Better Returns: Invest Like a Pro

10. What’s Your Portfolio Theory with Kent Ritter

December 20, 2022 Kent Ritter Episode 10
Better Returns: Invest Like a Pro
10. What’s Your Portfolio Theory with Kent Ritter
Show Notes Transcript

Do you get a sense of community, transparency and a low risk/high return product in the stock market? Probably not! In this podcast, Kent Ritter, Multifamily Investor and Entrepreneur explains how investing in multifamily apartments provides all this and more.


  • Kent became a real estate investor because he recognized the need to diversify his investment portfolio and found real estate to be the best option.
  • After investing in many different real estate assets, Kent landed on multifamily apartments because the investment can be scaled, there is a high demand for a place to live, its value increases, it keeps up with inflation and it has the flexibility to adjust to different market conditions. 
  • With apartment investments, the risk involved is considered and factored into projected returns. This makes the chance of getting the returns stated much higher than other types of investments.
  • It is becoming more costly to own a home than it is to rent. As this gap widens, so does the need for apartment living.
  • Three things that multifamily apartment sponsors should deliver to investors is community, investor experience and product performance. It can be lonely to become an investor outside of Wall Street but when you invest in multifamily apartments, you become part of a community of like-minded people where you can find reassurance and a lot of help along the way.

“I was looking for a way to diversify my assets. I had everything in the stock portfolio so I felt like I was sitting there with all my eggs in one basket. And I knew, because I was a finance major in college and I learned about portfolio theory, that that wasn't the right way to set up your allocations…Ineeded to find a way to diversify and find something that could provide some great returns and then some tax savings and real estate was checking all those boxes for me.”

“It's about more than just providing properties but it's about creating a community of like-minded folks. I think being an investor, especially investing in alternatives, can be a lonely endeavor. There's not a lot of people that understand it. There's not a lot of people that do it. There are not a lot of friends you can talk to about it that understand.”

Kent is a former management consultant, corporate executive and startup owner. After successfully exiting his first company, Kent turned his focus to real estate. Now, Kent is the CEO of Hudson Investing, a multifamily investment firm which helps busy professionals scale and diversify their real estate portfolio with cash flowing, wealth building assets. He is also the host of the popular podcast called Ritter on Real Estate.


