WS1927 The 90/10 Rule in Real Estate | Roger King

In this insightful episode of The Real Estate Syndication Show, our guest host 
Jim Pfeifer spoke with Roger King, a veteran real estate investor with 27 years of experience. Roger shared his wisdom on various topics, including the importance of adapting investment strategies to shifting markets and the significance of thorough documentation and due diligence.

Roger's journey from a music major to a successful real estate investor is a testament to the power of mentorship and adaptability. He emphasized the value of having a mentor, especially when transitioning between sectors within the real estate industry, such as moving from wholesaling to fix and flips, or to multifamily investments.

We delved into Roger's TEM framework, which stands for Time, Experience, and Money. He explained how investors can leverage their strengths in one of these areas to complement others who may have what they lack, creating a balanced and effective partnership.

Roger also shared his personal strategy, the 1090 rule, which involves balancing risk by investing 10% of his portfolio in higher-risk projects and the remaining 90% in stable, cash-flowing properties. This approach has allowed him to navigate through various economic cycles and maintain a steady income stream.

Listeners were reminded of the crucial role of proper documentation to avoid being burned by seemingly trustworthy partners. Roger's experiences with legal battles underscored the need for solid agreements and the protection they offer.

For those interested in learning more from Roger King or joining his Real Estate Investing Accelerator Founders Group, he can be reached at roger@rogerking.com, and further resources are available on his website, rogerking.com.

It was an enlightening conversation with Roger King, and I hope our listeners found it as valuable as I did. If you're looking to connect with like-minded investors or access educational resources and deals, visit leftfieldinvestors.com or contact me at jim@leftfieldinvestors.com.

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Transcript

Roger King: all in a better direction, a little bit faster, a little bit more cleanly. And that's what I would urge everybody to really sort of figure out. If you're doing one sector, if you're in wholesaling right now and you want to transition into fix and flip, or if you want to transition into multifamily, get somebody that has already done it. It's already been down that road before you start.

Jim Pfeifer: Welcome to your daily real estate syndication show. I'm your host, Jim Pfeifer from Leftfield Investors, a community dedicated to educating LP investors and providing a network and access to deals. I'm sitting in today for Whitney Sewell, founder of LifeBridge Capital. Our guest today is Roger King. He is a seasoned real estate investor with over 27 years of experience specializing in strategic cash flowing properties. In this episode, we talked about how to change investing strategies and shifting markets, the importance of documentation. That nice doesn't mean competent, so due diligence on your partners is essential. Roger also talked about why he switched from flipping houses to buying mobile home parks, why mentors are important, and he talked about his TEM framework, where everyone has some amount of time, experience, and money, and it's important to partner with those that complement your skills. Roger, welcome to the show. Let's start out with who are you and how did you get to where you are today?

Roger King: Wow. Hey, thanks. It's such a pleasure to be here. Thank you, Jim. I appreciate it. Well, I'm Roger King. I am a real estate investor, educator, developer. I've been in this sector, if you will, for about 28 years now. This is my 28th year since I did my first real estate deal, starting off in Orlando, Florida, after I got out of Berkeley College of Music in Boston. So, you know, you fast forward and here I am in the social media stratosphere and, um, joining, uh, joining you today.

Jim Pfeifer: Well, that's, that's an interesting way to start, right? If you're a music major, how do you get into real estate from that? Shouldn't you be in school teaching music or something?

Roger King: Actually, that was my dream at the time, was to get my degree in music education and performance. So I was a dual major and then go back to my old high school in Englewood, Florida and be the band director until I, you know, until I kicked it. And after a number of years of college up there and seeing a bunch of my friends who were just astronomically gifted musicians, watch them and their careers really take off. I was inspired to do what I could to pursue that path. But it ultimately took me down a different path in my life. Having grown up watching my father become a real estate investor himself, I saw the transformation that happened because he took some very you know, basic steps, you know, flipped a contract, made $18,000 in 1980, 81. And it was, you know, such a transformation for our family. So it was always in the back of my head that, you know, I could do that too. And when certain things in your, you know, chosen career don't necessarily work out the way you envision them as a 13-year-old, you know, you want to say, okay, what else do I have? And I was fortunate enough to have a mentor, my father, who helped me, you know, when we started our investment company together in Orlando way back in 1996.

