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How To Invest In Secondary Markets From A Distance With Kimberly Kesterke – Real Estate Women

REW Kimberly Kesterke | Secondary Markets

 

Distance should never be a barrier to building a successful real estate portfolio. With effective processes and a strategic approach, anyone can achieve financial independence through real estate investing. In this episode, Kimberly Kesterke, Founder of The W2 Landlord Community, discusses how to invest in secondary markets from a distance. She shares her expertise in managing a rental portfolio from a distance. With years of experience and effective processes, Kimberly has built a six-figure cash flowing rental portfolio while working a full-time job and raising a child. She shares her real estate journey, how she achieved this, and now coaches others to invest in real estate aligned with their strengths and minimize evictions and vacancies. Tune in and learn all about secondary markets to start your real estate journey now.

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How To Invest In Secondary Markets From A Distance With Kimberly Kesterke – Real Estate Women

Real Estate Investing For Women

I am so excited to welcome the show Kimberly Kesterke. Kimberly is the Founder of The W2 Landlord Community and has many years of experience managing her rental portfolio from a distance. Kim built a six-figure cashflowing rental portfolio all while working at a full-time corporate sales job, raising a daughter, and managing our properties herself. Through that experience, Kimberly has created effective processes that resulted in only one eviction during the years and very few vacancies.

In 2019, she finally hired a property manager and, in 2020, started a Facebook community with four real estate investors with full-time jobs. Finally, in 2022, she quit her corporate sales job in order to focus on her real estate business full-time. That’s so exciting. She now works with coaching clients to help them build foundations in place to hit their financial independence goals and confidently invest in a real estate strategy that aligns with their strengths. Kim, welcome to the show.

Moneeka, it’s so good to see you.

It’s good to see you again. We’ve been on a couple of other panels together with real estate organizations, so it’s so much fun to finally have Kim meet you ladies and get to share her with you. Thanks, Kim.

Thank you.

Kim, it’s impressive that you have quit your job and now you’re fully into real estate, but how did you get started?

I got started back in 2006. I purchased my first home. If you remember that time, it was such a buzz. It was the responsible thing to do. Everybody was buying a house whether we had money or not. I was about 25 years old at the time, and I purchased my first property in Augusta, Georgia. That’s where I was living. I was working there.

Fast forward to 2008, we all know what happened. The economy crashed and at the same time was transferred to the Atlanta market, which is about three hours away from Augusta, for my sales job. I became an accidental landlord at that time. I decided to put tenants in place, rent the property, and managed everything from a distance, which back then it was unheard of to coordinate everything via phone and email, and not be onsite for all of those tasks and things.

I started to gain confidence. Over the years, I started acquiring a duplex here, and a triplex there and started building my portfolio. When 2019 came along, I decided to hire a property manager. I had about eighteen units at the time, and that’s how I got started. Consistency is what helped me build my portfolio over time.

Are all of your properties in Augusta, then?

Not anymore. Originally they were, but then as I started learning different strategies and investments, I branched out to other markets. I have properties all over. I have one in New York and a couple in North Dakota. In terms of managing secondary markets, I’ve expanded my portfolio that way.

How did you hire a property manager? Do they do everything remotely?

The property manager that I have is for my Augusta units. That’s where a bulk of my units are, and then the other properties that I own, I self-manage.

Talk to us about how you define a secondary market.

I define a secondary market as a market that is typically about 150,000 in population. It may have 3 to 5 industries within that market. What that tells me is that there’s a lot of support in that economy that would support people to move in, to rent, to buy all of those different things. In a secondary market, I also take a look and make sure that it’s a place that people want to live and that people would want to move to.

The reason why I look at 3 to 5 industries is because you don’t want to put all of your eggs in one industry. For instance, if that corporation or whatever that industry is, because every market is different, leaves, you don’t want to be caught with a property that depreciates very quickly. Those are some of the key things that I look for.

Don’t put all your eggs in one industry. Every market is different, and you don't want to be caught with a property that depreciates very quickly. Click To Tweet

How do you find those markets?

There’s a variety of different ways. There’s a free tool that I use online called NeighborhoodScout. Let’s say I’m reading an article online, and it says, “Top 50 best places to invest.” I see that all over the place all the time. If I’m curious about it, I’ll go on to NeighborhoodScout. It’s a free tool. I’ll poke around, I’ll put the city in, and I’ll start looking at the different things to see if it’s a place that I’d want to dive in deeper and actually invest.

Why did you decide to do secondary markets?

I stumbled upon it with Augusta. Augusta, Georgia, is a secondary market. As I was building my portfolio, I looked around at all of the competition that a primary market brings, whether it’s hedge funds moving in or it’s a lot of investors competing for the same properties. Also too, for me, the secondary market fit my budget personally because I was at the time doing conventional loans that would be 20% down after you get a certain amount under your belt.

