So that's how the journey started. So it came from fashion, not having any experience with raising money, running hundreds of millions of dollars of real estate, to now having, you know, half a, nearly half a billion dollars in A- UM under our belts.
Ed Mathews:If you're within three feet of me, we're probably talking about real estate, much to my family's chagrin. But here's the thing. Most people see 7% rates and freeze. I see opportunity. They're waiting for the perfect deal, and well, I've analyzed thousands of them, and perfect just doesn't exist. So I talk to operators across every asset class, flippers, multifamily syndicators, note investors, and whatever else is working. No sales pitches allowed, just real lessons from people actually doing it. I'm Ed Mathews, and this is Real Estate Underground. Greetings and salutations, Real Estate Undergrounders. It is Ed Mathews with the Real Estate Underground. We're getting geeky today. Really excited about this. With me today is Palmy Kitti of the Kitti Sisters. I discovered her on LinkedIn. Actually she was way bigger than I'm inferring. The fact is that I started following her f- several months ago, and begged and pleaded and finally got got her to join us. She's a busy lady. She has a lot going on. Kitti or excuse me, Palmy, welcome to the show. Thank you so much for joining us. And I'm really excited to talk about this.
Palmy Kitti:Thank you so much for having me. I'm excited.
Ed Mathews:Yeah, me too. One of the things that I'm always interested in is the people's journey. Before we get into the, the real estate piece and the AI piece and all that cool stuff, why don't you tell us a little bit about who you are, what you do, and then we'll dive in.
Palmy Kitti:Yeah. So I'm Palmy Kitti. My sister and I, we have a m- multifamily real estate business that we've been running for seven and a half years. But prior to that, we were actually in the fashion business, completely different from this. And that business was doing really well. But one day, out of the blue, over a, a news blast on my phone, we found out that our biggest client was shutting down all their retail stores. So overnight, 95% of our income just disappeared. And we're, we are, we support multiple generations. So we support our parents, we support our grandparents. So this didn't impact two people. It impacted multiple people. And we were the sole breadwinners for all these people. So we had to really figure out quickly what did we have to do, because- H- the pain of having to start over in fashion was real because while fashion looks glamorous, there's a lot of shady things that happen underneath the current. And this one client was one of the pillars of good people who actually pay. There are people who will charge you back, will come up with reasons to cancel orders out of the blue, and penny pinch, and won't let you really make a profit. So they were great until they weren't available. They weren't around. So Nan and I were like, "What do we do? How do we pivot to a business that can't be outsourced to a different country?" And one of the things we looked at was real estate, but we didn't want to be just landlords of a couple single family homes, 'cause we've done that and in Los Angeles it didn't make any sense. There's no cashflow. She saw a quick ad about flipping houses, and I was so against not necessarily just flipping houses, but just going to webin- going to seminars, being pitched, because I thought they were salesy people and were not to be trusted, right? That's how I, that's how I felt. I, I didn't wanna go. She basically dragged me. And then when I went, it blew my mind because everything that I... All my, my skepticism about what they are, the projects and everything they had answers. And I was like, those are legitimate answers that make sense. Long story short, we bought their course, we started flipping houses in Los Angeles. And then during, around the time of COVID, it got really annoying because it took forever for the city to approve plans, and then the contractors kept coming up with excuses of someone get- getting COVID and all this stuff. And we're like, "I don't wanna deal with these people anymore." During that time, Nan discovered passive investing in multifamily, and I was like, "Why don't we become the other side? Why don't we run the apartment? Why don't we just own them and then raise money from other people?" So that's how the journey started. So it came from fashion, not having any experience with raising money, running hundreds of millions of dollars of real estate, to now having, half a... Nearly half a billion dollars in the AU- AUM under our belt.
Ed Mathews:Wow. Congratulations. That's amazing. And we're gonna get into the AI part of your business as well- ... in a little bit. But so tell me more about that journey. I mean- ... the, the journey from fashion. Was that, Did you raise money to start that business as well? Did you have experience- So- with raising capital?
Palmy Kitti:So it was in, in the trade. So my family, my parents were already in it. In fact, out of college I worked for them and I, my sister and I kept getting fired from them. I don't know anyone who's ha- who works for their parents. That was my experience. You don't agree with them, they fire you A lot. It kept happening to the point where we were like, "You know what? We can't take this anymore." We quit. Nan had $2,000 saved. That was all we had. I... We went to a very prestigious university, but we were paid nothing. We were paid $500 a week or something. It was horrible. And some- somehow Nan was able to save up $2,000. And that's how we started our fashion business. We started very small doing... And now it's back. You know those blingy rhinestones? Yeah. It's actually back in fashion. Literally just saw it this morning. So those were what we started selling to our clients, and we were making samples with tweezers. No one can appreciate putting 1,000, 2,000 pieces of little rhinestones on a layout until you actually do it. It takes five, six hours. It took a long time. So persistent. We kept going back, trying to sell this. After six months she calls back and say, "Hey, we wanna give you an order." So we started with one order, then they... We built trust and they said, "Hey, I want you to do the next project." Then it became a real business generating millions of dollars of revenue, and it started with her $2,000. Yeah.