Jim Pfeifer: Wow. And that's a lot of experience 1996, right? You've, so you've been through the cycles, you've been through the 2006, seven, eight, where everything was really difficult and other cycles as well. So can you talk about some of the lessons you've learned along the way that might help us? Because now we're, again, we find ourselves in uncertain times. Things have changed a lot over the last year or two. Uh, so can you kind of talk to us? What are some things that you've learned that might help you prepare for what's happening now?

Roger King: There's a lot of stuff. I think that if I'm going to, without any necessarily order of importance here, I would say, make sure your documentation on every single real estate deal you have is solid. I've been burned too many times by too many people that I thought were actually dear friends. and I got screwed over. Hundreds of thousands of dollars, millions of dollars, literally millions of dollars. So make sure you're buttoned up with your documents. Number two, just because somebody is nice doesn't mean they're competent, doesn't mean that they have the fortitude to stick it out when times get tough. Never borrow short-term money for long-term projects. Huge mistake I made. Get ready to transition from one strategy to another. uh, before it happens, right? If you're, um, the guy that doesn't want to, if you're the guy that's building, you know, um, horse and buggies, you don't want to wait forever until the cars come on. You want to start seeing, okay, what is the business model transitioning into and make that jump sooner rather than later, because that may make all the difference in your investment career. And so I think that just a few of those off the top of my head would, you know, there's an hour long discussion for each one of those.

Jim Pfeifer: Yeah. Well, let's dig into it a little bit. You said, yeah, get ready to, um, you know, shift your strategy. So can you give us an example of, you know, a time that you did that and, and what the result was and how that can maybe, how we could use that today?

Roger King: Sure. After 2008 market crash, when many of us lost literally everything we'd built over the previous 10 years or whatever, I realized that I need to be in control of my destiny and I formed my own company. I was wholesaling deals to start with because I got to recapture some capital. I started fixing properties with people, lending money, but I saw that after probably in 2015 and 16, the market for renovations, fix and flips, was slowing. So the properties were taking too long to actually flip and sell, and so I wanted to you know, transition my business model from that type of transaction, from a six to nine month property into these longer term holds, three to five year holds, so that I was having income every month versus waiting for a property to get finished. And I was fixing and flipping I think about 40 houses a year with my various partners at the time, and some of them were really great, but a couple of them were taking too long, and that really ate into the profit. So my vision was what can I transition into if there is a market downturn? And so I transitioned into mobile home parks. And it took about a year and a half to two years for that process to happen, to get the right partner, to get the right property, to structure it the right way. But after a couple of years, I got the right partners, got the right property, and we were all in. And we bought our first mobile home park. in April of 2018. And we just sold that first property last May, five years in. It wasn't a home run. It was a solid base hit. There were a lot of ups and downs and it was a great learning experience. But the process of transitioning the majority of my time and my focus from fixing and flipping into mobile home parks. That's a doable thing. I think it would have been better if I had a mentor or a business partner who had already done that, who had already gone through buying a mobile home park increasing its NOI and then selling it. If he'd already done that, he would have been able to steer us all in a better direction, a little bit faster, a little bit more cleanly. And that's what I would urge everybody to really sort of figure out. If you're doing one sector, if you're in wholesaling right now and you want to transition into fix and flip, or if you want to transition into multifamily, get somebody that has already done it. It's already been down that road before you start.

Jim Pfeifer: And you said you were doing fix and flips, and then you slowly transitioned to mobile home parks. Now, there's a lot of places people go that used to be flippers, and mobile home parks isn't necessarily the number one spot that they land. So how did you decide, you know what, I like how you found out, okay, flipping, it's slowing down, I need to do something different. So that's a huge bonus right there that you figured out, hey, I need to switch strategies. But now you're switching strategies. I would have thought, well you're doing single-family homes, why don't you just go to single-family homes that you buy and hold and rent, right? That would have been a logical switch. Not to say that mobile homes isn't logical, but can you talk to us about how you decided on mobile homes, what you saw there, and why you made that leap?