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Welcome to better returns where you will learn how to escape the volatility of the stock market by passively investing in real estate like a pro 90 of millionaires earned and maintain their wealth by investing in real estate we will share real-life examples from Savvy investors so you can do the same the show is for educational purposes only should not be considered legal tax or investment advice he has an extreme fear of snakes and pretty much all reptiles like Indiana Jones your host and my dad Matt Hansen I'd like to welcome to the show Kent Ritter Kent's a former Management Consultant and corporate executive and startup owner after successfully exiting his first company can't turn to real estate investing he now is CEO of Hudson investing a multi-family investment firm which helps busy professionals scale and diversify their real estate portfolio with cash flowing and wealth building assets and also I want to note he is the host of the popular Ritter on real estate I forgot it for a second runner unreal is good an excellent podcast that I actually listened to so I strongly recommend you guys check that out so welcome to the show Ken I'm glad to have you here thanks Matt it's good to be here appreciate you having me on thank you well let's go ahead and get right into it let's tell us a little bit about how you got into passively investing obviously you're a successful business person which is always a great great Advantage when you're doing your own entrepreneurial things such as real estate so how did you get into real estate how did you decide okay this is what my passion is going to be what's what I'm going to do moving forward yeah that's a good question so I got into real estate really because I was looking for a way to diversify my assets you know I had all I had everything in in the stock portfolio you know so I felt like I was sitting there with all my eggs in one basket and I knew that you know because I was a finance major in college and I learned about portfolio theory that I knew that that wasn't the right way to to set up your allocations right you have to diversify and so I was just looking for ways to diversify and real estate really seems like uh you know a solid asset class I know a lot of people have made a lot of wealth in real estate um and so it felt like an area that would be a good fit for me to meet my goals um so it really started as just finding a way to diversify and finding something that could uh provide some great returns and then some tax savings and real estate was checking all those boxes for me so that was how I first got started and I first got started as a passive investor in investing with other people and their syndications so it was still I still had my W-2 was still working full-time and I was just kind of Dipping my toe in the water with other people good good so did you so there's lots of things in real estate particularly in commercial real estate different assets sub-asset classes how do you decide to multi-family and that's where you focus today correct that's right yep multi-family is where I focus uh I definitely didn't land in multi-family right away um I I've invested in all kinds of different things both passively and on my own I mean from doing fix and flips to uh buying duplexes right and building out more of a single family style portfolio buying uh notes and and you know selling houses on contract and creating a no portfolio which I still have some of um I've invested in retail like strip centers I've invested in industrial complexes uh mixed use type properties Senior Living um and multi-family so I've done a lot of different things multi-family really became my favorite though and really Rose to the top out of all these different things I was doing um one because of its scalability so all that all the stuff I talked about the fix and flips and the duplex portfolio and the notes those are all fine strategies uh you can make money doing any of those things but they're just not scalable strategies right it takes a lot of effort to do one transaction and to have any size you have to do a lot of transactions you know if you want 50 single family wise right you want 50 doors you have to buy 50 houses um and then just take you when you realize what it takes to find a good property and a good investment and do that and and it's just not something that's scalable and so when I started looking at it and saying well okay how many of these would I actually need to uh have the income stream that I wanted to have the math just didn't make sense it was hundreds and so you know you look for what's the best option what's the best option and um and other things are are good as well you know I mean there's there's I think a place for all different types of asset classes but to me multi-family because fundamentally you just need a place to live right I think we've all proven we don't have to have a place to work um so I like to keep things really simple and I like to just go back to supply and demand and I like to to think about okay well shelter is a standard need of every human being right we have to have shelter um if you look at the supply and demand Dynamics uh really in almost any Market throughout the country there's uh greater demand than there is supply for the product right and when you have that you have price increases and valuation increases um and then the other thing I really liked about multi-family versus commercial was that there's shorter term leases and I think you're you're really seeing this play out in the High inflationary environment that we're in right now right if you're stuck in a 10-year lease with a commercial tenant you may traditionally have a two to three percent a year rent escalator if you have a rent escalator in your contract right but if inflation's running at eight percent you're only able to increase rents two to three percent you're leaving money on the table like you're not able to mark your rents to Market every year and move your rents up with multi-family um especially in the market that we're in now you know you're able to keep Pace with inflation and increase your rents and take advantage of that extra Revenue that is being created and if you look at a lot of markets that we're in right now I mean rents have been growing 10 12 15 20 and if you were stuck in a five-year or ten year lease with somebody you could only grow at three percent a year you'd be kicking yourself right and so the ability to have uh just a quick kind of Mark to Market on leases and being able to to raise rent and and also conversely if things go bad being able to adjust quickly on the other side right and being able to quickly uh offer concessions reduce rent whatever you would need to to maintain occupancy so just that extra flexibility there that's impressive so I love the fact that you we've kind of pre-vetted all the other asset classes and kind of come down to okay this is what I really want to do is multi-family and I've kind of done a similar thing we've vested lots of different things even outside of the real estate and always come back to oh I need to be Diversified so we're in you know other things but really multi-family everybody needs a place to live and it's true yeah and you're providing a service there's a shortage of housing in the United States and that's why the government you know subsidizes this from tax credits and tax advantages because they want us to do as they encourage us to do that so I love the fact that you kind of laying in there it's kind of my same ration that's why I'm here as well yeah I mean the one thing I tell people to pay attention to is what I call risk adjusted return and I don't just call it risk adjust return like it's a term out there but it's something people need to pay attention to and I think excuse me I think multifamily has the best risk adjusted return When I look at when I think of risk I think about what's the probability that I'm going to get the return that I expect effect right let me give you a great example this is a real life example from yesterday so I invest I will invest in startups from time to time right and I know that they're flyers I know that most likely they're going to go to zero you know but but maybe they go to a thousand X right that's kind of what you're hoping for so I got a call yesterday of somebody actually letting me know that one of those uh was not gonna go a thousand X it was actually going to zero but which is what not a great call but I'm comfortable because it's a small piece of my portfolio it's money I'm comfortable um quote unquote gambling with because if you're investing in startups you are gambling and sometimes you hit a home run and sometimes you don't right um goes back to being a diversified portfolio I'm comfortable taking those losses right so it doesn't really bother me but I use it as just as an example because I went into that investment knowing most likely it would go to zero but it might go to 100 or a thousand right now if you you were to you could probably do some some math and say that you know okay it's a thousand X but the likelihood whatever and you could probably you could probably get to a same overall return number as like a multi-family property uh you could say okay it's a thousand X return but the likelihood of it happening is like half a percent and so I'm gonna do that math and that's going to be like 20 or something right uh 20 per return well that's very different than looking at a 20 return on a multi-family property right when again you ask what's the likelihood that I'm going to achieve that return and on the multi-family properties I mean the likelihood is very high I mean I mean the way that we are underwriting my goal is that you know really we're we're kind of sharing those numbers that were almost 100 confident with you can't always say 100 but we're underwriting in all the risk factors right we're layering those into the model and we're saying even if all these things happen we're still going to provide X return right so so you think about it risk adjusted the likelihood of achieving the return that's being shared is very high versus other Investments where the likelihood may be very low um but that top number may look very shiny right so you got to pay attention on How likely are you actually to achieve the returns you're being told oh wow that's such good stuff that's really and that's a risk adjusted the term I use quite often too because compare you know real estate to crypto and we do playing crypto a little bit but I know that can go to zero this real estate it's backed by a physical asset it's pretty hard to go zero plus we have insurance so if there is a hurricane well and our tenants can't stay there any longer we we have replacement of our income through Insurance that's right Wall Street doesn't offer anything like that at all so you're right but you need a combination of everything it's your risk tolerance you know some people do you know we do crypto and people would never touch crypto have a fair amount in that but I love that that from the cast preservation and from the you know the truly hedge against inflation and recession when things go tough people tend to move to Apartments you know when the economy is good people move up to nicer apartments or county is bad they move to lower Apartments so that's why we kind of I think you're in the B level apartment too is that the class yeah B and C and and one thing that we're really seeing widen right now to the a point about more people renting I mean we're seeing the gap between even people are talking about rents increasing so much right but even with rents increasing and what we're watching closely is the gap between the median monthly price to own a home right how much does your mortgage cost how much is your you know your PMI all that verse versus rent I mean that Gap is widening it's becoming more and more and more expensive on a monthly basis to be able to actually own a home and so what that does is it pushes more people into renting right and so that's a that's a metric we look at very closely and we're just seeing that Gaff continue to increase I actually just saw today that the 10-year uh treasury note hit at all time it's highest it's been since 2008 you know right yeah right before uh crash and so when you think that's what a lot of mortgages are pegged to right so you think of how expensive that mortgages have gone and that's what's driving that number up fascinating so