Ed Mathews:Amazing. Amazing. And then, in terms of flipping, so- I always jokingly say... So I've done both. I've flipped, and in fact I'm flipping again now. I've done the multifamily and syndication route, and- ... for me, being an operator wasn't as... It was too stressful for me. So I've taken more of a passive approach instead. Where I'm investing in other people's projects and I let them- worry about the, that stuff. The the- The flipping part, it's funny, I always tell people, I don't drink, I don't do drugs. Flipping is my cocaine. I love everything about it. I love finding them, I love- ... solving problems, I love fixing them, making them beautiful. Yeah. Making them clean and safe, and then beautiful, and then selling them to, nice families to live in- ... and hopefully raise their families. And I drive by every single one whenever I can just to see, that I hope they're thriving, right? And I hope everybody's doing great. It's a really cool business. It's also a lot of moving parts, and it's really stressful, right? And so the... i'm curious. I... So I understand your transition to- a I wouldn't say passive, but definitely less intensive, ... approach to investing.
Palmy Kitti:Less hands-on, so more, more scalable for me. 'Cause... for instance we were flipping p- projects in Los Angeles, and from my house to the project is less than 10 miles. Some days it can take two hours to get there. And it's like everyone has their own what they like to do. And if you like to be hands-on, that may be, like, the right approach. For me, I was like, "I don't wanna deal with these contractors anymore. I don't wanna deal with the city." So when we do multifamily, especially because we do them all out of state. So I have units in Georgia. I have 444 units in Georgia. I have 300 plus in Rogers, Arkansas. I have like 300 something in Houston. We have 300 something in Arlington, Texas. We're building 118 townhomes in North Dallas. So we now have projects scattered a- across the, the Sun Belt. And I'm here in Los Angeles.
Palmy Kitti: And the, the reason I love the way we have it set up is we have people in place to run the things, to collect the rent checks, to call the, the team to fix something. Whatever needs to be done. If there's a if there's a fire on a 2:00 AM on a Sunday, they don't call me.
Palmy Kitti:I'll get an email later. So some, some regional manager, the pro- the property manager, someone will be notified. I don't even know who it is. I'm not even sure of the process. But that gets done, and then my job is to come up... First, find the deal, raise the money, secure the loan, and come up with a business plan. That they need to, that they need to follow, and then verify that it's being followed. That's my job. And then communicate with the investors and exit when we're supposed to. That's pretty much it.
Ed Mathews:Right on. Right on. Yeah, and I th- I think one of the things that a less sophisticated or less experienced, let's put it that way- ... investor will hear when you're say- when you're telling that story is, "Wow, you're managing projects in Georgia, in DFW-" Yeah ... in LA or not anymore, but the- Houston. Yeah ... Houston, wherever. Places that are not close to you and not close to one another, right? And so that's a lot of moving parts. And so I'm interested in the systems that you have in place, and I... We don't have to talk bits and bytes, but I mean- in terms of, how are you approaching that operation? How are you managing the people who are managing your discrete projects, and how does technology fit into that?
Palmy Kitti:Yeah. So before it was very manual. We have third-party property management companies, and we hire the ones that are local to the market who have other properties within the submarket, which means one to three miles, and within the same class. So if we have A class multifamily, then they should already know how to manage multifamily in A class, 'cause it's very different than a 70 C class workhorse housing to a posh A class. Totally different people, right? So we have to... We hire them. They do a lot of our backend work. So they'll do the AP, AR. They'll do our utility bills, all those stuff. So they manage a lot of the work that if we had single-family homes we would have to do ourselves. Like, when I was flipping, I was in charge of turning on the electricity, then turning it off, transferring. All that stuff was my job. But now I don't know how to do any of that and so it's their job to do. What we track is the- Financials. So every, every month we get our financial report from the previous month, but on a weekly basis, basically mo- almost everyone is on a Monday, there's a cadence of them reporting KPIs. The KPIs will give us data like occupancy, economic occupancy, collections for the month, how much did we bill? What are the make what are the, the, the tickets that people have right now to, for repairs, like open tickets? There is a lot of KPIs that we track. Most important that we track out of everything is net cashflow. What does it look like? Hey, are we collecting enough money and how's our expense? Those are the most important things. And now how we've incorporated AI into it is that same data, sometimes the property management company, they don't report correct information, and it's hard for us to catch when we're looking at rent rolls versus T12 versus GL like aging AR, AP, all that, right? So now we put that all into our what we call Airei. So it's A-I-R-E-I. Airei operating system, and we just dump that data in, it analyzes it, and it points out, "Hey, there's inconsistency with..." For instance, one of our properties I put in, I dumped this in, and then it's...'Cause it's, long story short, it was the first time we got this data. It was a new property management company. But we got this data and we the, our system said, "Hey, I think you're, you have more money than is being stated in your reports." We reached out to them. It turns out that we were over-funding our reserve account by $169,000. Like real money that- ... we could spend on AP, but now we're putting... 'Cause in multifamily, for those who don't know, the, the renters, they come in and they give you a security deposit. And then if they leave and they didn't pay, we get to keep that money. But in this process of transferring from the old property management to the new one, that wasn't reconciled. So we had $169,000 beyond the people who are currently residents, right? So that money is money we can use to pay down AP, which immediately, once I emailed them out, I didn't even write the email. My system wrote the email for me. I copied and I sent it to them. I'm like, "Here's where I see this thing. Can you confirm?" Immediately, "You're right. We have $169,000 that we overfunded." "Okay. Transfer that to operations, please, and let's pay something." So that literally happens, and now those kind of insight, normally you need multiple people to be digging through and matching up manually. Now I'm doing that in probably less than five minutes.
