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Karl Krauskopf - Gain Traction Quickly In Real Estate Investing

Uncategorized May 05, 2022

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Working in strategic planning and business development for a $100M business services healthcare company, Karl was looking to get into real estate investment full-time. He got started flipping houses by acquiring and renovating significantly under market value properties in areas experiencing high market appreciation. After 3 years of doing that, he has spent the last year as an investor, focusing on building Auroras Investment Group, which focuses on multifamily developments such as townhomes and apartment buildings. Listen to Karl share about his journey these past 4 years, how he was able to gain traction and grow quickly, and his advice for how you can do it too!

 

In this episode, hosted by Mike Swenson, we discussed:

  • Great ways to find deals
  • Understanding neighborhoods experiencing tremendous appreciation
  • The strategy of using hard money loans
  • Building relationships with investors to make larger deals
  • Keeping your cash in passive investments
  • Allowing your cash to grow on a constant basis
  • Networking and learning with other developers and brokers
  • Self-education and finding passion will help you grow in real estate

 

Timestamps

0:00 - Intro of Karl‘s career
1:07- Transitioning from W2 employee to full-time investor
4:29 - Working with wholesalers
6:06 – Identifying a good deal
8:19 - Scope of work on a property
10:16 - Karl's highest-end single-family flip
12:45 - Understanding how to raise the capital
13:31 – Scaling your own business
18:35 – Investor’s benefits in doing a larger project
19:52 - Projects that Karl is going to take on
21: 30 – Strategies in dealing with projects
22:28 – Karl’s investing journey into multifamily
25:12 - Advice for others outside Real Estate
27:08 - Learn more about Karl

 

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Full transcript here:

Mike Swenson 

Welcome to The REL freedom podcast where we inspire you to pursue your passion to gain time and financial freedom through opportunities in real estate. I'm your host, Mike Swenson. Let's get some real freedom together

 

Mike Swenson 

Welcome everybody to another episode of The REL freedom Podcast. I'm excited to share today we've got Karl Krauskopf. Karl is experienced investor. And so a little bit of a background about him. So he got us his backer, his background is really in flipping homes. And so he focused on acquiring and renovating undervalued properties in areas experiencing tremendous market appreciation. So as he diversified and scaled his business, real estate development was the natural next step. And now your primary focus is with your company Auroras Investment Group, which is based out of the Seattle area, focusing on real estate investing in multifamily developments such as townhomes and apartment buildings. So we will dig in a little bit more about that and how you got started in real estate. So welcome, Karl, we are so excited to have you.

 

Karl Krauskopf 

Oh, thanks so much for having me, Mike, this is uh, this is an honor, I really appreciate it.

 

Mike Swenson 

Why don't you just give us a little bit of more about your background, kind of how you got into the real estate space? And kind of what you guys are focusing on here today?

 

Karl Krauskopf 

Yeah, absolutely. I'll start off by saying if I can make it nice if I can make the transition from a corporate W2 employee, to a full time investor, just about anybody can do it. I spent about four years in the business. You know, the first six months of that four years was pure self education, reading every single book on real estate, I could get my hands on to listening to podcasts during commutes, listening to podcasts and audibles during the gym sessions. And just absolutely consuming any and every piece of information that I could get in that six month period. That started off real slow, obviously, because I was still working 40 to 60 hour, a week day job. And it was rentals. And then I started flipping getting into a flipping homes because while I knew that the rental side of things would just take a little bit too long for me, and that I wanted to achieve at the point that I was focused on was really truly financial freedom, which to me meant that I no longer had to work for somebody else.

 

Karl Krauskopf 

And that I could work for myself as much or as little as I wanted. And the original original goal was let's get $10,000 cash flow and retire and move out to Thailand or something like that. Since since the last probably about 18 months, it's changed drastically to instead of doing that of building a legacy, building a business and having generational multi generational wealth. So did a lot of did a lot of flipping homes. Over the course of that those next three years have been full time on the investing side for the last year and have been a new development. Where had 11 Excuse me, 12 units 12 unit 12 units of construction townhomes detached at us here in the Seattle market and apartments down in Tucson, as well as expanding out into the southeast market.

 

Mike Swenson 

Fantastic. So I know everybody's curious. You know, when people first start flipping houses, kind of how did you identify properties? How did you find financing? How did you find people to work on the properties? Could you just share a little bit about those early days because I know that's it's so hard for people to get started, right? And some people are okay, they're like, let's just jump in, you know, guns blazing and see what happens and you know, whatever problems we come up, we can we can overcome. And some people are like, I want to just dip my toe in the water and make sure that it's okay, so some people are a little bit more cautious. So how did those kind of early days start out for you? And kind of how did you get your footing? Sure.