what markets are you looking in now are you primarily Focus your purchases yeah so we're really Midwestern focused so primarily from a market perspective Indianapolis Cincinnati Dayton Ohio Louisville Kentucky Lexington Kentucky um some other tertiary markets around Indiana a lot of our listeners are passive investors so what do you look for and you're a really seasoned company I know you just hire some new staff some executive staff and all that so kind of a bigger operations but what do you look for to deliver to your investors your past investors what's the focus to make sure that you keep them happy and informed what are some of the things that you guys do yeah well I that's a really good question I mean so we've actually just gone through a pretty extensive exercise internally to um kind of re redevelop and repackage um really refocus our our mission and our our vision and our core values you know and as we were and the reason I bring that up is because that was one of the questions we were asking as we went through this process and um so as we developed our new core values they're really focused around three things it's community and those are the three things that we hope to deliver to our investors it's Community it's investor experience and its performance and those are our Three core values again we think that really that can Encompass just about everything so when you think about Community um you know I've been an investor for a long time I've invested with a lot of other people I've had experiences that are very transactional and you kind of felt like a number you know and you never heard from anybody or you couldn't get a hold of anybody and you know we've all we've all had that experience and I've had other experiences where you felt like you really knew what was going on and you felt like you were a part of it and you felt like they really cared to answer the phone right um and that's really so that's why I wanted Community to be such a core so one thing that we're delivering to our investors is community you know I think it's a more it's about more than just providing properties but it's about creating a community of like-minded folks because I think being an investor especially investing in Alternatives can be kind of a lonely Endeavor there's not a lot of people that understand it there's not a lot of people that do it not a lot of friends you can talk to about it you know that understand it so in creating a community of folks that are like-minded and want to grow and growth oriented you know and really focusing on that I think one we're attracting the type of people that we want to attract but two I think we're also delivering a better product to our investors by focusing on educational events and making them better investors right at the end of the day so that's this sense of community so we're putting a lot into creating a community around around our investors through events and educational content things like that um the next one is investor experience which is more down like the individual investor right and what's their experience and making sure that they're we're using technology and we're using just our customer service best practices to make people make sure really people have a white glove experience um and then the last one to deliver to investors I think is performance like we have to over achieve the market we have to um even be our competitors I mean otherwise why would people invest with us you know I mean I think liking us and wanting to have a beer only goes so far at the end of the day me as an investor like I want to see a return and so I think we have to provide great returns and we and we have to private access to Great Deals and we have to structure those deals in a way that again have that have a great risk-adjusted piece to it right that we're taking advantage of tax all the tax advantages and we're protecting the downside and we're doing that in a thoughtful way and so so I brought those core values up because that's really as we were thinking about well what are we delivering to investors and that was really how we refocused those core values was those are the things that we want to deliver great you're the end in mind and how do you get there and that that's what you've really done that's why I love the fact you've actually hired a dedicated person to do that to focus on the investor experience to make it as simple and easy as possible and I think transparency as you kind of indicated you're constantly Community like I'm on your distribution list I know what was going on in your company I knew you hired somebody that's how good you are I mean so I love that about yeah and I think communication is critical and I think that I think communication is a big part of community and it's a big part of the experience you know I think the worst thing like I I would use this analogy so I used to fly all the time almost every week right for my old job and I was a consultant and I started to notice it's kind of how my Consulting mind works that there would be times in the airport where people would just freak out right and it seemed like chaos and people were pissed and they were yelling right and there were other times where people like during a flight delay other times where people were just like kind of okay you know and nobody freaked out and you know we all got on late and but we ultimately got there so I started asking like like why why is this and what I really noticed was it came down to communication when the airlines came on proactively and said hey here's what's going on we're working through it we're going to give you an update in 20 minutes right most of the time people are like okay yeah you know stuff happens like that's okay it was the times where we just left sitting there for like an hour and a half right and you don't hear anything and you're just and you're watching your flight delay five minutes at a time you know and the people would lose it and so to me that was just such a good lesson in communication it's same problem same issue right it's a delayed flight how they dealt with it impacted how people responded right and so so to me that's why communication is so important I think just letting investors know what's going on frequently like we we send out monthly updates apologize and and letting them know kind of good bad or indifferent what what's happening so give us some more examples so our typical listeners a new investor so what are the types of things that you guys like to do you've already mentioned you've got a dedicated person to make sure that investors are taken care of so give us some examples of what they should expect of deals that they invest in the future giving them the you know the Hudson experience so can you kind of share some of the detailed things you know three or four the key things that you make sure your investors receive from a service level the white glove service levels that they probably aren't getting from a lot of other other yeah I mean I think it starts it starts with The Upfront process of how they kind of come in to our system right and so we've spent a lot of money investing in technology like HubSpot and syndication Pro and making sure those things work seamlessly together so that when somebody comes into our our ecosystem they're automatically getting um you know they're automatically getting a welcome but then they're also getting put into Curtis who's our VP of investor relations and his queue so that he can go out and reach out to him and welcome him and he can he can schedule a call with them so you're going to get kind of that one-on-one service right away where you're going to have Curtis as your point person who's going to be your kind of shepherding You Through The Upfront piece of the process and you're able to go online uh and we and we're doing a lot with videos to try to make it really easy for people to go in and you can actually make um you can make like a priority reservation now uh on syndication Pro which is something new that we're doing where when we don't have a deal going you can actually go in and you can say Hey you know I'm interested I'm interested for this amount and what we're actually going to do is give people Priority Access to our next deal so if you go and you're on that list we're going to open our next deal up to that list 24 hours before we open up to anybody else to make sure that everybody that wants to get on there can get on there so that nobody misses out um and and that's so we've got kind of this Priority Access option right so you can set it and forget it a little bit so in the old days you'd have to kind of watch the email and if you didn't go in and do yourself commit right away well you could end up on the wait list because most of our deals fill up within a couple days and so now we're trying to give people the ability to say you know we appreciate you going out and being proactive and letting us know gonna it also helps us judge our Capital base like how much we have right or could expect to have and doing that we let people kind of get that priority treatment into the deal um from there it's about getting into the deal and it's not just making it easy so things that I've run into that I just hate are like overcome overly complicated subscription documents you know where you have to like do a backflip and then throw your pin in the air and you know just to get into the deal right um so we've worked a lot with our attorneys to make our subscription documents two things one simple so you're just not having to initial and check and sign and 200 places we're trying to just condense it down right but also make it mobile friendly like e-signature friendly and mobile friendly so that because most people nowadays are signing you know either through DocuSign right which is what what we use or through a hello sign um or and even sometimes on their phone right and so you've got to make sure like I've run into things where documents like the e-sign thing can't just do what the document needs it to do and it just doesn't work right so trying to so just again simplifying the process so then you're into the deal and then as you get into the deal um you know and you make your wire for your funds and then you get handed to to Taylor and Taylor really is there to answer any questions like as you're filling out the documents if you do have any questions she's there she's the investor experience manager and then if you have any questions throughout the deal you know of hey what's going on um or when's our distribution coming out or you know where's my K1 and when can I expect my K1 right she's there to answer any question within 24 hours that's her whole goal and so I think those are some of the little things that we're putting in place just trying to make it really easy to get in and then once you're in just making sure that you don't have to think too hard right like you you may not want to go dig in syndication Pro for you for your K1 it'll be out there you know but you may have to go do a few clicks you can just email Taylor and say Hey Taylor can you can you send me my K1 and she's there to make it easy excellent so listen to Listen to Can't that's what you should expect when you're investing passively invest doing some of that type of service level which is phenomenal it really is and you're you're above and beyond there's no point yeah thank you and then I think communication wise it's really important right each month we get each each property each month gets like a one-pager update that has what's going on where we are with our capex schedule you know in process behind ahead um and then we track some key metrics so you can see you know some training and occupancy and rents and things and then quarterly we do a more a deeper dive into each property and we actually bring in some historic trending so you can see you know how has Revenue expenses in a while how have they been trending over time um just to give you know some more perspective on how we're doing excellent outstanding outstanding some good tips there we should be everybody should be looking at those are the expectations you should have for people you're investing with I love it I love it Kent well now we're moving on to our um just to get to know you a little bit better rapid fire five there's just five fun questions to learn a little bit more about Kent and what he's all about sure are you ready I'm ready in my right hand I have the questions number one what was your nickname as a child

