Matt Kontoff left his successful 30-year career as a software engineer to pursue multifamily syndications just a couple of years ago. Today, he is the principal and founder of Redwing Capital, which focuses on multifamily syndication. He is a GP of 43 units and four duplexes and an LP of over 1,000 doors.
In this episode, Matt discusses why multifamily investors should be interested in the Columbus market right now, how his skills as an engineer have transferred over to deal analysis and asset management, and how he learned firsthand that the devil is in the details.
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocum Reed and I'm here with Matt Kontoff. Matt is joining us from Acton, Massachusetts. He's the principal and founder of Red Wing Capital, which focuses on multifamily syndication. Currently GP of 43 units, also has four duplexes and is an LP in over 1,100 units. Matt, can you start us off with a little bit more about your background and what you're currently focused on?
Matt Kontoff: Sure. My background is in software engineering. So I'm a recovering software engineer. I left that a couple of years ago, after a very successful career for over 30 years. And now my focus is multifamily syndication, commercial properties, 20 units and above. And over the last couple of years, I've invested in over 1,000 units, mostly passively, except for the 43 that you mentioned as a co-GP in Columbus, Ohio. So that was pretty cool to be part of that GC team. And right now my focus is acquiring my next property, which could be either in Huntsville, Alabama, or Columbus, Ohio.
Slocomb Reed: Nice. I'm a Cincinnati, Ohio guy. Tell me about your Columbus deal. That's the 43 units you currently are in the GP of?
Matt Kontoff: Yes, so the property is called 43 at New Albany, actually in Columbus, but it's right near New Albany, which is the location where Intel is building their huge fabrication plant. They're going to spend $20 billion dollars on this thing.
Slocomb Reed: Nice.
Matt Kontoff: So there's going to be lots of opportunity for jobs and job growth and construction jobs... And that whole area is growing. So it's good to be near there.
Slocomb Reed: Nice. And then within your general partnership, what were or are your responsibilities?
Matt Kontoff: So I'm responsible for analyzing the deals and getting the deals, looking into them and seeing if they pencil out, and if they pencil out, to make offers. My team and I have made a bunch of LOIs over the last couple of years now, and we've come close on a few of them. So as an engineer, my strengths are in the numbers and in the details. The devil is in the details, so that's where I excel.
Slocomb Reed: Gotcha. Matt, that makes a lot of sense, given your background; that work is primarily before you close on a deal, preparing the LOI and getting into underwriting. I imagine you're involved in the due diligence process as well. Are you playing any role in the execution of the business plan after you have acquired the asset?
Matt Kontoff: Yes, asset management's also one of the strengths of mine. I don't know if I mentioned, but the first property that I owned was back in the '80s, with my dad. He and I went in half and half on a fourplex in Boulder, Colorado... And he put up the money, and I managed it, and I learned a lot from doing that. And then since then, I purchased a couple of duplexes, I have managed those myself... And I really liked the duplex, because we have a great tenant next door. We actually live in one half of them.
Slocomb Reed: Oh, nice.
Matt Kontoff: Yeah, we did a house hack. We actually downsized from a larger house, and then did a house hack and moved into one side, and the whole place was a mess. We gutted the whole thing. So that's where we are now. So the other part of that is I also volunteered for my local synagogue as a VP of operations. So that in and of itself was more like a commercial management role.
Slocomb Reed: Gotcha. Nice. Yeah, my wife, daughter and I live in a very similar house hack situation. 250-year-old townhomes, but the other half is two units, so we get two rents coming in to cover us. Cool. So you have your duplexes; those are there in Acton?
Matt Kontoff: Yep.
Slocomb Reed: Gotcha.
Matt Kontoff: I only have one of them now. I actually sold one of them a long time ago. I had the duplex, and we moved across town to a larger house, and a lovely neighborhood, which I miss. But at a certain point, I just sort of got burned out. I was working in tech and in a startup for 60-80 hours a week, and didn't have time and energy to manage the duplex at the same time, so I sold it. I wish I'd kept it, I wish I'd held on to it, I wish I'd just sucked it up and managed it... But alas, it's not to be.
Slocomb Reed: So let's talk more about your Columbus deal, the 43 at New Albany. When did you close? And you said, of course, that Intel building, their new facility locally is part of what's going on there. Is that part of what attracted you to the deal in the first place?
Matt Kontoff: So we closed early July. I came in a little bit late on the deal to help raise capital and be part of the asset management team... And I really was appreciative of the opportunity to raise capital, and it was in my target market, so it was really appealing to me. Plus, Intel - it's just a growth story. And one of the main factors of deciding where to invest is job growth. So this is a huge, clear path to job growth, and growth in the area in general.