 

Karl Krauskopf 

So I'll definitely say that I'm in in in the first camp there in terms of let's get out let's get going. You know, the underwriting looks solid, and it can't be a bad deal. So in terms of where did I find deals, it was brokers, it was MLS, it was understanding the whole wholesale agent perspective, which is selling selling a rights to a purchase and sale agreement. So working with wholesalers in that fashion and the first deal so happened to be a wholesale deal, believe it or not a actually planned on and started being the general contractor on the project itself while also holding meetings for my remote corporate job. And I went as far as buying Wi Fi for the home that I was slipping and actually working out of that home for the course of about five months. So it's general contracting, I was managing this up contractors still holding, you know, corporate meeting phone calls on site, which, you know, got a little bit hairy so to speak, when, you know, my team members would ask, Why is there so much, so, so much noise in the background, and we're just renovating our home.

 

Karl Krauskopf 

So it was, you know, slightly misleading there. But, you know, in the end it that first flip panned out incredibly well found subcontractors purely through referrals, you know, referrals from a network that we have up here in Seattle, where it's all about, you know, investors and trying to figure out how we can each help each other. And so, you know, subcontractors came out from there, so, so did the general contractor. So it's great. Okay,

 

Mike Swenson 

so Okay, so you you got what was that first property? What was it single family?

 

Karl Krauskopf 

Yeah, so we flipped about a dozen single families over the course of those two years. And, you know, we we didn't really get into the multifamily until the last 13 months when we started the developments in the in the apartments.

 

Mike Swenson 

And what were you looking for, when you were identifying deals? Because I know, that's a challenge that a lot of people have is how do I know it's a good deal? How do I know what areas to focus on? Or what neighborhoods or? or things like that?

 

Karl Krauskopf 

Yeah, good question. So from a focus standpoint, it's knowing your back, knowing what your backyard is, right, really, truly understanding that the good the bad neighborhoods, the neighborhoods that are experiencing tremendous appreciation, those that are relatively stagnant in our even obviously, for here in Seattle, everything is can be a block by block basis, not just from a safety and crime and appreciation perspective, but also from a top up, believe it or not a topographical and soil perspective, soil, meaning it actually will limit future development opportunities, so that you have to take that into account when you're looking at properties here. So you know, first it's finding your primary market, then dialing it down to, you know, really, it was for me, it started to become zip codes. So really looking at which zip codes are the ones experiencing the most growth the most, you know, where are the ones that are in the path of progress, and really honing in on those, I'll say, in my, in my early days, I said, I'll buy fix and flip anything in the, you know, 30 to 50 miles within range of downtown Seattle,

 

Karl Krauskopf 

I ended up taking on one flip that was about 50 miles from Seattle, and come to find that I ended up having to general contract that project for the last three months of a five month project. And that meant going down there every single day, which was about a 90 minute drive each way while also working in the full time job. So I would say, you know, for me, for us, it's it's no longer really focusing out in those areas that are hard to reach from a local perspective. It's like and just focus, identify those zip codes, those neighborhoods that are experiencing the tremendous appreciation from a flip perspective.

 

Mike Swenson 

Now from a property, you know, kind of scope of work perspective, was there anything that you looked for there? I know a lot of people like value add opportunities, you know, turning a three bedroom into a four bedroom, updating square footage, adding a garage, that kind of stuff. Was there anything specific that you kind of lean towards in terms of kind of property of the property itself?

 

Karl Krauskopf 

Yeah, great question. So it was the value add side of things. And for us, you know, we've got base, we've got basements here in the Northwest. And what we would do there is go and look for unfinished basements and add typically, you know, one to two bedrooms plus a bathroom. And you know, towards the end of that kind of, say flipping career, right when we transition from flipping to development and apartments, is we were really focused on not only value ads, but also those that were questionably tear downs. So we started doing you know, all studs out remodels, new roofs, all new siding, windows, all the trades within the studs, and even foundations and converting those into luxury high end high end homes with also while also adding bedrooms and bathrooms.

 

Mike Swenson 

You know, there's there's a few different strategies here some folks are looking at the kind of the mid range neighborhoods, you know, finding the ugly duckling but there's just a little bit less meat on the bone when you do that, right. You know, versus going to the to the high end neighborhoods, right? Because yeah, you can add, add and bring it up to that luxury piece and command a premium and that's where you can really net a lot more money.