Roger King: Yeah, great question. I really thought, as many of us did, that the economy was going to go into recession 16 or 17 or 18, and that it was imminent. And then it wasn't. Things just sort of kind of went steady for a little while. They didn't go up. They didn't really go down. They were a bit stagnant, but they were still good. And so As I was waiting, I was pondering the question of, and I was certainly listening to a lot of the gurus that were out there back at the time. They were saying multifamily, get a B class property and turn it into an A class property. And I'm like, okay, that seems reasonable. But what happens to those A class tenants when the market slows down and they start to lose their jobs? Because it's on the horizon, right? And it still is on the horizon. And I didn't want to get caught in that sort of bubble aspect of it. I wanted to get the people that were going from a B to a C or a C to a D because they lost their job and they could only afford $700 a month rent versus $1,000 or $1,500. So I wanted to say, what's the most strategic asset class that I can get in now if there is a downturn, and that to me was affordable housing. Affordable housing is going to really increase when the market takes. So what's a sector that is not getting a lot of competition? Prices hadn't really gone up so dramatically like they have in the last two or three years. And I thought, well, I'm hearing a lot of mobile home parks for some of the guys down in San Diego, because I was still in California at the time. And I just thought mobile home parks. That's such a great place because it solves the problem of a bad economy and everybody losing their tenants. In a bad economy, we get more tenants in mobile home parks.

Jim Pfeifer: And, um, so how has it worked out, I guess, is the next question, right? Because you said your first deal wasn't a home run. It was a base hit, which I'm all for base hits, right? You want as many base hits as you can get. And maybe an occasional home run would be nice to throw in there, but I'm all I'm here for the base hits. So, and your first one was probably, I'm guessing might've been your worst one, right? That's typically how it goes. At least when I was an active investor. So can you talk about kind of how it's been since you've been in mobile home parks for six, eight years?

Roger King: Yeah, you know, this is our sixth year. Our second park has been fantastic. Our first park was not a base hit. Our third, fourth, fifth, we've got 14 right now. We just bought our 15th mobile home park the week of Thanksgiving. And so, you know, we're fresh into that one. That's south of Chicago. And Has it been fantastic? Yes, in many regards. Is it as easy as everyone was hoping? Definitely not. you know, labor right now, finding contractors who want to do the job, finding tenants who are moving into this type of a, you know, a home, getting all of that sort of to gel together. But I think the biggest problem has been contractor pricing has gone through the roof. And you couple that with the explosion of higher insurance rates. across the country. In fact, we're not buying in Florida. One of the main reasons is because insurance companies are just ridiculous right now. So even our parks that we have in Alabama and Tennessee and Kentucky, the insurance prices have just gone through the roof. So is it as great as we'd hope? No. Is it still doubles and triples? Yeah. Have we struck out on a couple of them? Yeah, but we have more up to bats, if you want to play that metaphor out.

Jim Pfeifer: Exactly. So you also talked about nice doesn't equal competent. So and I'm sure the flip side, you don't mean that you could only do business with mean people because they're the ones that do a good job. But how do you analyze someone for competence? I mean, I would prefer to deal with someone that's nice and competent. But how do you how do you analyze a business partner or someone that you're going to work with or send money to or do business with as far as analyzing? Yes, this person knows what they're doing. They're competent.

Roger King: You know, that's a great question. I appreciate that. Well, I think that we can't. Right. If we meet somebody at a real estate investor club meeting, and they seem great, and they can talk up the game, and yet they end up two years down the road embezzling $50,000 or $100,000 or $300,000. You can't really see that in advance that they're going to do that. Or if you get into a construction property project, and they don't know what they don't know. They don't have the chops, as it were. And you don't really know how to see that stuff in advance. What you can do is protect yourself within your joint venture agreement or in your operating agreement, and you just have some poison pills. If you don't accomplish X, Y, and Z by such and such a date, it is up to this partner to make the decision that you are no longer in control. You may not lose your equity in the deal, but we're going to hire somebody else that actually gets this stuff done. And, you know, that's, if everybody's in agreement, uh, and can agree on the language upfront, there's a stronger likelihood that the team members, you know, your, your members, your partners, they're all going to have a little fire under their butt. You know, they're going to have, look, I could lose everything if I don't perform. And they could be the nicest person in the world, but if they don't get the project done, if they go X number of percent over budget, they're out of control of the deal. And you sort of pre-protect.