Ed Mathews:With technology that costs you- Fractions.
Palmy Kitti:Like probably 20 cents, 30 cents a token.
Ed Mathews:A- and what that brings home for me is two real things, right? One is it caught a process flaw, right? Or a gap in your process that I'm sure you've closed since. And so that's one win. The second win, obviously, is the fact that you're using technology, for n- not pennies, 'cause they apparently outlawed pennies, but nickels on the dol- nickels and dimes- to to be able to identify, real opportunities within your business. And I think- I think one of the things that I'd really like your comment on is technology as a force multiplier, right? Yeah. Because there's s- j- that's just one example of where you're using AI smartly to fix a broken process and identify what is $169,000 win. That's a gigantic win, right? Not typical probably, but but-
Palmy Kitti:No, and I have even another example. Like-
Ed Mathews:Yeah, please.
Palmy Kitti:We had a fire. If anyone owns multifamily, you're gonna have fires. It's very common. So we had a fire last December. It burnt down eight units. Un- fortunately, no one was hurt, and so we were able to relocate two people. So of eight units, only two were occupied. This is a three two bedroom, so this is our highest price point and techno- and also for this property, the most popular. We had to come up with a justification for why instead of paying for two business interruption, we want eight. So for me to manually go through and pull all our rent rolls and compare and check hey, this is the most popular unit type, and this typically is how fast we turn units, and we would've had this. It was, it burnt in December. We would've had these available in January, and this is our typical typical rent cycle. How many units it needs. All those stuff, I put it in my system. I put it into ARIA and I said "Look, this is a scenario. I need to find mathematical justifiable reason why they should pay us for all eight." And it created it. It had a very thorough eight-page report and backed by our t- our financials, right? Like real data. We sent it to them. They were gone for three months. No, probably four months. We just heard back from them July. Nothing for a long time. And then they came back and they said "Yeah, we approved all eight." And the reason it took so long was they hired a forensic accountant. 'Cause knowing insurance people they do this all the time. So they hired a forensic accountant to validate what my software did in probably 20, 30 minutes. And then... And with that one, we're getting back through September business interruption. It's gonna go through to probably November, but through Septem- no, through August they approve $136,000 versus 32. For two units- Which- ... versus eight.
Ed Mathews:Yeah. And- one of the things that you said I think it was on your podcast or a podcast, was that, you've built an AI investment team, right? And I'd really like to understand, you've just talked about two different processes, but- ... let's take it up a level and let's talk- about the roles on your team- that are fulfilled by technology. How do you look at that?
Palmy Kitti:So I look at multifamily. So how we built it now, we used to have analysts. We would have people- ... going acquisition people going out finding deals. So what I've, what we did to streamline that whole process is we put everything into AIR. So from sourcing the deal, meaning, hey once a, a deal becomes available it segregates it based on my mandate, my criteria. I want Sun Belt states. I want these specific de- metros. I want built before no later than 2000s. I want new A-class stuff. I want nothing bigger than 350 units. All these really high level criteria, it screens it first. So I'll walk you through the whole process. So it screens it, I approve it, it downloads the O- we download the OM, the financials, everything. We run it through our system. The first layer is analyzed, so it parses out rent rolls, it parses out the T12, the OM compares all the data, and it puts it into our underwriting within the model. Some of the, the fields are default to what I specify. This is the cap rate, this is the interest rate at the time, le- leverage, whatever it is. We then go through... If that passes that stage, we then go through the committee. So the committee would have a risk person, a capital person market person to understand from different perspective, is this a good deal? And every person look at it and try to find flaws in it. "Hey, it doesn't work with the stress test on this assumption." "Hey, this market growth isn't what it's saying here" or "The OM is wrong." There's this stuff that's wrong, and then it has a CEO that comes out and say this is what the committee says." And as Ed multi-billion dollar firms, that's all they do. They have committees that every deal goes through. Even lenders have committees that they run every single deal through. If it's just a one person multi-family shop, typically you don't have that. You see every deal as the best deal. You look at through the rosy eye 'cause you wanna win it, right? It's like, "Oh, this is my baby. Everything's perfect." Everything's never perfect, and you need other people to give you con- contrarian views to give you, like, that analysis. But here's the most important part, and we talked about this a little bit earlier offline, is- You can have the best AI tools, but AI doesn't give you that judgment. You have to make that judgment. And so my ARV will not tell me this is a go, go make an offer on this deal. It will give me the reasons, pros and cons, and it's up to us as the investor to use AI to make us better investors not relinquish authority and say "I'll just do whatever you say." So judgment is still your responsibility. You use AI as a multiplier to make it better.
