Kathy Jang is a multifamily syndicator focused in the Arizona area. She is CEO and founder of Diamond Point Homes, serving as GP of 536 units across seven properties and LP of 1,086 units. In this episode, Kathy discusses how she uses education to help guide investors who are nervous about the current economic climate, what factors are essential to consider when it comes to renovations, and how she defines wealth.
Kathy originally came from the Bay Area, where she says most people she knows played heavily in the stock market and are now seeing their portfolios — and net worth — take a dive. That’s why right now, she is focused on educating the people she is around about the importance of diversifying their portfolios.
“Right now might not be the best time for them to be investing, but hey, let’s talk about it,” Kathy says. “Let’s have this conversation.” Her mission is to teach investors about creating passive income through recession-resilient assets like commercial real estate.
Focused on improving the building and surrounding community, Kathy gutted every single unit of her first property, which she now considers a mistake from a financial perspective. “I now do understand that that isn’t always the best strategy,” she says. “Not everybody needs to have stainless steel or dishwashers … it just really depends on the needs of that specific demographic.” Sometimes using Formica instead of granite benefits renters, for example, because it allows for lower rents in a nice community.
Kathy’s Best Ever advice is to reconsider the meaning of wealth. “It’s not just about the money,” she says. “Wealth is about so many other things. It’s about your lifestyle — your ability to give back.” She recommends focusing on the type of lifestyle you want to create for yourself as you grow your passive income.
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the Best Real Estate Investing Advice Ever Show. I'm Slocomb Reed, and I'm here with Kathy Jang. Kathy is joining us from Phoenix, Arizona. She's the CEO and founder of Diamond Point Homes, which focuses on multifamily syndication. She's a GP of over 500 units across seven properties and an LP of over 1,000 units. Kathy, can you start us off a little more about your background and what you're currently focused on?
Kathy Jang: Sure. So as you were saying right now, I'm residing in Phoenix, Arizona, and so when it comes to multifamily syndications, I am focused in the Arizona area, mostly in Phoenix, but I am reaching out to the Tucson market now. But I did start in Kansas City, and still continue to syndicate out in Kansas City as well. But prior to real estate, I was a consultant for a few years, got my MBA, and then went to medical device marketing. But when my passive income was actually enough to cover what I was earning from my W-2 income, that's when I exited the rat race and have been a full-time real estate professional since.
Slocomb Reed: When was that, that you became a full-time real estate professional?
Kathy Jang: Right before COVID hit. [laughs]
Slocomb Reed: Gotcha.
Kathy Jang: I feel like my measurements of time are around COVID these days, so...
Slocomb Reed: So the seven deals that you have GP'd, have those all been during COVID?
Kathy Jang: Pre-COVID. I was a joint venture for a Kansas City property. So that's how I started to really earn my stripes. I take just being responsible of other people's money very seriously. So for me, it was easier to start off as a JV and put in my own money and my partners put in their own money and learned from that before becoming a syndicator and taking other people's money and investing there.
Slocomb Reed: Gotcha. Of course. And you are primarily focused on Phoenix and Tucson now.
Kathy Jang: Yeah.
Slocomb Reed: Gotcha. Well, a couple of questions based on that... First is, I am an apartment owner-operator in Cincinnati, Ohio. I promise, Best Ever listeners, this is relevant. The one Mark Twain quote that everyone in Cincinnati knows is that when the apocalypse comes, Mark Twain wants to be in Cincinnati, because everything gets here 10 years later. The inverse of that for the real estate market, frankly, is Phoenix and Arizona in general.
Phoenix tends to be a bellwether for change coming in the real estate market. Phoenix was one of the first MSAs to feel the housing bubble burst back in the mid-2000s. So we're living in some strange economic and political times right now recording in mid to late May of 2022. And being that you're based in Phoenix, I feel compelled to ask, with everything going on, are you seeing fluctuations in the deals that you're analyzing right now, by comparison to three quarters ago, and what kinds of fluctuations are you seeing in the deals coming to market now?