Jim Pfeifer: And that goes right back to the point you made about documentation, right? Make sure that your documentation is there. I know that I made a lot of mistakes in my investing career as well. And many of them were, wow, this guy's a nice guy, competent, clearly knows what he's doing. So I don't need my attorney to evaluate the documents he wants me to sign. I'll just go ahead. And that is a huge mistake. I will never sign another document like that without having an attorney review it because What you do is you get all the problems out of the way before the deal. And that's the super smart advice.

Roger King: You're right. It's exactly the right way to do it. You don't have guys at the biggest REITs that have $3 billion assets under management. They're all looking at the agreements. Their attorneys are all hammering it out back and forth before the deal is done. So why wouldn't we use that as a model of how we're going to work? It's going to cost a couple thousand bucks extra, but I'll tell you, it's way more valuable to spend that money, invest it up front. It's a legitimate expense as well than having to figure out a way to go after them in court. And, you know, I mean, I, I've done that. I've gone through years and years of legal battling to try to get these people who screwed me over. And it's just the time, the money, the emotional turmoil. It's, it's just do it up front.

Jim Pfeifer: Yeah, you know, it's like, you know, in my house, when the roof of the house leaks, I hire a roofer because I don't know how to roof stuff. Right. It's the same thing. When I need to evaluate a document, I hire an attorney. And I've learned that lesson the hard way. And hopefully this podcast will help others learn it the easy way. Yeah. So you also, you talk about, you know, well-balanced and individualized approach to real estate investment. And there's a couple of terms and philosophies you have. I'd like you to talk about the 1090 rule and the TEM framework. Can you talk about those for us?

Roger King: Yeah, for sure. Let's talk about the TEM framework. So I really have tried to conceptualize it all in my own way. You know, for anybody who's an investor, you've got a time commitment, you've got an experience level, and you've got need of cash money, right? So time, experience, money. And some people have a lot of time, you know, if you're 22 and you're just out of college and you don't have a lot of money or experience, you have a lot of time. Figure out how to use that because there's somebody else with a lot of money and there's another person with a lot of experience. How can you figure out how to work together, right? How can you leverage your time and somebody else's money? Or let's say you're a surgeon. I love this example. Surgeons tend to make a lot of cash, so they don't have a lot of time, but they have a lot of money. How can you leverage that person's cash and go out and buy property. Or if you're the surgeon, how can you find somebody that has a lot of time and a lot of experience to go and deploy your capital in a really safe way? Again, using an attorney. And there's ways for everybody to do this. You look at a guy who's a contractor. He's got a lot of experience. He may have a lot of time. He may be able to carve out time, but maybe he doesn't have enough money. So he will be a really good person with a surgeon. How do you, you know, how does that surgeon and that contractor get together? You know, the surgeon could fund the spec home as an example, and they could figure out a way to split the profits on that. You know, I think that everything boils down to time, experience and money. So shifting into the 1090 rule is another sort of framework that I've developed. You know, my life right now is all about real estate investing. And I focus on this stuff every day. I've got a fairly big portfolio, you know, from a former jazz drummer standpoint, right? It's a pretty good sized portfolio. And so my risk is different than like that surgeon's risk or the contractor's risk or the kid who's 22 and just out of school, right? My risk threshold is different. But the formula that I'm really putting together or have put together in my portfolio is I would have one or two or three risky projects and the rest of them, the other 90% of those, if you will, are all safe. I've got this large multifamily and mobile home park portfolio aspect. But I also have a spec home that I built over in Palm Springs. It took three years, which is two years longer than I wanted. And I've got a couple of other long-term development projects that are taking longer than I want. Those are in my 10% risk bucket, if you will. The other 90%, man, that just pays me every month. And I would rather have people understand how to evaluate, you know, do I want to buy 15 fix and flips this year or is that too risky? Maybe I do two because of the time commitment and I buy five rentals and structure that. And so I don't have all my capital into 10 fix and flips, but I've got, you know, half of my capital into these five performing assets generating cashflow every month. So I want to help people understand how do you evaluate where you are and what's your personal 1090 rule.