Ed Mathews:Yeah. And like- I always get a kick out of the, the hype masters on YouTube and wherever else talking about, if you're not using AI, it's gonna replace you. It's not. No. Where AI becomes a, a player in our world, in our real estate world, is the difference between an operator like you who uses AI to move faster and make better decisions-
Palmy Kitti:Yes
Ed Mathews:versus say me, who's still doing it on a, a spreadsheet and a, a handwritten ledger, right? You can move faster, you can make better decisions with a lot more data, right? Access to data that you convert into actionable information. And that is something that I want to impress upon, you know, the audience, the folks listening out there, is we're not talking about prompts, right? This is about understanding how s- how your process works, getting clear on that first, building a system to enable that process, and then once that process is working, correct me if I'm wrong, Palmy then applying technology to it to be able to move faster and more efficiently.
Palmy Kitti:Yeah. It's as if you're doing everything you're doing manually, we're just enhancing it with AI. And the quick example of this is like AI doesn't create the advantage, but it multiplies the advantage you already have. So if you think about if you time, multiply $950 trillion times zero, you get zero. So it depends, it's like trash in, trash out, right? So it depends on what input you put it, you put in and more importantly the AI, how you interpret their response. Because- We know AI can really confidently tell you really bad informa- wrong information. And that's the point. The way we wanna set it up is it learns what are the... over time it keeps learning on okay, these are the things you want, these are the preferences, and there's l- as minimal guesswork as possible. Now can it still have wrong information? But if you know what to look for, you can also call it out as well.
Ed Mathews:And you can also, I think the reason that, from my perspective, the reason that having the processes clear- ... and the systems clear is because when you apply technology, you're not relying on the judgment of the AI. You can make it deterministic, right? And, so if i- instead of you asking it to create the equation and then calculate the equation, right? What you're saying is, if A plus B equals C, that's a deal I'm interested in, right? And evaluate A. Is A real? B. Is B real? And then if A and B are real, C is most likely real, and you're inv- then you're putting a... And the other thing that I really like about how you approach this is there's still a human being there.
Palmy Kitti:Have to be. still- Yeah, you have to have a human. Just less humans and I think this is the, the op- So multifamily prior to I think the Dodd-Frank Act after 2008, was really held only for the most wealthy people in the country. They had access to this, 'cause you couldn't raise money from strangers and stuff like that. So it was locked behind this barrier that regular people couldn't have access to. And then when we were able to raise money from regular people to do these deals, it liberated us to some extent. But there's a gap, because the largest companies like KKR, Apollo, Blackstone, they have an army of researchers, an army of analysts, a committee, all these people that you don't have. Now, with AI, if you're, you do it correctly, it allows you to expand what's your ceiling. You can smash through whatever you think today is. If you think you wanted to buy a $50 million multifamily, and that's your top goal, if you do it correctly with AI, managing it from acquisition through asset management, which was part of what we talked about earlier, and then to the s- to actual sales you have relatively no ceiling. You can be a billion-dollar company running this by, with two people. It's quite possible. Right now, beyond our system, we're testing different agents that we're adding to it. So how else can we make this better, faster, and have instead of a person who demands time off and pay and stuff, no equity, no time off. You go run this for me. ... That's the stuff that we're trying to achieve for real estate.
Ed Mathews:Yeah, we are very clear. So being in the flip business, right?- ... speed to lead is really important. And we built a, an internal system. We now actually sell it externally as well. But the internal system is really focused on when someone raises their hand and says, "I need help," right? That we have, three different communications. One's a voice, an AI agent, one is a text, one is an email, but they're all focused on very specific things. Trying to understand what, what is the seller dealing with? What are they, what are they struggling with, and is it a problem that we can solve? And and then, it goes from there to, to make dec- decisions around does it schedule an appointment for me to go out or a member of my team to go out and meet the people, or does it put it into set up a Zoom call instead or, there's a whole decision tree. It's not We don't rely on the AI agent for judgment. We rely on the AI agents for execution. Do A, then B, then C, right? And that's where you can be, you can create that force multiplication because now, that agent in my world costs me probably less than $2 a month to run.
Ed Mathews: Where I had a human being doing that previously, and she required sleep. She required breaks, food, coffee. She required healthcare. She required- ... weekends off. And all of those things are awesome if you're a person, but really inconvenient if you are the seller who at 11:00 and hasn't slept in two days because they're stressed about whatever situation they're in, they finally pick up the phone- or they finally fill out a form.
Ed Mathews:They want the problem solved right then and there. And that's where technology, allows us to be able to go out and touch that person, help that person immediately, and begin formulating a solution that allows them to- hopefully gets us in front of them- and gives them an opportunity to fix whatever's going on.