 

Karl Krauskopf 

Yeah, and, you know, one thing that I should mention is that should have mentioned is that we never really, truly operated in the, what I'll call the high end market, high end market, I would define as you know, one and a half million dollar minimum purchase price. And so, you know, the the highest end single family flip that we sold was about one and a quarter mil, one and a quarter million we originally ended, wrote of it, you know, one, I think 1 million. So we got, we experienced some, some great appreciation from the timing of the market, which was great. But we always operated in that kind of mid market, mid market cycle of homes.

 

Mike Swenson 

So then from a from a financing perspective, a lot of folks are curious, how do you how do you run with that? Are you guys doing cash out refinance? Are you just selling taking the proceeds? How are you structuring that with a lender? Or, you know, private partner here to make that work?

 

Karl Krauskopf 

Sure. So up until last year, we've done everything we did was sell, so we didn't hold on to anything. And of course, everybody who does that always, always says I should have should have held them. And I'm not, I'm certainly one of those people, I would have loved to hold those homes. Some of them obviously wouldn't have penciled out from a a refinance standpoint. But those that did would have been great by now, from an equity standpoint. Right now, we're using hard money, hard money loans on just about everything from the I should say, from the construction, the flips, and then the ground up construction as well, is we're using hard money. So you know, the goal there is to get in get out as quickly as possible, while also doing every single thing you need to do from the scope of work perspective.

 

Mike Swenson 

Yeah, that's helpful. And so for folks that may not understand what hard money is, it's basically a loan where it's, it's easier. I shouldn't say you don't have to personally qualify, you're doing it based on the numbers of the property. It's a little bit higher interest rate. But yeah, the focus is, it's about turning. And so for those folks, they're willing to invest that because they're no, they know, they're gonna get their money back more quickly. And then they can just recycle that recycle that recycle that.

 

Karl Krauskopf 

Yeah, absolutely. And on that, as you know, you'll typically get better LTV rates, so higher LTV, you know, 85, sometimes 90%, is typically where we like to play between 85 and 90%, loan to value. So we're typically only bringing 15 to 10 to 15%. of the equity of the entire of the entitle entire project.

 

Mike Swenson 

Okay, so now you're, you're doing the single families and you realize you want to get into the multifamily. What were some of your next steps from there?

 

Karl Krauskopf 

It was really understanding how to raise the capital. So how am i right? On the flip side, on the flip, we're typically, you know, about 75 to $125,000, of liquidity, bringing in upfront as well as during the holding period. And really expanding into the new construction, where, you know, we were, we started raising from seven 700 to about 850,000, last year on the on the two projects. And that was really a consequence, or rather a result of doing these flips and having several different investors who were wanting to invest with us, but you know, unfortunately, on the flip, and you can really, there's really only room for one investor. And so you know, then that's when we started looking at well, how do we how do we scale our own business? And then be how do we how do we work more with more investors in and you know, with the syndication, syndication, syndication route on both the ground up construction of new new build townhomes, as well as the apartment value ads,

 

Mike Swenson 

raising that money it was it strictly just the people you've worked with in the past? You said, Hey, this is kind of what we're looking to do here. Are you interested? And then in like a 700 to $800,000 Raise kind of how many folks are involved in that?

 

Karl Krauskopf 

Yeah. So on both of those raises, it was a both investors that we have worked with, with before as well as new investors. In both instances, both instances we had relationships with those investors. And, and yeah, in so it was really performing for those investors. We brought on some some new but it so far, it's turning out really great. We're selling out one of the full ground up constructions right now. And so far, we're looking like we're going to exceed our target returns.

 

Mike Swenson 

Awesome. That's great. So then now in this case, you're not putting up your own money. It's strictly coming from your partners.

 

Karl Krauskopf 

Good question. So we ended up investing some of our own right from a skin in the game perspective. We do have some invested as a general partner alongside of our limited partners,

 

Mike Swenson 

where you're at right now. And then let's, let's talk about a few of the projects that you guys have done over the past, you know, 12 to 18 months just to give folks an idea. So what what types of projects are you taking on? I know you'd mentioned new construction townhomes. But But yeah, talk about those projects a little bit more.

 

Karl Krauskopf 

So on the the townhomes, typically, we're what we're buying there is permit ready projects where a developer or you know, let's call them the seller has gone through all of the entitlement processes, has obtained permits and is ready to break ground. And for typically, one of two reasons is they want to reposition the capital and maybe a bigger, bigger, better project. Or B, they're looking to diversify and reduce their eliminate their risk. So for whatever reason, the developer, the sellers looking to sell the product, the project, not go forward with it. And that's where we come in, we buy the permitted townhome sites, or soon to be permitted to Apartment, apartment sites as well. And, you know, we've

 

Mike Swenson 

said this would be essentially just the dirt, the tear downs already been done, the zonings cleared, and now it's like, okay, who's going to be the person that's going to start swinging the hammer, pouring the cement, that sort of thing? That's the spot you guys come in?

