I think that's great. And that's a great lesson to learn for anybody who's local in Atlanta and starting to build their portfolio. I mean, getting to know the neighbors, getting to know the neighborhoods, you're going to pick up deals like that. It's just really amazing how that happens over the course of time. Kevin Polite: Oh yeah. And going back to that, I wanted another buy and hold. And so the house that we were working on at the time instead of flipping it, I ended up keeping that property as a rental. And it's now my highest rental rate, and then the house where the neighbor called and asked did I want to buy it, that allowed me to keep the other rental and then keep this house, which is actually the design of it was better for a flip. So I was able to do both on that same block. Spencer Sutton: Okay. So you said the design was better for a flip. What does that mean? Kevin Polite: This one had a little more square footage. Actually, the tree had fallen down on a extension that they had done in the back, so we already had the foundation there. And the bigger the square footage, the more final price points you're going to get. So we figured we could get more, and at the price we were getting as well made a difference from us having a higher profit margin on that than the other house we would have kept. And then by allowing us to keep that other house, there were a couple of more houses that were flipped on the blocks. Because it's still cash flowing pretty well, we're going to keep that house. Spencer Sutton: Yeah. Well, that's great. I mean, I think that's a great story. So let me ask you this, Kevin. I learned a lot. So when I started real estate investing, it was 2003. And I can just tell you I have made a lot of mistakes, especially early on in my career. So have you learned from any kind of mistakes? What kind of mistakes have you made that maybe you could warn our listeners about like, "Man, I wish I would have known this or I wish I would've done this differently," as you started your career? Kevin Polite: Oh yeah. And not to say I still don't make mistakes today. Spencer Sutton: Yeah. No, I still do to. Kevin Polite: But the first house we bought we were paying the contractor by the hour, which is the worst thing that you can ever do, but at the time I didn't know. We were getting to the point where this seems to be taking a little bit longer than it should. And then at that time I hadn't started reaching out to as many investors. I knew real estate on the retail side, but obviously when you're flipping, it's a whole different story. So I started going to real estate investment groups. I started reading BiggerPockets. I started listening to podcasts like yours. Someone told me that's probably the worst thing you can do is pay them by the hour. Kevin Polite: And once we learned that, we stopped and said, "Okay, here's the rest of our budget. If you can do it in this amount of time and for this price, then we can go forward." That was one of the best things that I learned was how to work with contractors. Also, at that same time one of the best ways I found to find a new contractor was I would go around to job sites. And if I saw someone doing a good job, I'd ask who's in charge there. And that's how I found some of my best contractors. Spencer Sutton: Yeah. That is so true. I mean, contractors can make or break your deals, especially when you're doing flips like this. So it's vitally important to get that right. You mentioned going to real estate investor meetings and all those types of things, getting on BiggerPockets, educating yourself. So how important is it to get involved in the real estate community when you're starting out and starting to do this full-time? Kevin Polite: One of the number one things is making contacts. Actually, I bought my last deal from off-market from a guy that I knew from the Georgia Real Estate Investors Association. He invested in that same area, but he's at that point where he's getting ready to retire, moved to Hilton Head, and he's slowly getting rid of some of his portfolio. And he knew I liked those types of houses in that particular area. So he just called me up and said, "Hey, Kevin, I got a house for sale." We negotiated. And that's how I bought my last deal. So networking is one of the most important things. You can find your contractors. You can find your subcontractors. It's also a good way of finding out what's going on in the market. Kevin Polite: West Atlanta is real hot right now, and I'm not necessarily investing over there, but it's always good to go to these meetings, find out what other people are doing, what are they seeing in the market. Who knows with COVID where the market is headed. But it's always nice to talk to people that have boots on the ground and see what they're doing and how it's affecting them. Spencer Sutton: Yeah. I think that's a great point. Having people that you can trust, and it really amazes me how generous the real estate investing community is. Really, when you get to know each other, you can tell that people they're willing to help people. And the people who have been doing it the most realize that, "Hey, there are plenty of deals to go around." Even in this competitive market, there's still enough deals for people to have. Kevin Polite: Oh yeah. Spencer Sutton: And so I think that's great. Kevin Polite: Definitely. If something comes up that