Palmy Kitti:And what I... When I think back seven and a half years, man I know from the outside people say we've grown a lot, and we have, but I felt I feel like Nan and I were talking about this a couple weeks ago. We're like, "Dude, if we had AI when we started, we'd-" Dangerous.
Ed Mathews:Dangerous
Palmy Kitti:we would be so f- far ahead because, yes, you... I think anyone who wants to get in multi-fam today you must learn the fundamentals, and I think you should piggyback off of an experienced pr- general partner. So to help give you... Because there will be things that AI won't even know, right? There's nuances of things that you need a real human with experience to, to help guide you. But guess what? If you're now an ex- If you now have a tool you don't have to use ARI, but for instance, if you were like, "I can do... I can help you asset manage. I can read your financials better than whatever you're doing manually right now. I can give you reports like this. You need this? Done. Done." Are you now not of service to this really experienced general partnership team? I can underwrite tons of deals. My... I have a person who's using this in Florida. It's I can underwrite deals. I can now provide real value. Because the key here, in my opinion, of how to scale and grow in anything in life is to find the right partner who can uplift you. But it's hard for a new person to find, what can I offer this new pr- this higher, this more experienced person? You can now use AI as that force multiplier that, that gives you that advantage, that helps solve the pain that they have. Sourcing deal, finding capital, managing the deal even evaluating capital stacks. Now you have the tools because now you get to partner with the smartest person in terms of analytical, not judgment, right? The smartest analytical mind ever built. Parsing out numbers, m- mathematician. Great at math, great at the things that some of us may not be great at. Now you can use those tools as a more new person into the field to make it an advantage to you.
Ed Mathews:Yeah. And it... But it's... i... One of the things I want to drive home that you are absolutely saying is you have to get your systems, your processes and your systems right first. Because if you are bad if you're bad at bookkeeping, the only thing AI's gonna do for you is screw up your books, right? If you're bad at sourcing deals, the only thing that an AI is going to do for you or technology's gonna do for you is you're gonna create chaos faster,
Palmy Kitti:You're gonna lose money. You're gonna buy a bad deal because you, like- It would tell you something complete wrong, and it's "Oh my God, what did I get into?" So it's like you have to know your fundamental checkpoints of okay that cap rate looks really weird. That doesn't make sense. That economic vacancy looks off. That NOI for this size property makes no sense. There's key things, and it's not years of learning, but it does take learning, and you have to be open-minded about it.
Ed Mathews:And the cool part is you can teach. When you see that hole in the technology's logic or approach- ... you can teach them no, the, the- the high and the low of this range should be between A and B or- ... one and four. And you're at a 12, and so- ... that should be a red light in terms of your analysis. Let's find out why, right? And get that going.
Palmy Kitti:And it changes over time. As even with your business it's like lumber cost goes up, lumber cost goes down. There's a, there's like ebbs and flow, and then you can... Then you go in and adjust based on what you are, what is happening in the business today versus a stale number from six months ago.
Ed Mathews:Time for our new segment Questions From The Underground. One real problem answers straight. No filler and no theory. I I had coffee with a local investor the other day, and he's in his mid-thirties and owns twenty-six units across six properties. He hasn't bought one in a couple of years, but he's doing great. He says he'll go full-time the day after the rentals replace his salary. At his current pace, using his math, he's about three years away. After laying all that out for me, his biggest question was, "What am I missing?" And I told him, "A lot." A healthy portfolio that's starting to throw off cash is super exciting. It's a little dangerous too, because it can make you think you're ready for something before you really are. Focusing full-time on growing that portfolio can give you generational wealth if you do it carefully and thoughtfully. So here's what you need to think about. One, insurance. He's thirty-six. His wife is thirty-two. They have two great kids under the age of ten. His wife works part-time, so her job doesn't provide benefits. So he'll need to cover healthcare until Medicare kicks in at sixty-five. Until his wife hits sixty-five, that's thirty-three years. If he's buying coverage equal to his employer's plan, it'll cost him about thirty-six hundred dollars a month. That's forty-three thousand two hundred dollars a year. He'll also need life insurance. He loses his employer coverage when he leaves, so that's another three hundred a month minimum. That's thirty-six hundred dollars a year Two, cash reserves. Few people plan for the unexpected effectively. Think COVID. Was anybody prepared for that? I told him he needs at least twelve months of operating expenses set aside to cover his rental portfolio. Twenty-four months is better. He also needs at least the same amount for his personal expenses. That's cash or cash equivalent, money he can get his hands on within three days. He should also think about having his kids' college funds already saved Three, debt. He needs to get in the habit of paying off his credit cards every single month. Better yet, don't have them at all. Right now he's carrying about a five thousand dollar balance month to month. That's gotta go away. He's got two car payments. Ideally, he buys his next vehicle through the rental business while he still has a W-2. He should also buy his wife a new car while he still has a W-2 as well. It's possible without one, but getting banks to loan you money when you don't have a