The price tag was a lot more attractive to me. It turned out that what I was putting in as a down payment to what the rents were worked out where I was still cashflowing, still making money, still getting the appreciation. It may not have been as broad as the Atlanta market, for example, but it was where I could afford it. I could continuously do it and still see good results.

You fell into that. How would you say other people can get started in a new market?

If there’s a market that somebody hears about or there’s a lot of buzz or maybe it’s not so much buzz, but they personally know a family that lives there who knows a little bit about it, then I would say start doing your research. The question is, “How do I research if I live half a country away?” Basically, what I said a little bit earlier is I’ll go on NeighborhoodScout.com. It gives a lot of information in their free tool.

I’m not affiliated with it. That’s what I’ve used. You can drill into different ZIP codes, you can check crime rates, where the industries are, or what kind of industries. You can then take that information, walk over to Zillow, and then start seeing what the rents are. If it’s starting to look like a market that matches the type of tenant avatar that you’re renting to or if it’s matching all of the different check boxes that you have, then it’s one to start exploring further by calling some property managers or getting on the local city Facebook group and start diving in that way.

Talk to me a little bit about calling property managers. I’ve heard that before. It’s a great tool to utilize and get to know new markets. Tell me a little bit about how you managed that process.

I personally did this for a property that I was looking at in Port Charlotte, Florida. I ended up buying it. I had never been to Port Charlotte. I love the area now, knowing more about it. What I did before I put an offer in and closed on the property was I called a couple of property managers and gave them the details of the property. I said, “This is it. This is what I’m thinking of renting it at. What are your thoughts?” They gave some good advice.

I was even looking at renting a little bit lower than I should have, which was nice. I was able to up my rate and learn a little bit more about how snowbirds are coming down. It’s more information than I ever would’ve known. If you think about it, property managers are going to obviously know the area because they have dozens, if not hundreds, of properties that they’re managing. If they understand who you’re renting to and what your investment strategy is, they can give you good advice.

REW Kimberly Kesterke | Secondary Markets

Secondary Markets: Property managers are going to obviously know the area because they have dozens, if not hundreds, of properties that they’re managing. If they understand who you’re renting to and what your investment strategy is, they can give you good advice.

 

Do you ever feel obligated to hire them?

If I personally buy there, then yes, I would because it’s a fair exchange that way.

With that Florida property, did you hire a property management company?

Yes. We ended up hiring that property management.

What strategies would you say work well for managing at a distance? For some of the properties you have a property manager, but what are some of your strategies for being far away and still managing properties?

For my rentals, where it’s more of a landlord-tenant relationship, long-term rental, those properties are managed by a property manager. I also have another strategy in place where I will acquire a property and then I’m, in essence, the bank. What I’ll do is I’ll buy the property and sell it either with rent-to-own terms and/or, depending on what price, I get that property seller financing, where it might be a land contract or land installment contract for deed. I’ve done a lot, a wide variety of different ones. I’ve even done a seller finance where, at the closing table, the deed transfers.

There are a lot of different ways that you can do it. What I like about that and why I think it’s very attainable to invest in secondary markets anywhere is you don’t have to do the maintenance. You’re, in essence, the bank. The biggest thing you’ve got to make sure of is you collect the payments, and there are loan servicing companies that can do that. They’re only $10 to $15 a month. It’s one of those things that if you’re looking for creative ways to get out of your market but don’t want all the hassle of the maintenance and the risk, selling properties as the bank is a good way to go.

That was a lot of information. First of all, with the loan servicing companies, if they need to collect late rent or anything like that, do they charge extra or is it that flat fee?

Yes, you have to put your terms upfront, whatever your terms are. If it’s after the fifth you collect 10%, you’ve got to give them that, but that is how they process it.

What happens if someone doesn’t pay?

It depends on how you structure it. If you structure it more in a contract-for-deed format where the deed transfers after everything is paid off, then you can go through an eviction process. You don’t necessarily have to foreclose. If you structure the deal that the deed transfers at closing, then you would have to go through a foreclosure. Keep in mind that every state is different. If this is something you’re interested in, talk to your local title agency or your real estate attorney and understand what works for your state because everybody’s slightly different.

When you mentioned that there were several different ways to be the bank, you mentioned three right off the top of your head. I understood everything you said, but most of my readers probably will not. Can you take that down a little bit more?

The first one is contract per deed. I like that one because if you imagine somebody goes and gets a car loan, you don’t get the title of the loan until you pay it off. Basically, that’s what you’re offering as the seller. You don’t transfer the deed until it’s paid off. You could amortize that for 30 years, 15 years, or whatever you want to do. The deed transfers after the fact. What’s nice about that strategy is that you get a lot of tax benefits. You get good cashflow. There are some good strategies for that. That’s one of them.