Kathy Jang: Great question. So even if I was to take it back even further, so in the last 2008 burst, yes, Phoenix was absolutely impacted tremendously, because back then, it was kind of a one economy type of deal back in Phoenix. And so what they've been doing in Arizona has been really building out the infrastructure to really drive different businesses into the market. So we have a ton of technology that has been building out here. The Apples, the Googles of the world, Amazon are all building offices out here. A lot of diversification in terms of economy that just was not here before. So they took the model, they saw that things were going really well in Texas, and really used that as an example of how they wanted to build out Phoenix and the economy. So they've done a tremendous job.
So when it comes to economy now, it's been really stable. The demand has been tremendous when it comes to just residential assets, because people from the coastal cities have been moving to Phoenix. So there just is not enough supply to catch up with the demand. So even with the economy just going everywhere these days, the demand has held very stable, and the supply just really cannot catch up still. So as things fluctuate for the stocks, everything else, we're still seeing a very solid and high demand when it comes to multifamily out in Phoenix these days.
Slocomb Reed: Gotcha. That makes a lot of sense. Phoenix has had a lot of time to recover since the previous recession, and while we were all hit hard, Phoenix was one of the first places to get hit, so it's good to hear that things have changed. Since then the economy has diversified, and of course, growth, just also by the blessings of geography and weather, and a lot of people moving out of larger coastal cities recently... That makes a lot of sense.
The other piece of my question was more with regards to what's happening with the current economic climate. Inflation, you have supply chain issues... There are a lot of things going on. Increasing interest rates... And I imagine most of the deals that come to you are brokered. Are you seeing any difference, Kathy, in the way that deals are pitched or in the numbers that are being pitched to you in these deals? Are brokers changing their proformas at all based on what's going on right now? Are they putting a pro forma cap rate at the same cap rate that they were last year, or has it gone up?
Kathy Jang: Actually, I work with and partner with people that have a lot of experience in this metro. And luckily, as part of that, we get most of our deals off-market. So currently, we do have a deal that is in Tucson. So that came to us actually off-market. And because the economy has been uncertain these days, the seller really wanted a buyer that they knew for sure could close. So we ended up actually getting it $1.5 million off of what the seller initially wanted to sell the property at, just because of the certainty of sale and knowing the reputation that we have.
So we tend to have maybe a slightly different experience with purchasing properties than maybe some other people might have, but I think that speaks to being able to work with people that have a ton of experience in the metros. And luckily, we're able to see deals that still pencil out incredibly well because of that, because of the loans that we're able to provide. So we're lucky there. And because we did get it basically at a $1.5 million discount, we're able to provide investors with a lot higher returns, and we're able to hit the benchmarks that we typically want to be able to provide to our investors.
Slocomb Reed: Kathy, that $1.5 million discount off of what kind of purchase price?
Kathy Jang: About $40 million purchase price.
Slocomb Reed: Gotcha. So around 3% or 4%. Gotcha.
Kathy Jang: Yeah. We got lucky there in terms of just a little bit of a different, I guess, landscape that we tend to look at.
Slocomb Reed: That makes sense. Within your general partnerships, Kathy, what is your specialty?
Kathy Jang: I play the breadth of it all. With Phoenix being my home turf, I am boots on the ground, essentially, so I'm able to pop on in whenever needed. I raise for every single deal, and I'm on all of the property management calls as well. So I do the whole broad swath of it all, and it's been still a learning experience as well. And my partners all - depending on their skill sets, will divide up what makes sense.
So for example, my Kansas City partner, he's a data scientist; so because of this skill set, he'll take over a lot of the financials, which makes absolute sense. And then I'll take on a lot more of the investor relations, and things like that. But it really just depends on the makeup of the team for the property and what lends itself best to our skill sets.
Slocomb Reed: Gotcha. Tell me if this is an incorrect or inappropriate summary, Kathy... It sounds like what you are focused on is a combination of capital raising and investor relations, and asset management and due diligence for the properties in your backyard and Phoenix. Is that correct?
Kathy Jang: Yeah, that sounds accurate.
Slocomb Reed: Cool. Focusing on investor relations, and with you guys having a deal under contract now, I'm curious... Are you seeing the current economic climate, the volatility of the stock market - are you seeing those things impact your investors interest in the deals that you're bringing to them?