 

Karl Krauskopf 

Exactly. Okay. So we've got builders, we've got general contractors and other developers that we've built relationships with relationships with over the over the past, whether it's through actually directly working with them, or having other investors having had worked with them directly to that we're all teed up, we've we are primed and ready, you know, we've got a good sense of what cost of construction is going to be, which obviously, is changing every day, at least it seems like and, you know, working with them and getting in getting bids, getting it under contract and finishing our due diligence, obviously. And moving into these these projects with eyes wide open.

 

Mike Swenson 

Awesome. How are you finding those projects? And is it just networking? Because of you know, I think for a lot of folks, it sounds complex, maybe people that haven't been in the business, but but for me, it just seems like a natural evolution, right, that the investors you've worked with, you're building relationships are going those growing those relationships into larger deals, they're probably the same thing on the vendor side, you've built those relationships, you've grown those relationships, and it's kind of the next natural evolution as you grow. Is that right?

 

Karl Krauskopf 

Yeah, I would, I would absolutely say that's the case is you know, as you perform for investors, not only do they want to invest, not only again, but also higher dollars, but they typically have network of other accredited investors, accredited individuals who may want to be diversifying out of the stock market, or maybe out of crypto or some other kind of alternative, alternate alternative investment, and moving into a more stable product like, like real estate.

 

Mike Swenson 

So when you had mentioned about raising higher returns, or providing higher returns and kind of what you had promised, or maybe promised isn't the right word, but it's a

 

Karl Krauskopf 

very, that's a very strong word.

 

Mike Swenson 

Once you've calculated, projected, there you go, that's the word I was looking for. So yeah, so So if I'm an investor, now, you've done a good job for me. You know, it's kind of the going from active to a little bit more passive. So, so from the investor's perspective, what's the win for them doing some of these larger projects now versus, you know, hey, let's go flip this house together.

 

Karl Krauskopf 

Sure. So, you know, especially as we get into the build to rent model now is more the is more of the focus is, you know, on the flip side, on the flip kind of raises, I should say on the flip projects, is, you know, we're raising 50 to $100,000, returning those every six months. Now, the challenge with some of those, especially since we're not yet operating as a fund, is, you know, when you're investing in an individual flip is that you're, you're you're changing hands, or rather, you're investing and then we're selling and then we're investing and then we're selling. And inevitably there's going to be some downtime in between the sale and the purchase side. Again, until we get into a fun position.

 

Karl Krauskopf 

So, you know, with these bigger projects, whether it's a townhome or an apartment, the benefit there is is that you're you're not having to your side, your cash is not on the sidelines, at any point until, you know, typically it's month 15 on the townhome on the townhome, sell side or apartment, it's you know, up to seven years is typically what we're looking at. So it's keeping your cash in inactive investments, constantly allowing your cash to grow on a constant basis. So

 

Mike Swenson 

So getting back to some of those other deals. Yeah, what what are some of the other projects you guys are taking on?

 

Karl Krauskopf 

Sure. So one that we just finished up or We're about halfway I should actually say is that we flipped a home. So we bought a home up in North Seattle with a large lot and that we are put a detached adu So mother in law, backyard cottage, whatever you want to call it 2000 square foot detached adu in the backyard. So we flipped the home. We sold the home last week, and we're nearly done with a detached adu. Now the interesting thing here is that we converted the entire property into a essentially a condominium, which allows us to sell the detached adu separate from the main home, which gives us this incredible LTV loan to value basis on the detached adu. Because what we're doing is when we, when we flip and sell the main home, we're effectively getting the lot the backyard for free. So our only cost basis and that is the cost of construction, which in this case is about 40% of the value. So our loan to value, or rather, our really, our loan to cost is going to be 30 40% of the total value. So we'll end up getting in getting out in about two more months with a potential margin of three 300 to 350,000. on just one unit.

 

Mike Swenson 

That's awesome. Yeah. Where Where did you? Or where have you seen that done before? Because I think folks newer are like, how would you even know that? You know, how do you how do you know how to strategically do those things?

 

Karl Krauskopf 

Yeah. So first thing to mention is that, you know, I don't I'm not familiar with any of the other states, municipalities, right, may or may not do this. I know that there's probably I think four cities in the Puget Sound, which is the Seattle area that do allow this process. Yep. So that's kind of the first disclaimer is, you know, whether or not you can actually do this, where you're living. That's the first thing to check. And then the second is, I mean, it really is just networking, networking with other developers. And brokers, you know, those are my two. Those are two partners in the industry that we we love and we can't talk to them enough is really trying to understand learn from them. And whether it's from a process standpoint, a supplier, a labor, you know, whatever it happens to be, it's just really truly networking with those two, those two types of individuals and learning from them.