W-2, it's a lot harder. Four, structure and protection. He needs to think through how he's organized the real estate business. Specifically, how's he going to take cash out? He needs to sit down and have a long talk with his CPA and his attorney. They need to figure out if a trust, an S corp, an LLC, or some mix of those structures is the right approach. He also needs to sit with his insurance broker and talk through coverage. I highly recommend both personal and corporate umbrella policies on top of the policies your broker recommends for your personal and professional needs. He needs to completely separate his personal assets from the rental business. He needs to put policies in place that further protect him and his family. Those personal assets need to be untouchable This is just scratching the surface of what you need to do to be ready to go out on your own. It's a lot harder than it looks. There are a lot of ticking time bombs, pitfalls, and traps, and you need to think through it all before you even think about leaving your day job I think I spooked him a little bit, and if I spooked you, good. That was my intent. You need to plan for mushroom clouds on the horizon and how you're going to manage your way through them. Once you figure that out, you're getting close to being ready. Mind you, I said close. You need your significant other's buy-in. Without it, none of this is worth the risk. That's Questions From The Underground. If you're stuck on something, send it to me and I'll take a swing at it on an upcoming show. Palmy, I could geek out on this stuff for days. And obviously you could as well. But unfortunately the listeners out there probably only give us about 45 minutes to have this conversation. What I'd like to do is move on to the final five. And then we'll keep going. One of the things that that I'm always intrigued by leaders like yourself who have, built tremendous companies, and in your case you've built multiple tremendous companies. And congratulations on that. And nevertheless, you get up... if you didn't go to work on Monday, you'd probably be okay, right? But nevertheless you do anyway. And so I'm curious, to me, that's purpose, right? And so I'm curious about your purpose and what you t- what you look at when you are brushing your teeth on Monday morning getting ready to go for work and you're fired up to go in, right?
Palmy Kitti:Yeah. We coined this concept called earn to own. And I think majority of, 99% of the human population are all focused on earn income versus own income. And especially now in the age of AI, yes, s- will some jobs be taken over by AI? Yes. We talked about that. But there are other jobs that can't be. But more importantly, if you own real assets- you have an edge, right? So that's our passion. We want to spread... That's why we're on YouTube, that's why we're, we talk so much about these topics that we... Because we know that all the frustration and the struggles that people have right now is because they've been told to climb this corporate ladder, and at the top of the ladder there's nothing. And it's... Or they're climbing someone else's ladder. Someone else is using them to climb to where they want. At the end they're left with nothing. So our goal is to help as many people as possible realize that, to some extent, try your best to shift from earned income to own income.
Ed Mathews:I couldn't agree more. And as someone who climbed that ladder and got to the corner office and went, "Wait a minute, this is all there is?" It it was a sobering experience to say the least. So I couldn't agree more. So I'm also curious about the mentors, the people who've helped you along the way. Yeah. And specifically, what's the best advice you ever got and who gave it to you?
Palmy Kitti:First mentor that came was from the flipping business, right? So it was a comp- I don't think they even, they're even around anymore. They're called Fortune Builders. I don't think they actually... I'm not sure they still do it, but-
Ed Mathews:So those guys are Connecticut guys. I actually know-
Palmy Kitti:yes. CT boys
Ed Mathews:Paul and and Than Merrill and those guys.
Palmy Kitti:Yes. Yeah. The first thing I learned, which may sound rudimentary to your listeners, but for me it was, like, mind-blowing. It was like you go own income and then use that income that it generates to go buy things. Where we were buying expensive fancy things with the money we earned from fashion, and it just went away. So that was a fundamental core to everything else that happened after that is because we figured out that go earn the, own the thing that w- that will earn you money versus just spend it away. So yeah.
Ed Mathews:Yeah. I bought a four-family in 2011, first property I ever bought. And we, spent the next however many years fixing it up and renting it to nice families and- ... ultimately, when my daughter wanted to go to college, that was her tuition. It paid for- Her tuition to college. Yeah. And same thing, right? And it was a blessing. And the fact is that we, it would, it was a, it was an asset that made, I don't know, $1,000, $1,500 a month- ... over the course of time. Not a lot of money, but that adds up over 10, 12, 15 years. And, when my daughter Katie said, "Hey, Dad, I'd like some tuition," it was no problem, right? And yeah, she just graduated.
Palmy Kitti:Is she the one that just graduated?
Ed Mathews:Just graduated in, ... in December, as a matter of fact, yep. And so yeah, so it was pretty cool. One of the things that I'm really interested in, I, I, and I, and it's because of who I am- The list of mistakes I've made is as long as my leg, and I'm a tall guy. I'm like 6'4", right? Oh, wow. The, the fact is that I, I, but I also think that we learn so much more from our mistakes than we do from our successes. And so I'm curious about, as you look back on your businesses, what's a decision that you look back on now say, thinking, "Ugh, if I only knew what I know today how would I have managed it differently?" And, also I'm also curious about how you managed your way through that issue or challenge or mistake- or however you want to characterize it when it happened.