you're not familiar with. I did my first new construction last year. There was an item that came up that all my research and getting my bids and everything. The county had come up with a new plan where they had to ... Because of the sewer system, we had to put in an infiltration system. And I didn't know, none of my plumbers did it, but after making a few calls, one of the other investors told me, "Hey, this is the guy to call." And he gave me the number and the guy was out there the next day. And we were able to do that. But had I not known that I would have been searching around finding someone to do that, I couldn't complete the deal. I couldn't complete the house without having met to get my final permit. Spencer Sutton: So speaking about the real estate community and how generous everybody is, talk to me about who has been most influential or who's inspired you the most through this real estate journey that you've been taking. Kevin Polite: One of the person that inspired me was Michele Velcheck, the broker of the real estate agency that I'm involved in. And she started their agency because she was actually a real estate investor before she was an agent. And she couldn't find a real estate agency that would allow her to carry her portfolio with her because when you're in agent you have different rules and regulations, and she couldn't find a good fit for her portfolio because I think she had 100 or so at the time. And she said, "Well, I'll just start my own brokerage." Kevin Polite: So now she's one of the 10 largest brokerages in Atlanta area, but she allows us to ... If you want to be a part-time agent, if you want to be an investor agent, a lot of the larger real estate companies won't allow you to do that, but being with them is great because it allows you to be an agent and have a portfolio, and you don't have to worry about following the rules and reg regulations that are legal, but they just don't allow that because it doesn't fit their business strategy. Spencer Sutton: Yeah. Which is great for you because you're also a realtor, but you don't really ... I mean, you will represent people absolutely, but you're doing it mostly for your own flips and for your own portfolio. Kevin Polite: Yeah. And I think it's good to have different sources of income. And one of the things it taught me when I was laid off the newspaper after 20 plus years is that you can't rely on just one thing. So I have the real estate agency business, which allows me to buy and sell my own deals. But at the same time I still do several deals a year as another source of income. And then the flipping part allows me the profits from that as well as the buy and hold. Some people say, "Should I be doing buy and hold, or should I do flips?" And I think it's beneficial to do both because depending on how the market is it may be better to buy buy and holds or right now if you can find a good deal in the Atlanta market, houses are selling like ... If it's not selling in less than 30 days, then you've got it priced wrong. Spencer Sutton: Yeah. You got it priced wrong, or you got a dog of a house. Kevin Polite: Yeah. Spencer Sutton: There's something wrong with the house, right? Kevin Polite: Yeah. Spencer Sutton: And we talk about that too with rentals. We say, "Hey, the three things that really matter most ..." Because people will not know all the time from us how quickly can you rent my property? We say, "Hey, as long as you have market price." And then we say the product, so the house needs to be in good shape. It needs to be a good house. It can't be super funky. And then obviously seasonality will depend a little bit. But I mean, here we are in January and it's been a hot market all throughout the holidays and doesn't look like it's slowing down anytime soon. Kevin Polite: Oh yeah. I had a closing right before ... We were rushing and try to get it closed before Christmas day. Spencer Sutton: That's amazing. So talk to me just real quick. I mean, Kevin, I'd love to know your boots on the ground. Of course, you focus in Decatur in that area, but what's happening in Atlanta? Because you mentioned one of the things that made you successful, I think, in Decatur was you saw that, "Hey, this is an up-and-coming community, right? So we can see that a change is going to be happening, and we want to be a part of that, A, for the community, but also, hey, this is a great way to build value for ourselves and our company." What are you seeing in the Atlanta market now? Are there any other up-and-coming areas that people should be thinking about or exploring? Kevin Polite: Yeah. Well, it's funny. I saw somewhere in the news the other day that Atlanta is next year going to be the seventh largest city in the US. And I remember when I moved here 30 something years ago it was like in the top 15, and every day you hear an announcement of somebody moving in, another new company moving in. So the two factors that you want to look at, if you're an out-of-state investor, is it in the city, is there population growth, and is there a new job growth to support that new population growth? And Atlanta is just hitting it out of the ballpark with that. So the city as a whole is just still growing like crazy. And there's actually two major markets, and one is outside 285, the interstate that goes around the city. And then there's everything of that. And those are two totally different