 

Mike Swenson 

So what's the future look like for you guys? I mean, you're you're kind of one year in on the investing journey. But where do you see this taking off?

 

Karl Krauskopf 

Yeah, so I think we're it's taking off is two sides, it really is going to be in the larger multifamily space. So a in the already built apartments, those that are underperforming. So whether there's some kind of operational deficiency that we can go in, fix, tweak, and add value to the expense side. And or, on the revenue side, where, you know, ideally, what we're looking for is leases that started pre pandemic, so 2019 and earlier, and they're really understanding how those rents have been increased or ideally held flat. And that way we can go in, we can capture that loss to lease and add value to the assets via income, increasing the the income. So that's kind of the one bucket is the operating assets. The secondary is again, on the apartment side of more ground up construction.

 

Karl Krauskopf 

So we've got several different products that we the market in Seattle is putting up it's called the small efficiency dwelling units. So think of a 300 400 square foot studio apartment, putting those up in high high traffic, high density areas, like near the near the universities, you know, the big hospitals near the big tech employers. And then and then from there, expanding our scope and getting into the even larger size, ground up construction apartments. So the the small efficiency dwelling unit apartments are generally 20 to 50 units, where we'd like to be operating is in the 101 50 to eventually the 200 unit apartment from a ground up standpoint.

 

Mike Swenson 

And what kind of areas are you focusing your search on?

 

Karl Krauskopf 

So on the ground up, it's all North Seattle, it's all hyper focused on the North Seattle market. On the apartment side of things, it is the southeast so Atlanta, some markets and Florida and hopefully something in Minneapolis here coming up soon. And some other areas in the States, but it's really the Sunbelt, I would say Texas and East.

 

Mike Swenson 

Well, you know, it's it's crazy to see when you look back, you know, you've been in real estate now for just a short period of time. And, you know, obviously you've you've learned a lot you've got a lot under your belt. What would you say? As somebody that's outside of real estate right now, and it's like, you know what, like, it seems exciting. I've always thought about getting in in some way, shape or form, or, you know, something like that, but just maybe hasn't made that leap yet. What advice would you give to somebody in those shoes,

 

Karl Krauskopf 

I think to two pieces, it's going to be self education and finding your passion within the real estate space. So self education, you got to read, you got to you have to listen. Whether it's to podcast audibles or preferably other people, other experienced people that are doing this already. So that means going up to meetups, whether it's virtual or in person, just getting out and meeting people. And don't don't be afraid of saying of asking the, you know, the the simple questions, right, I think that's where I pride myself in doing is, you know, I'll go into a meeting with either subcontractors or developers. And I'll ask the simple questions, even though it'll it may make me look like the simpleton in the room. But it really truly helps me understand, which helps me grow. And I know the asking, the simple question is going to be is a short term contract, short term kind of shortfall. But I know the information that I get from asking that question is going to benefit me in the long term.

 

Karl Krauskopf 

So self education, number one, passion, finding your passion within the space is number two, my passion has always been growth has always been business development, investor relations, working with clients working with people. And so, you know, that's, that's my passion. And I've developed my, you know, my business around around that aspect. And I've developed myself around that aspect. And it's finding the partners, whether it's an actual partner or an employee, somebody that can help fill the voids of where, you know, my weaknesses are.

 

Mike Swenson 

Well, awesome. It's exciting to see what you've done in a short period of time and an exciting to see where you're growing. That's, that's fantastic. So for folks that you know, have have kind of heard your story and want to reach out to you or learn more about what you're doing. How can I do that?

 

Karl Krauskopf 

Sure. So I've got a couple of different areas. I'm on LinkedIn, Karl Krauskopf. We've got an Instagram @aurorasinvestmentgroup, and our websites, www.aurorasinvestmentgroup.com. And you're welcome to reach out to me directly via email, [email protected]

 

Mike Swenson 

Awesome. Well, thank you so much for coming on the show. Really appreciated everything that you shared, I think there's just very tangible steps here of kind of what to do, how to grow and to see a career or career trajectory here, where, okay, I don't know anything about real estate and now in a short period of time, you're experienced, you've got great relationships, great partnerships that you've grown, and you can really see what where it's taking off. So congratulations on that.

 

Karl Krauskopf 

I appreciate that.

 

 

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