Jim Pfeifer: That's great stuff. And for me, it's, it's 10% exciting, fun, crazy stuff that might not pay out. And I'm hoping that then the 90% boring, not exciting, just rinse and repeat. And that's where you're going to make your money, the passive income that I need. And so I really liked the, the 10 90 rule because it kind of fits what I'm, what I'm thinking already is you want to have some, you want to have most of your stuff be reliable and you know that it's going to pay out. Maybe not all the time, maybe not perfectly, but that 10%, that's where you can really. you know, shoot for the moon, but I might also crash and burn. Yeah, I really like that philosophy. Oh, thank you. I appreciate it. Yeah, it's awesome. I want to go back to the to the TM framework. Right. We said time, experience and money. So presumably everybody has at least one of those. Right. Hopefully you got at least at least one of those covered. Maybe you got two. But if I have if I have one, let's say I have money or I have time. How do I find and partner with the people that have what I don't, right? Because you're trying to match up with people who compliment you. So if I have money, you know, everyone's going to want to come talk to me, right? If I have time, probably no one will want to come talk to me unless I have some experience. So how do you, if you have a couple of those or just one of them, how do you find someone to partner up with?

Roger King: Yeah. Another really great question. Thank you. I think that the big challenge for people with money is verifying the person who's approaching them to borrow the money or to invest the money in their project. A surgeon will probably end up investing in some what they call passive investments. They'll put $50,000 into this guy's fund or $50,000 or $100,000 or $200,000 in that REIT. And really what they need to do is invest their time doing the diligence on those various assets and the team. Because, you know, there's a million properties out there, but there's probably, I'm going to guess five people, maybe eight people that you want to do business with for the longterm, build those relationships. And then that way, you know, you really sort of shrunken your circle to people that you, you know, built this trust over time. They perform, you perform, and it's a good symbiotic relationship. So how do you do that due diligence? What are the questions that you ask when you're evaluating a person and their experience? And Then sort of realizing, look, you're taking a risk here by trusting this person. What can you put into place to offset more of that risk? You know, a lot of people talk about doing first trustees. Hey, we've, you know, we're a mortgage broker. We've been doing this for 25 years and, you know, we'll pay 8% on your money, pays out monthly, you're 65% loan to value. So a surgeon is going to say, that's great. Some brokers won't manage the default from that borrower. Some brokers will. And I think that that's a really critical thing. If you can meet those brokers that say, hey, you know, we'll borrow the money at 8% and we will handle any default, you may stop making, we may stop making the payments. but we're going to handle the whole default all the way through the foreclosure process because that's part of their service. I think that that would be something that you want to know going into it as a person with money. What about if you're that surgeon, you want to put $200,000 into such and such guru's 15th fund that pays out 32% But, you know, you talk to 10 other investors and some of their previous deals, and you realize that they haven't been paid in two years. Right? Do you want to jump into that next fund? Probably not. So doing, you know, asking those questions, doing that kind of a due diligence with somebody with money, I think would be, you know, just extremely beneficial. And you shouldn't invest anything without doing that kind of stuff.

Jim Pfeifer: Right. That's great stuff there. I want to kind of transition a little bit because we're getting close to time. Sure. You've been doing this for almost 30 years. Yeah. So as I said earlier, you've been through some of the cycles. Yeah. You know, how did the current economic conditions compare to the past cycles you've been through and kind of, you know, get out your crystal ball? What do you see coming? And where do you think we're going to we're going to be in the real estate market? I know that's a loaded question, so answer it however you want.