Kathy Jang: Yeah. I think about that every day. It's a very timely question. So I originally came from the Bay Area, and with the stock market word is, most of the people that I know played heavily in the stock market, whether it's because their company is on the stock market, or just because of their investments - I think a lot of people start investments in stock. So they're seeing their portfolio, essentially, half right now. Their net worth potentially is around half as well...
Slocomb Reed: Especially if their investments are focused in tech sectors coming from the Bay Area. Those are hit pretty hard right now.
Kathy Jang: Yeah. Exactly. And that's the case for most of the people that I know, unfortunately. And I think for me right now, it's me educating a lot of the people that I'm around. Educating them about diversification of the portfolio. Right now might not be the best time for them to be investing, but hey, let's talk about it, let's have this conversation.
So if they had diversified, and let's say, put some of their money into multifamily real estate, the dynamics of their net worth would be so different right now because the multifamily is a recession-resistant asset. And I have comparisons between performance of stocks and real estate. Real estate bounces back really quickly after recessions and it tends to be very stable, and even with where we are with inflation today - inflation is at 8.5%. So high. But you know what - with multifamily, it keeps up with inflation, because we're able to adjust all the leases, at least annually. As our tenant leases come up, we're able to bring them back to market price. And so it goes with inflation and our earnings as well with that. So multifamily has proven to be a great place to be at when we're talking about potential recessions.
And I've been really just trying to do my part in educating people about it, because I think for me, that's one of the pleasures of being in multifamily. It's not just about growing my own net worth, but helping other people as well. And for me initially, it was also about the lifestyle. I was in W-2, but it was hard to have the time flexibility that I wanted. Being in a W-2 and being in multifamily and being a full-time real estate professional has allowed me to have a lot more time flexibility. So all of that, I've tried to educate people on in just creating passive income through recession-resilient assets and all of the positives that they should consider, especially given such a tough time that they're seeing in the stock market today.
Slocomb Reed: That makes a lot of sense.
Break: [00:13:28] - [00:15:15]
Slocomb Reed: Let's talk about the deal you have currently under contract. You said it's under contract at $40 million?
Kathy Jang: Mm-hm.
Slocomb Reed: Okay. Tell us about the unit count, unit mix. Is it class A, B, C? What's the play here?
Kathy Jang: Yeah. So it's discount for $40 million by $1.5 million, but it's a 232-unit property. The majority of the units are two-bedrooms, which we love to see, because there's a greater demand for the two-bedrooms, but it does have one-bedrooms as well. And the two bedrooms have a mix of one bathroom and two bathrooms as well. So rather large units. It's located in Tucson, right next to the Tucson mall, minutes away from the university, just right off the freeway as well. So a great location in the path of progress.
So half a block away is a SuperTarget. Very, very, very new stores and everything is building very well around there. But the property itself, probably I would classify it as a Class C+ property. And then the neighborhood is gentrifying drastically, and in the process of gentrifying currently. So we do have a lot of Section 8 tenants at this point. We will be looking to renovate the units.
Slocomb Reed: Gotcha. So a couple of things, Kathy. First, I should have said at the beginning that this is not an offering being proposed through the podcast. This is for informational purposes only. Speaking of informational purposes, I already have a bunch of questions, because here I am in the "Rust Belt" in Cincinnati, and I hear $170,000 a door for C Class two bedrooms and my brain explodes, because C Class two bedrooms in Cincinnati are at $65,000, maybe $70,000 a door, especially when you consider that they're Section 8 and you've got some renovating to do. So at $170,000 a door, when was this property developed? How old is it?
Kathy Jang: In the '80s.
Slocomb Reed: '80s? Okay. And what do the current rents look like?
Kathy Jang: The current rents are around the $600 point, obviously depending on the one-bedroom or two-bedroom.
Slocomb Reed: Gotcha. So you said it's a rapidly redeveloping area, at the intersection of a lot of gentrification. So what's the play here with regards to what you need to do to get the rents where you want them to go and what you expect those rents to be?