Palmy Kitti:So this is a core one and I think it will, it's a very important lesson for people who are getting started in any business, but specifically multifamily. Because a lot of gurus make it sound like partnership in multifamily sounds like, "Yeah. Hey. Hey, Ed, let's go. Let's go buy a $50 million deal together." Literally, this past weekend, Nan, my sister Nan, got a message from this new per- new newbie. She's like, "Thank you so much for helping on the call. I took your advice and decided to go partner with some guy in Houston." And Nan told me "No. That's literally not what I told you. I literally told you go learn your market, go connect with people locally, get to know them first." And she's like, "I never told her to just go..." I think she's in New Jersey, and she literally was like, "I'm partnering with someone in Houston." And we're like no. That's not what we said. How did you hear that?" So for me, my biggest lesson, especially having gone through a rough interest rate hike for the past four years- is partnership Please do not rush into any partnership because you think multifamily is easy. This is... in the good times, it's already bad enough. In, in times, in rough times, you need a, you need the people who's gonna work with you, who are aligned with you, who will show up when things are hard, when there's angry calls, when there's angry vendors, angry lenders. Any of those people, someone needs to be around to back you up and go together and fight through this. And we've cycled through a couple different partnership groups. First one was, like, hey, my first opportunity I was as guilty as that person. I wasn't that careful, but luckily it worked out. They stole my list. How do I know? Because my friends, who he would never know, all of a sudden got messages from him. And it's a big no-no, right? In, in multifamily, you don't steal other people's investor list. Oh, don't do that. But he did that. And so other people, check out. Like, when there's... we had a rough time trying to get stuff re- refinanced. A couple people just checked out. Literally didn't care, didn't respond, didn't do anything. So those are the people who I would never work with again. So now I'm really careful when pe- when new people come and say "Hey, Palmy, I want an opportunity to work with you." I'm, I would love to work with every single person because I got that opportunity, but I'm also more guarded and careful because I have way more to lose than you And partnership is the biggest lesson and mistake that I've made, and I'm lucky that I'm able to... I, there are people who are not as fortunate, but in my case, I was able to overcome them.
Ed Mathews:But yeah. Yeah. I I have been on, I've had partnerships that I went into blindly that did not work out very well worked out very badly as a matter of fact. And I've had partnerships that I walked into blindly that worked out great, thank God. But for the grace of God. But the, the thing I always tell people is if you met someone and you got drinks with them on Thursday a- Thursday after work- ... you're not gonna get married on Saturday.
Palmy Kitti:Should not.
Ed Mathews:Date. Date them for a while, a long while. Get to know them, get to know how they think, get to know how they operate. And after you've spent a considerable amount of time, spend some more time with them. And then and only then should you ever consider, partnering with somebody. You need to know them as well as a potential spouse.
Palmy Kitti:It's a 5 to 10-year relationship that you- that you, yeah, that you have to deal- You may speak to them more than your wife. Honestly, at some point, like- ... there's days that you spend a lot more time with them. So you have to like them. Know and trust is important. You have to have complimentary skills not overlapping, so you're not on top of each other I, you're doing this wrong, you're doing it right." A very clear delineation of roles and responsibilities. And more importantly, talk to them about stuff outside of apartments and start connecting the dots. Like one guy wanted to partner with me really badly, but he told me a story about what he did with his part in Washington State, like he sued him or something, and I'm like, "Oh, okay. Hell no." That was like a red flag. Thanks for letting me know that because that's I'm not saying that you shouldn't be able to sue people if they did you wrong, but in that case, it just sound like overly aggressive and I was like, "Yeah, I'm not gonna be doing that."
Ed Mathews:Yeah. And it may sound simple, but I at least need to have a beer with you, right? Or a cup of coffee. I always tell people I'm a cheap date, right? I will- ... I will buy you a cup of coffee if, especially if you're in my area, somewhere in the northeast. Yeah. I'll meet with you for 20 minutes and have a cup of coffee with you. Yeah. That's fine. That's I'm not gonna invest with you, but I will meet with you. Take the time. Please take the time. And a year from now I might. You never know.
Palmy Kitti:Yeah. Or five. We have people- ... who are, have been on our list and "I'm gonna invest with you." I'm like, "We don't pressure sale, right?" So you need to invest, you don't want to invest. Five years later... Oh, actually, there's this one guy, he was on our dead list, not because it's wrong, but because we didn't want to send emails to people who don't open it, yeah. So we put him on a dead list. Five years later, he invested. We're like, "Whoa." He resurrected the dead. Yep.
Ed Mathews:Yeah. Yeah, so- We break up. So we do the same thing. If they haven't opened after a period of time, it's usually, I think, 60 days. We send them a breakup email saying, "Hey, I don't wanna be the guy that's... or the, the guy that's filling your inbox with stuff you don't care about, so we're done.""Until you tell me otherwise."
Palmy Kitti:Oh, yeah. Yeah.
Ed Mathews:I'm also curious about how leaders like yourself learn. How do you take in information? What's the book on your either physical or virtual nightstand? What are you pay- who are you paying attention to these days?