Slocomb Reed: And when did you guys close?
Matt Kontoff: I think it was July 7th...
Slocomb Reed: So just a month ago.
Matt Kontoff: Yeah.
Slocomb Reed: Gotcha. Will this be your first time being involved as an asset manager in a general partnership?
Matt Kontoff: Yes.
Slocomb Reed: Gotcha. So what is the day to day, or I guess I should ask week to week of your asset management going to look like?
Matt Kontoff: So we have meetings every week, we get together with the management team, plus the GC team... And right now, we are attempting to fill a couple of the units as short-term rentals. They're furnished, and hopefully, we can get a bit of a premium for them... And we have four vacancies right now; we're trying on two of them to do the short-term rental thing, and we'll see how that goes. So that's one thing. Other things are just menial kinds of things, where some pet owners aren't being very good about cleaning up after their pets, that kind of stuff, the day to day stuff.
Slocomb Reed: Yeah, there's a lot of little stuff. I'm an active owner-operator of apartments here in Cincinnati, so I get to deal with the dog droppings and the tenants who complain, and telling the tenants to address their own issues with their neighbors before they try to get us involved. Those are day-to-day conversations for me and my portfolio as well. I personally though am steering clear of short-term rentals at the moment; my growth is in other directions.
I used to have short-term rentals in really trendy parts of Cincinnati. I've actually leased those out to arbitrageurs. In one case, I actually sold her my furniture, gave her my photography, and just handed her the reins and said "This is yours. Now you put it on Airbnb and pay me rent." You said you guys are doing short-term rentals with some of your units. Are you using the same management company for that? Do they have the same expertise? Or did you have to find another company?
Matt Kontoff: Yes, we're using the same management company. So I find it interesting that you sold the furniture to your arbitrage company; it makes a whole ton of sense, because if something goes awry, then it's their responsibility, not yours.
Slocomb Reed: Well, I'll say from an operations perspective, Matt, that I didn't have the scale. I had recently let go of a team member who part of her role on my team was to handle all of the operations of the short-term rentals... And I let her go because I wasn't ready to hire her and empower her for the responsibilities that she needed to have at the time, in order to justify a full-time position, and part of it was handling the Airbnbs. So when I let her go, three Airbnb units, and all of the operations involved in the day to day of those was not something I was ready to take on.
So yes, I've found some arbitragers... Those are tiny apartments, with some peculiarities that don't play as well in the long-term market, so it made the most sense to keep them short-term, but I didn't want the work, so I reached out to some arbitragers, people getting into Airbnbs that I knew, and I offered to sell them at steeply discounted - because now this furniture is quite used - just to sell them everything. Because the apartment already had everything it needed, and the decor and all of that. "Just pay me rent [unintelligible 00:08:51.14] the forks, the bowls, the towels, all of that. I just let them take it over from there, so that I didn't have the responsibility.
Matt Kontoff: It makes sense. So in that regard, I also have some short-term rentals in Vermont that I rent. We have a ski house at the base of Mad River Glen. We use in the winter, I'm an avid skier, and so we actually rent it almost every weekend in the summer, because there's so much to do in the valley. There's biking and hiking, and there's art festivals, and music... So it's busy just about every weekend, and there's a lot of weddings in this area as well, in the valley.
And then the other house that I inherited from my dad - my dad was in real estate, he retired early and built this house 50 years ago... But anyway, it's this beautiful house, with a beautiful view... So we rent that out in the winter, and we use this key house. So we go back and forth, and we actually use both of them as well. So we use the other house in the summer.
Slocomb Reed: Nice.
Matt Kontoff: Yep, it's awesome. So the only thing about -- it's really just one short-term Airbnb property. My wife manages that with bookings, and then we just have a cleaner come in after everyone. And if anything breaks, I usually fix it myself.
Break: [00:10:10.10] to [00:12:05.16]
Slocomb Reed: Well, I want to talk more about your experience as a limited partner, given your background in software engineering, but in analysis and understanding numbers... How did your background as a software engineer inform which sponsors you invested with and which of their deals you invested in?
Matt Kontoff: It's an interesting question... It doesn't really inform which sponsor I select, because whatever sponsor you talk to, it's all in the soft skills and whether you have confidence in them to do the job and to do what they say they're going to do. They'll obviously put together an OM, an offering memorandum, with numbers, and I'll use that to analyze whether or not that deal is a good deal. I mean, I'll even do my own due diligence in the area, I'll look at comps, I'll look at sales, I'll even talk to folks in that area to see what's going on, if that area is turning around or if it's going down... But the main thing is having faith and trust in the actual sponsor themselves.