markets. And then you'd start to separate them, differentiate them down from there. Kevin Polite: One of the hot markets right now, which we're not investing in, but we're starting to look for deals is on the West and the Northwest side of town. There's a new park that's opening up. It's the beltline that's going around the city of Atlanta as opposed to the Metro area. And it's a new bike and walking path and maybe soon transportation, and anything near the beltline is just going crazy. So it's hard to find deals there, but I think the areas near the quarry. I always go by zip codes because back in my newspaper days I used to do inserts, so I knew all the zip codes in the city. Spencer Sutton: Yeah. Well, give us zip codes. That's great. Kevin Polite: But 30314, 30318, or within the Northwest areas, those are close to the quarry. That's going to be the largest park in the metropolitan area. And so that one's booming. You've already got Microsoft is coming over there, and it's rumored they're going to put like 15,000 jobs in that area. So it's almost too late to invest at a good price over there. I mean, you can still find a lot of inventory. The other areas are the West side, which are 30310, which is city of Atlanta, 30311, which is Cascade. Those are the hot areas now, but if you can find a good deal in those areas. And Decatur is still good. I mean, anything inside 285 is still good. Kevin Polite: You may have areas where you've got million-dollar houses, which is a city of Decatur. And then I say to Decatur has five different areas. You've got the city of Decatur area. Then you've got the suburban part, which is further out. And then you've got the ones that are closer in basically adjacent to city of Decatur. And those are still good areas. There's still a lot of inventory there if you can find it. Spencer Sutton: Yeah. Right. So there are good deals as long as you can find those deals. Kevin Polite: Right. And then that goes back to networking, going to the meetings, finding out what's down there. The deal that I bought after the one I bought from the investor I bought it off of MLS because wholesalers know that there's not much inventory as far as a real good deal. So the pricing that I've seen from them has almost been as high as MLS. So the last deal we bought was actually cheaper than it was on MLS. I mean, would have been going through a wholesaler. Spencer Sutton: Yeah. And that's great information. I think it's really important. We talk about this all the time is understanding your buy box, understanding what your criteria are so that whether it's on MLS or whether there's a wholesaler, as long as it fits that criteria in that buy box, you're okay to buy it. And you're not going outside of that. You're not trying to make special exceptions. Then what may not be a good deal to somebody else could be a good deal to you just based on what your goals are. Kevin Polite: Yeah. I mean, if you're doing buy and holds, then you're talking are you comfortable with doing class C properties, or do you want to be a little safer and do class B, but not make as much? And then there's class A, which that's a whole totally different market right there. And then put those in different areas. What may be class C in Decatur may not be the same if you go out to Marietta and the amount of work that you're going to have to put into a property to get it to class B as opposed to class C and the types of struggles that you have with the type of resident that you may get for class C. So those are all different factors that you have to look at when you're looking at what type of buy and hold that you're looking for. Spencer Sutton: Yeah. And the great thing about Atlanta is that you can find whatever class you want. Kevin Polite: Yeah. Spencer Sutton: I mean, you can go A all the way to D, F class, whatever the case is. You can find it. And that's a great thing about Atlanta. So what you're comfortable with. And to me, a lot of that comes down to what risk am I willing to take? What kind of return do I want? And then what is the corresponding risk that I'm going to need to take to get that? Because a lot of the stuff that I invested in early in my career, I mean, I bought a 10 house package for $100,000. It was class B houses, but I was willing to take that risk at that point in time. Now I'm a bit different than that now, but you live and you learn. So talk just real quickly. Spencer Sutton: I think this is just what we're hitting on here. We talk to investors a lot about ... Especially new investors that call us asking about certain areas of town, we talk to them a lot about first having their goals, like what is your ultimate goal in what you're doing, having a plan, how to get there. And now that may not have been the way you started your company, but looking forward, what's the ultimate goal for you and your company over the next 10 years? Kevin Polite: That's a good question. Because when we started, we didn't have a goal. We were just like, "Let's do this and see what happens." Spencer Sutton: Let's do these two houses. Let's get these sold and get some cashflow. Kevin Polite: Yeah. And then once I started doing it a little bit more, then you want to get organized. You get your team together. I have a great accountant that I work with. I have a financial planner that I go to once every two years. But in getting to that, what your goal is you have