Roger King: Sure. There are several factors. One, I remember being 13 years old and walking into my dad's office one day, and he'd become a full-time investor. Maybe I was 14. And he was telling me that interest rates were 18%. And I remember this moment vividly. I'm like, well, what does that mean? He goes, well, if you're borrowing a hundred dollars every year, you got to pay 16. I'm like, well, that doesn't seem like a lot. He goes, yeah, but if you're borrowing 50,000, it's a lot. And I started to understand 18% interest, 16% interest, you know, was common for years. And the idea that People are complaining right now about 6% and 7%. I think they sort of missed the boat in several things. One, how the government and the capital markets are working right now. Can we get back up to 18%? I don't necessarily see it, but I'm not going to rule it out. So I think that we need to buy properties better, all of us included. I'm certainly in that. a group of people that, you know, want to deploy capital. And can we hammer, you know, the sellers? Can we go to the banks and say, look, you've got these assets on your books right now. I'm willing to come in with, you know, a million dollars and I want you to give me a loan at X percent, you know, interest only for three years versus one, you know, and just, you know, figure out a way to make it work better for us right now. As far as a crystal ball, I would say that we've got a lot of stuff going on in our country, a lot of division. Politics are playing into it. We're in an election year. I don't know that You know, three weeks ago, the interest rates were supposed to go down this quarter. I don't see that happening now. You know, there's chatter on both sides. Well, you know, we can't drop it because the economy is still too strong. Okay, sure. The economy's strong. I don't know that that's necessarily a bad thing. The inflation is still coming down because the pricing is coming down on the corporate profits that had gone through the roof with, say, oil and gas. Those profits were just outrageous in 2022, in early 23. And I just think that You can still find deals and you have to find deals. You've got some time this year to wait for really great opportunities. Don't feel like you're in a rush to deploy your capital right now. Sit on the sidelines if you're cash ready or if you have available to capital. Just sit out for a few more minutes and see where things kind of start shaking out. The political aspect of it, the presidential election, it's going to have some impact. The Fed's going to have some impact. Probably if they're not lowering rates in March, they'll probably start lowering in June, July. Who knows? But I think you can be patient. I think we're going to come into some good deals.

Jim Pfeifer: I agree. I mean, this is a, it's not a get rich quick scheme, real estate, right? It's a build well, slowly. And then you look back and you're like, wow, I, I, I did okay for a, for a music major. Right. Yeah.

Roger King: I mostly feel that way. I don't, I don't focus on the, uh, the music ed major part of my, my, uh, psyche anymore. Um, but look, I live here in Puerto Rico. I live on the beach. Um, I have worked hard. I still work hard. I still am focused. I I'm trying to help as many people as I can figure some of this stuff out that I've already gone through. You know, we talk about the TEM framework. We've talked about the 1090 rule. You know, how do you structure joint venture agreements? All of that stuff is, has not been easy to learn. It's, you know, Roger getting kicked in the teeth very frequently for a number of years. As you can, you know, talk to anybody that's been in real estate for as long as I have, they've had their, their teeth kicked in.

Jim Pfeifer: Yeah. Well, this has been a fantastic conversation. If listeners are interested in learning more about what you do, what's the best way to connect with you?

Roger King: Yeah. Look, rogerking.com is the best way. I've got a brand new newsletter we've just launched yesterday. I'm excited about it. The REI Evolution. That's available right on the website, rogerking.com. Sign up, you know, distilling information and trying to help investors really see things differently. So that's one way you can obviously go to my Instagram, The Real Roger King, YouTube. I think you'll have all of the links on the podcast notes here. Yes, we will. And reach out, shoot me an email, roger at rogerking.com. Happy to email, happy to share information. And if anybody wants, you know, to join the Real Estate Investing Accelerator Founders Group. That's still open right now. I just launched that last month. I'm here to help people. That's why I'm on your show. I want to help as many people as I can.

Jim Pfeifer: Perfect. Well, thank you very much. As I said, we really appreciate this conversation and look forward to hearing from you again.

Roger King: It's my pleasure. Thank you so much.

Jim Pfeifer: Thank you for listening to The Real Estate Syndication Show. It has been a pleasure to be the guest host today. If you'd like more information about Leftfield Investors and how we educate limited partners, provide a network, and give access to deal flow, please visit leftfieldinvestors.com or reach out to me directly at jim at leftfieldinvestors.com. I hope you learned a lot from the show today. Please don't forget to like and subscribe and share The Real Estate Syndication Show with your friends so they can also build wealth in real estate. You can also go to lifebridgecapital.com and start investing today!