REW Kimberly Kesterke | Secondary Markets

Secondary Markets: A contract per deed is a nice strategy that allows you to get a lot of tax benefits and good cash flow.

 

Do you take a down payment for that one?

I do.

Do you have an idea of the percentage of what you take, or is it a flat rate? What do you normally do about that?

What I do personally is 10% down. I’ve tried a wide variety of different ones. I’ve done, depending on the area, $2,000 down. I’ve done a wide variety. A 10% down, I believe, attracts a person that wants a loan or a mortgage and is going to pay on time. It’s a good qualifier, in my opinion.

You’re the rent to own. They’re paying principal and interest. What kinds of rates do you normally charge?

It all depends. Usually, I take what the prime is and add a couple of points to it because there is a premium to being able to offer the terms. If they could go down and get a conventional loan, then go get the conventional loan. As the investor, we’re taking on a little bit more of the risk, so we can charge a little bit of a higher interest rate.

Now go to the second strategy.

The land installment is another way of saying contract for deed. That’s how I clump those two together. The rent to own, that one’s a pretty cool, unique way to do it because you collect a non-refundable option fee upfront. What that is, is that is also a down payment but non-refundable. It will go against the final principal. At the same time, as an investor, you can manage the monthly payments any way you want. It’s not a straight amortization like a contract for deed or land installment. A rent to own, you can charge the rent and then, as the investor, you can choose how much that rent payment goes towards the principal.

At the very end, they have what we term a balloon payment, and the non-refundable option fee is obviously taken out of that principal. Whatever you decided as the investor with the tenant-buyer, how much each month was going to be applied to it. Rent to own is a cool strategy because there are a lot of exit strategies. They can cash you out after 2 to 4 years. You can redo the lease for another 2 to 4 years, however long you want, and then negotiate with them how much of that payment is actually going to the principal.

The contract to own and the rent to own are similar, but there are some subtle nuances it feels like. Is that true?

It is. It all depends on what your comfort level is, your state, and what the different rules are for evictions and contracts. I’m operating where I operate. The rules could vary. Understanding your specific areas is what my advice would be.

Understand your specific areas. In real estate, operations can depend on your comfort level, your state, and what the different rules are for evictions and contracts. Click To Tweet

If you were starting all over, what would you do?

I love that question because I did a Facebook Live about that. When you look at the way that the economy is now, it’s completely different than what it was from 2006 to 2008. You could get conventional loans at very low-interest rates. Nowadays, what I personally would do is I would purchase a property, and I’m doing this right now, and I would basically flip it without doing much of anything. What I’m doing is I’m flipping the paper. I’m offering either contract for deed, I’m offering rent to own, and then I’m holding that property as long as I can in those specific terms.

What I like about that is, especially where I came along in my investing journey, I like to take a more conservative approach. I guess I’m boring that way, but I like the conservative consistency. In this approach, you know what your cashflow’s going to be on a monthly basis as long as they pay. There are alligators in every water, but let’s say they always pay, you’re getting that cashflow and maintenance isn’t eroding your profits. That’s a great way for people to start and understand real estate investing.

What kinds of properties are you buying, or how are you finding the properties?

I’ve found them in a variety of ways. Now, where I’m getting my properties is I’m sending out letters to sellers and people who own the property but don’t live in the property. I’m sending out letters on this is what I can offer and what I’ve been slowly acquiring but acquiring them that way.

How are you determining the sale price for the properties?

It’s a combination in terms of what I’m selling after I buy it. It’s a combination of looking at the comps and also knowing that I’m also providing a premium for people to purchase, not having to go to the bank. I’ll take a look at comps and pretty much price it where I’m still making some profit, but it’s still within line with what the local comps are.

Let’s say, for instance, you have a contract that’s five years and you’re selling this property with a five-year contract. In five years, that property would’ve appreciated. You’re basically giving up that appreciation in favor of a little bit of a higher interest rate. Is that what I’m hearing?

Not entirely. It’s what is reasonable. Let’s take the Florida property, for example. Looking at the local comps, the higher comp was around $600,000. What my business partner and I did was we took a look at it and we’re like, “Let’s price it more around $599,000. Let’s see if we get some interest.” We got a tremendous amount of interest. We were able to purchase it at a lower price, the way that we were able to work with the seller and work with the wholesaler that brought that property to us. We still made a profit that way.

In that sense, you never know what’s going to happen in five years. You could say you are foregoing some appreciation for the higher interest rate, but we still ended up making money. It was one of those win-wins where we were making money. We were able to get a tenant buyer that was happy with it and, at the same time, everyone is winning out of the situation.