Slocomb Reed: Gotcha. Let me ask - we're recording in August of 2022... Are you still looking to join deals as a limited partner and bring your capital?
Matt Kontoff: No, except for one deal.
Slocomb Reed: Gotcha. Well, what was so special about the one?
Matt Kontoff: Well, just one deal... It's an overseas deal in Indonesia. A friend of mine approached me with this deal, and it looks amazing. I couldn't say no, so we're investing together in that one. It's just the three of us as partners; I'm going to be mainly a passive partner. They're going to build some villas and some cottages; the villas will be sold, the cottages will be short-term rentals... So I'll get my money back in a year and a half, my equity back, and then it's just after that [unintelligible 00:13:59.24] infinite returns.
Slocomb Reed: Nice. Matt, through your experience as an LP vetting sponsors, it sounds like you were doing some of your own analysis on those deals, doing your own research into the market and sub-markets. Now that you're transitioning into being a general partner, thus far in your experience with this deal in Columbus, and your role in the general partnership, what's been the biggest learning curve?
Matt Kontoff: So at this point, I'm sort of listening in on the call just to see how the other asset management team manage the whole thing. And I'm a bit of an introvert, so I'm not kind of just jump out there and just sort of try to manage the property management team... So we have one person who's the lead asset manager, and I'm just helping him out. Basically. If that makes sense.
Slocomb Reed: Gotcha. Well, Matt, are you ready for our Best Ever lightning round?
Matt Kontoff: Yes.
Slocomb Reed: Awesome. What is the Best Ever book you've recently read?
Matt Kontoff: I wanted to say Think and Grow Rich. It's a really old book, but it has some great nuggets in it.
Slocomb Reed: I just went back to a recently as well. What is your Best Ever way to give back?
Matt Kontoff: So I do a couple of things, basically around feeding and food, and such. I volunteer at a local food pantry. I also volunteer with some folks from my synagogue, every fifth Wednesday we cook a meal for the less fortunate folks. That's a lot of fun, because you're in the kitchen cooking, and hanging out with your buddies. And then my brother has his own gig, feeding the homeless every day; every single day he gets up and he collects stale food, he makes sandwiches, he makes coffee, and brings treats and fruits and stuff to the homeless in Boston. And he does this every single day. And he just became a nonprofit.
Slocomb Reed: Nice.
Matt Kontoff: So his strength is getting the food and bringing it to the people and setting up stuff... But his technical skills are not so good. So I help him with his webpage, and I helped him get the nonprofit, and help with his banking and stuff... So that's how I support him. I actually job-shadowed him for a day, and it's a lot of work. He's out there every day. It's just a lot of physical labor. He's basically there six days a week, all throughout the year.
Slocomb Reed: Gotcha. Matt, this far in your commercial real estate investing career as an LP and a GP, what is the biggest mistake you've made, and the best ever lesson that resulted from it?
Matt Kontoff: So the hardest thing that I had to deal with was when we house-hacked our current duplex. So we had sold the big house that we lived in across town, and we moved back into a duplex... And at that point, I felt like I was starting over again... Because we had another duplex, and I sold it, because I got burned out, I guess... And my biggest regret was selling it and not holding on to it. So the biggest lesson is buy and hold.
Slocomb Reed: Gotcha. And what's your Best Ever advice?
Matt Kontoff: Pay attention to the details; the devil's in the details. We actually did a due diligence on a property in Columbus this past January, and we found out that there were two vacancies more than they had advertised. And this was only a 24-unit property. It was actually mixed-use, and one of the two retail spaces was just a gray area. It was totally not prepared or ready for anyone to move in anytime soon. So those two things sort of pushed the deal over the edge for us and made it untenable.
So it's those things, the details to make sure that you're not going down the wrong path. And that way, your investors are protected, which is the most important thing.
Slocomb Reed: And where can people get in touch with you?
Matt Kontoff: I'm on LinkedIn, Matt Kontoff on LinkedIn. I'm the only one there. Or email Matt [at] Redwingcap.com.
Slocomb Reed: Nice. And those links are in the show notes. Matt, thank you. Best Ever listeners, thank you as well for tuning in. 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 you know we can add value to through the conversation that we've had today. Thank you, and have a Best Ever day.
Matt Kontoff: Thanks, Slocomb.
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