just a bunch of variations of like my first and last name from like Critter so it's Kent Ritter right so it's like Critter carrot

um just a lot any variation you could think of of like those two things yeah Chris all kinds of stuff yeah were you ever called Clark I was called Clark a lot that's quite a helmet they're Superman yes I've been called that multiple times so yeah I appreciate that whenever I am I've got the look you got the big jaw you pull that off that's what I kind of thought he was probably thank you appreciate that okay number two are you a morning person or a night owl you know I I thought for a long time I was a night owl um but now I really believe I'm a morning person I've definitely been a trained morning person but there's nothing better than getting up early and getting stuff done and feeling accomplished before uh even start your day you know and so I really try to focus on my morning routine now and doing the things that I can do in the morning meditating and journaling and visualizations reading to start the day off right and I think if you do that I've just seen it in my own life I I just have a better day I'm in a better mindset a better mood I get more done and so really and trying more and more to be a morning person excellent I've tried to so Miracle morning with hell Elrod have you read his book yeah you've described it so I know you're living that game yeah I could tell and I've read it it's in my bookcase behind me and I use two two books or two or three I've read a couple of them I just can't pull that off and I've really tried and I envy you that you kind of were probably natural tendency because people do have it's kind of in your little DNA a bit you're such rhythms or whatever but you've overcome that so here's hope for me thank you for sharing that there's definitely hope okay number three what would be the first thing you do if you won the lottery