You quit your job to go full-time into real estate. We’re going to talk about this in a deep dive in EXTRA, but could you give us a high level of what it took for you to make that transition? I know so many of my ladies want to make that transition but don’t even know it’s scary. How do you get started even thinking about that?

For the record, maybe because I’m a slow learner, it takes me a while. It took me two years after I decided I wanted to do it. The reason why is because I put some processes in place. I wanted to put some goal marks in. I wanted to hit certain things before I felt that I would be ready to leave my corporate job. I was doing well, and it was something that I wanted to do in real estate full-time. That’s where I was at.

What I ended up doing is I first took a look at my portfolio in its entirety. I took a look to see which ones are the more profitable ones and which are not. I sold the ones that were lagging a bit, the 1031 exchange into some higher profitable property. That took a little bit of time. I had to take a look at what my true expenses were.

Not the bottom of the barrel if I’m surviving expenses, but I wanted to know what does my life cost when I’m doing the things I want to do and going where I want to go. I’m living feeling free and abundant. I wanted to know what that number was and then I wanted to make sure that my cashflow either hit that or was there enough that if I had to do some active income, I still was living the life that I wanted to live. There are more things that I did, but those were two major things I wanted to make sure happened before leaving.

REW Kimberly Kesterke | Secondary Markets

Secondary Markets: Be aware of the cost of doing the things you want to do and going to where you want to go. Make sure you’re aware of the costs and benefits, and if it’s enough, before you proceed.

 

All that prep and stuff, we are going to talk about that in EXTRA, and I’m excited about that. Nobody’s talked about that on that show. We’ve met a lot of people that made that transition, but they haven’t talked about that process that actually happens between being a W-2 employee and being a real estate investor. I’m super excited about that. We will talk about that in EXTRA. This has been awesome. Is there anything else you want to share that I haven’t asked about?

If people want to get in touch with me, I do have a free Facebook group. It’s the best place to go and have investing conversations with other people that have full-time jobs. It’s called Real Estate Investors with Full-Time Jobs at Facebook. I wanted to make it obvious. That’s the name of the group. They can also come to my website, TheW2Landlord.com. I’ve got different resources up there as well.

Thank you so much for that. Are you ready for three rapid-fire questions?

Yes, absolutely.

Tell us a super tip on getting started investing in real estate.

I would say don’t overanalyze because taking action and jumping in sometimes is the better way to go. What I love about real estate is there are dozens of exit strategies that even if you feel your plan A isn’t working out the way you wanted it, there are a lot of different ways that you can still monetize and earn a profit on that deal.

What would you say is one strategy to be successful as a real estate investor?

I would say consistency. It’s not always about the big home runs. A lot of times, it’s about taking a deal that you know you’re going to make money on and letting that be okay. It doesn’t necessarily have to be the big grand slam because you’ll get those from time to time. Like in corporate sales, you always get those big sales, but it’s the small and consistent wins that help you build your portfolio and your net worth.

Like in corporate sales, you always get those big sales, but it's the small and consistent wins that help you build your portfolio and your net worth. Click To Tweet

What is one daily practice that you do that you would say contributes to your success?

I’m constantly networking, and I think that the group helps. When I say networking, it doesn’t necessarily have to be sending DMs. It’s more about being on the Facebook groups, dropping if there are questions, and answering them. Maybe you see somebody who’s a lender. I had a conversation with somebody who lends in all 50 states. We ended up having a good conversation on the phone. It’s connecting with people. You never know who’s going to approach you with an opportunity or you might even be able to help them and send them a lead. This particular business is such a win-win industry if we’re all supporting each other.

This has been amazing. Thank you so much. You gave us so much information in this bite-sized episode. I loved that. Thank you.

Thank you. This has been great, Moneeka. I’m glad that we were able to connect, and thank you for the invite.

Thank you for joining Kim and I for this portion of this show. We’ve got more right on EXTRA. We’re going to be doing a deep dive on how to prepare for that exit out of your full-time job into becoming a real estate investor full-time. What’s fun about becoming a real estate investor full-time is that it’s not full-time. You get so much time freedom once you make that transition. We’re going to be talking about exactly how Kim did that, from her high-paying corporate job to real estate investors. We’re going to do that in EXTRA.

If you are subscribed already, stay tuned. If you’re not and would like to be, go to RealEstateInvestingForWomenEXTRA.com and you can subscribe there. For those of you that are leaving us now, thank you so much for joining us. I look forward to seeing you next time. Until then, remember, goals without action are dreams. Get out there, take action, and create the life your heart deeply desires. I’ll see you soon.

 

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