Palmy Kitti:So Apple just did a release yesterday, so I thought about- one of the books. And that is... I read from time to time, and I think it's really important. It's called The Innovation Secrets of Steve Jobs. So it's not... What I love about that book, and it reminds me about how we, when we wanna grow as a leader, and our job isn't to think about just the present, but what the company's gonna do in the future. It's about connecting the dot outside of what's happening in the industry, finding interesting intersections. Steve Jobs' strength wasn't programming. At... He was able to take stuff literally from the kitchen, right? When they were doing the, the redesign of the, the iMac and everything, it was, I think it was Hamilton. I think that was one of the brands he saw. He's like, "Why can't we make it as beautiful as those? Why do we have to have these clum- clunky PCs? So can we start with building things that are beautiful?" And that was, like, connecting a through line that no one else saw. Prior to that, no one thought computers should look beautiful, computers should be simplified. And I want everyone, and regardless of what you're doing, to look for opportunities to connect unusual dots so that you can then come up with your unique perspective and angle on how to generate anything, especially in the age of AI.
Ed Mathews:Awesome. Fantastic. So how do you define success in your life?
Palmy Kitti:I, I have two levels of success. So like as on my family level, personal level, I just feel like if I'm able to take care of my family, if I'm able to take my grandmother, like I... Nan and I, we take care of our grandparents. So if I'm able to take... I don't have to take t- I don't have to ask for a time off, right? I can just take time off. So if I wanted to take her on a trip, I can take her on a trip. Like we're planning a trip to take her back to Thailand. We're Thai, so I was, we're like, "Hey, and don't blink, let's go. We can do this. We can do that." We're able to... We want to start a nonprofit for rescue animals, and that's... We've been doing it on a individual level where we give like our hos- local hospital like money. And we're just like, "Here's a s- dollar amount. You just use it to pay bills or something like that." But we want to build it on a larger scale. That's one of our passion projects that we want to work with groups. And then, and to be honest, like we've been distracted by other stuff, so we haven't focused solely on it yet, but I think it's time to bring it back. The other level of success is, like I just mentioned, impacting people so that they recognize that they need to transition from earned income to own income. Irregardless of how much you make, you can make a million dollars and still end up having nothing. And that's like the, the thing that it's never ending. It's gonna always be something that we will continue to be like spokesperson for.
Ed Mathews:Yeah. Wonderful. I, I, that's amazing. All right, my friend. So when you're not talking about real estate or- AI or anything else, what do you like to do for fun?
Palmy Kitti:I like to take my dogs out to do fun stuff. So this weekend they h- they went swimming, and the other two went shopping, and then we had brunch together. So it's like I want to do stuff that's offline take advantage of the climate I'm in Southern California as much as possible and just go and do fun stuff. And then outside of that, I do like hiking trips. So last trip was to Everest Base Camp, so done like a lot of those like kinda interesting hikes around the world, so yeah.
Ed Mathews:Just, to say the least. Yeah. The that's amazing. What kind of dogs?
Palmy Kitti:Range from a little four-pound Chihuahua. They're all rescue, so- ... four-pound Chihuahua to 100 pounds black Lab.
Ed Mathews:Aw. Yeah, we have a we have a... my daughter my oldest daughter has a Chihuahua Peanut, and, ... and then we have,
Palmy Kitti:How, How much does Peanut weigh?
Ed Mathews:Oh, she's a chubby one. She's probably- How much? ... 15, 16 pounds.
Palmy Kitti:Oh, okay.
Ed Mathews:She's not that, okay. She's a, she's not a teacup. She's a t- ... I don't know the differences, but she's like a larger Chihuahua breed.
Palmy Kitti:I have one of those, too, so yeah.
Ed Mathews:Yeah. And and then we have a, a, a snowball retriever that we rehomed, and then we have another golden retriever who's been with us for, oof, she's gotta be 11 or 12 at this point. So yeah. That's They make I, I am a firm believer that dogs are way better than humans.
Palmy Kitti:I feel bad sometimes, but like I was just telling my friend, like if there's a news story, no matter how that person is, they could be like a a robber or something and then they have a dog, all my thought is like, "What's gonna happen to the dog? Oh, my gosh. What's gonna happen to this dog?" Or some- someone gets is g- taken off to the, hospital and I'm like, "What's gonna happen to their dog?"
Ed Mathews:Same. Same. They're people. They're ch- and they're basically our children. Among... and, not to cast aspersions on our actual children. We have five kids. Three of them happen to be furry.
Palmy Kitti:Love that.
Ed Mathews:Yeah. H- if people wanna learn more about you or your companies or your sister- ... what's the best way to do that?
Palmy Kitti:So if they wanna learn more about what I talked about our AI operating system, they can go to kittiroadmap.com. So it's my last name, K-I-T-T-I roadmap.com. And if they wanna follow us on social media, we're on YouTube, TikTok Instagram, Facebook, and it's thekittisisters.com, K-I-T-T-I. Yeah. So we're dog people, so we don't have the Y at the end, so just keep that in mind. So Kitti, K-I-T-T-I.
Ed Mathews:There you go. Palmy Kitti, thank you so much for your time today. It was really good to catch up, and continued good fortune. Congrats.
Palmy Kitti:Thank you so much. Thank you for having me. I look forward to connecting with you again.