man that's a good question the immediate the funny immediate answer is I don't know that I would do a heck of a lot different because I really enjoy what I'm doing right now you know I my answer is not like quit my job and right move to the Bahamas or something right because I mean I'm the owner of the company and I like what I'm doing I think I think what I would do is um I think I would just keep doing a lot more of what I'm doing and I think I would kick up uh the philanthropic side of things and I've got this goal to start a non-profit that's kind of a sister company to to our to our business it really focuses on addressing things like uh affordable housing and rent rent affordability and kind of the other side of what we're doing right where we're making money off of on this side where we can actually help people subsidize rents and things so I think it would it would be able to get to where I want there sooner but um yeah and probably buy a few fun toys but but nothing nothing groundbreaking I like where I'm at I like what I'm doing I love that that's a great answer my wife would probably say move into a bigger house on a bunch of Acres somewhere oh okay so that would be me beat the second thing you do yeah to make my wife happy yeah I think we could make her happy the impact housing is really what you're talking about which I would love to do someday in Michigan particularly in Flint or Detroit because they really need that so someday someday yeah absolutely okay um oh you kind of answers number four where if you live any place in the world where would it be and it sounds like the Bahamas I love the Bahamas uh if I could live anywhere in the world you know that's that is a good one it's hard for me to leave the U.S to be honest I've you know I studied abroad in Italy I've traveled abroad uh quite extensively and I love visiting other countries I always love coming back to the US I think I would I would move well probably especially with winter coming I'd move South I I could see I really like Nashville I really like uh you know some of the surrounding area around there I could see myself moving down that way excellent I've lots of family in Nashville I love it we're down there at least once a year so yeah I think that's a good one and you're temporary it's not so bad the winters aren't really terrible there you can ride bicycles you still do stuff outside like you're Indiana in Michigan yeah it's yeah we'll be yeah we get it pretty in the wind rough here that's right I feel your pain Brad my friend okay the final question is what is one piece of golden advice you would give to new investors to help them get better returns