Kathy Jang: We typically will be doing just interior renovations. The exteriors are pretty nice as it is. So for the interiors, then, we typically focus on the kitchens and the bathrooms, so we'll be making those nicer. And then adding in amenities as well. So right now, it has some massive dog parks, it has a nice pool. We'll be adding in a gym, which will be a nice add for the tenants as well. For the in units also, we are looking to add washers and dryers, which is also very nice..
Slocomb Reed: Is that for all the units? You said "the end units".
Kathy Jang: So for the renovated units, when we go in and renovate, we'll be adding in washers and dryers, and that typically will bring us about $75 a month extra income. And we like to add tech packages as well. So tech packages in terms of locks that you [unintelligible 00:18:40.22] in and also water monitoring for water leaks. And then also just having Wi-Fi readily available for the tenants as well.
Slocomb Reed: Nice. Where are you expecting rents to be when you're with your fully-renovated units?
Kathy Jang: Just in the Arizona market, the rents typically can go to $1,200, $1,300 pretty easily.
Slocomb Reed: Okay. It sounds like on some units you'll be doubling the rents then.
Kathy Jang: Yeah, essentially.
Slocomb Reed: Gotcha. That's exciting.
Kathy Jang: Yeah.
Slocomb Reed: Nice. So what kind of cap rate based on current performance are you buying the property in, and what cap are you expecting to get it to through your own value-add?
Kathy Jang: With cap rates, it's hard to nail down, because we got it at such a discount, so whether or not we put that in... But usually, we purchase around a 4% cap rate and look to be exiting around maybe a 5%.
Slocomb Reed: Gotcha. Well, that sounds like a deal that has a lot of potential especially considering how below market the rents are currently. Kathy, are you ready for the Best Ever lightning round?
Kathy Jang: Yeah, absolutely.
Slocomb Reed: Right. What is the Best Ever book you've recently read?
Kathy Jang: Radical Confidence by Lisa Bilyeu. They actually are the owners of Impact Theory, and for me, I always just had a struggle with my confidence. And so with her, it's really framing that we really should work on our confidence, because it's not really about us, but how we can impact others should we be more confident in ourselves. So it's been really inspiring. A great read. Love it. It just came out on the market.
Slocomb Reed: Nice. What is your Best Ever way to give back?
Kathy Jang: Right now, it's educating people on passive income and the possibilities that can come with it. And I'm passionate about it, and I really just believe in it as well. So it's been a delight to help other people on this real estate journey.
Slocomb Reed: Nice. Kathy, thus far while syndicating multifamily, what is the biggest mistake you've made, and the Best Ever lesson that you've learned resulting from that mistake?
Kathy Jang: So with my first property, we went at it really just wanting to make it a better place and community for our tenants. So we went through and just gutted every single unit, we built it out as nicely as we could... But from a financial perspective, I now do understand that that isn't always the best strategy. Not everybody needs to have stainless steel or dishwashers or whatnot. It just really depends on the needs of that specific demographic.
So from a return perspective, what I've learned now is that we have to take outside factors into consideration. Where can the rents really hold, and do they really need that granite countertop? Or Formica might just be fine and it better meets our tenant profile, because now they can also have lower price and be able to live in this community and it'll still be nice. It might not be granite nice, but it'll be Formica nice.
Slocomb Reed: Yeah, that makes sense. Kathy, what is your Best Ever advice?
Kathy Jang: At the end of the day for me and what I've been learning, wealth is not just about the money. Wealth is about so many other things. It's about your lifestyle, your ability to give back. So as we continue to grow our passive income, try to take into account also the type of lifestyle that you want to create for yourself. And for me, that's part of what we should consider as wealth in general.
Slocomb Reed: Absolutely. Kathy, where can people get in touch with you?
Kathy Jang: My website is diamondpointhomes.com. All of my socials are on there; you can find how to contact me, call me. Feel free. All the information is on the website.
Slocomb Reed: Those links are included in the show notes as well. Kathy, thank you, and Best Ever listeners, thank you as well. If you've gained value from this episode, please do subscribe to our show. Leave us a five-star review and share this episode with a friend that you know we can add value to this conversation with Kathy Jang. Thank you, and have a Best Ever day.
Kathy Jang: Thank you so much.
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