to go back and look at where you are, what are your strengths and weaknesses, and then, again, what are you comfortable with? And after doing that, a lot of people look at, "Okay, what do I want to do when I retire?" And then you base your goals on that, and then you grow your company that way. Kevin Polite: But since I left my W2 five years ago coming up, I like what I'm doing. I don't necessarily see myself ever retiring. So we want to continue. I think we're happy with the number of doors we have as far as buy and hold. And we want to continue paying those down because we ... I mean, we're not heavily in debt, which is one of the great things. And that's another strategy you can look at. You can go high debt and get more doors or you can get lower debt and get more cashflow. And we went the less doors, higher cashflow. So when we do our flips, we're always comfortable because you want to make sure you have different exit strategies. Kevin Polite: If I have a flip that doesn't go well, we have the reserves that we can keep it for a year or two until we hit that price point that we want to get. So our goal is just to continue doing buy and holds. We've got a couple of pieces of land. We did new construction last year, which went really well. I mean, we had one of them sold right when COVID started. We put that on the market I think it was two or three days after they announced all the closed down. Spencer Sutton: And you still sold it. Kevin Polite: Yeah. We had no traffic that first week. And then I think once people started putting processes and protocols in place, I mean, we had a ton of traffic and it had it under contract in a week. And then the other new construction we had it under contract before we had even ... We were still framing it and we hadn't really put it on the market. We just put a sign out front. So yeah, we're going to continue to look for land to do new construction. We want to double the number of flips we're doing right now. And if we run across a deal where it's another buy and hold and it makes sense, then we'll throw that in there as well. Spencer Sutton: I think that's great. I mean, you've got, to me, somewhat of a conservative plan, but I like that. I mean, that is the ups and downs of high leverage. And all of that just can really make you create scenarios where you're making decisions that are wise over time. And we had a guest on the show, Michael Zuber, and he's the author of a book called One Rental At A Time. And he just talks about that. For he and his wife it was just one rental at a time. And they just built and built, and it was over 15 years. And then he eventually changed the strategy and started doing multi-family. So I like that approach. Now what's becoming very popular in the market now is build to rent. So you're talking about new construction. Have you ever thought about buying land and doing build to rent, or are you really looking at, "Hey, we're going to build to sell like retail?" Kevin Polite: Yeah. I've looked at that. There's a subdivision down in South Atlanta, I want to say Stockbridge or somewhere around in there, where a builder was building a 50 unit subdivision and sold five homes and for whatever reason decided, "Hey, this works better as a rental." And so now it's turning it into a rental property, but a lot of new people are doing construction. The first new construction that I did was actually across the street from one of my rentals. Kevin Polite: My initial thought was to buy that and keep that property as a rental, but the market kept ... I mean, the price that we got for it, we couldn't turn it down and we needed that additional capital. But yeah, I can see doing that. It's just where we invest right now, the cost of land pretty much prohibits that. Spencer Sutton: Yeah. That's right. Yeah. You got to maybe look beyond out in the outer skirts as things start sprawling, continue in Atlanta to sprawl outward, especially with people working from home, possibly moving out of the city and moving to other larger homes outside the city. Spencer Sutton: So, hey, listen, Kevin, this has been great. I've really enjoyed our time together. And we talked before we even started the show just like, "Hey, what if people have questions? Do you want people contacting you?" And you were totally up for that because you love to make connections in the real estate world. So why don't you tell people, our listeners where they can connect with you or how they can connect you? Kevin Polite: Oh, a couple of different ways. The easiest way is to get to our HausZwei Homes webpage. But if you go to kevinpolite.com, that will also take you there. It's much easier to spell. We didn't think of that when we started branding initially. Spencer Sutton: No, that's okay. Kevin Polite: But you can contact me that way. And then my email address is kevin@ hauszweihomes.com, which is H-A-U-S-Z-W-E-I-H-O-M-E-S.com. Spencer Sutton: Awesome. Well, Kevin, thanks for being a guest, and everybody, listen, if you haven't already subscribed, do it, share it with your friends. This has been a great episode. I hope you got some nuggets out of it. And if you found any of the content, any of our podcasts helpful, beneficial, make sure you go on iTunes and leave us a five star review. It helps other people find us. And so that's it. We will see you on another episode of the Atlanta Real Estate Investor in two weeks.