that's a good question um to new investors to get better returns I think

well you know everybody's at a different part in the journey but if if you're investing passively it's really about finding great sponsors and that's really what you're you're trying to find more than an individual deal is you're trying to find people that are going to get you great returns so if you're investing passively I think Network to find find great sponsors find people you resonate with you know and find people that have good track records um those are the people that are going to get you good returns if you're um an active investor you know that I think it's finding um finding a mentor coach someone who's been there and done it before and can help you Side Track some of the mistakes you'll inevitably make that everybody makes and I've had um you know I've really been fortunate to have some great mentors and to avoid some big mistakes in my career because of them and so I think that's invaluable outstanding closing words thanks so much so tell us how people can reach out to you yeah you can go to and you can reach out to me and we have all kinds of resources there you can get on our investor list sign up for our newsletter check out more about us and who we are uh that's really our home base and the other option I would give is listen to my podcast right around real estate you can do it listen wherever podcasts wherever you listen to podcasts strongly recommend it thanks so much for being on The Show Ken you're just a wealth of knowledge and just a wonderful guy too so I'm I'm fortunate to have you here and fortunate to have you as my friend now and I was on your podcast and I listen to your podcast it's fabulous absolutely lots of great information on there that you can listen to while you're exercising right in your place I listen to when I'm riding my bike all the time so yeah that's when I see you most often that's awesome well yeah you guys will have to you guys have to come on a river on real estate to listen to Matt's episode because you're right Matt was just on not too long ago it was a pleasure thanks again can't get take care have a great one and that's a wrap thank you for listening to better returns brought to you by Hanson Holdings if you enjoyed this episode please leave a five star review because it helps others discover this valuable content if you would like to earn truly hands-off passive income go to where we help you invest in large apartment complexes to grow your family's wealth see you next week with another awesome episode have a great day