Real Estate Nerds 72: Bad Beats

Buy into Existing LLC’s At Your Own Risk

Mark Kenney

Investor

Listen to the Podcast Here:

This week’s guest Mark Kenney shares his bad beats story. It all started by working with a
partner he had done deals with before, syndicating the deal and raising capital from other
people. Tune into this week’s episode and learn from Mark’s mistakes in sniffing out a con artist.
When these deals go south it is generally not a problem with the property but with the people
involved.

[00:00:31] – Introduction to the Real Estate Nerds podcast and Mark Kenney’s Multifamily Investing Bad Beats.

[00:01:16] – Mark started buying small multifamily in Michigan while still in college. He knew he wanted to buy real estate and graduating with a degree in accounting. He then started an IT company but he was working his life away. In 2013 his wife suggested he do something else. So he really started focusing on his multifamily business in 2014. He did some syndicating. He is now in 5 states.

[00:03:25] – Mark shares his bad deal experience. It all started by working with a partner he had done deals with before. This partner already owned the property. He wanted to buy out another partner. Marked wound up syndicating the deal and raising capital from other people and investing money from himself in the deal. When these deals go south it is generally not a problem with the property but with the people involved. It was after they began the rehab that Mark took a flight to Atlanta to check on the progress. He noticed things were not progressing as they should. So the partner was asked by the Board of Directors for a status update that to this day they have never gotten. Within two months they discovered they bought into an existing LLC and had to remove the shady partner from the LLC and that is when everything went south. They started getting liens and vendors not getting paid. The LLC had more indebtedness than originally thought.

[00:9:20] – Syndicating the deal through a PPM (Private Placement Memorandum) where they discuss the business plan and the current situation as misrepresented. “It doesn’t matter what you have in writing, people still do bad things.” That was the situation Mark found himself in. It could have all been avoided if a new LLC was created.

[00:11:04] – Mark discusses the background of the partner and how he went to church with his twin brother. Most people had nothing negative to say about the partner who is now deceased. Many people who knew this person never had a bad thing to say about him so his deception was unexpected.

[00:13:07] – Mark explains how sniffing out a con artist is not an easy task. He came across squeaky clean. Having a corrupt partner changes the way other partners do business moving forward. Some investors chalk it up to a learning experience while others refuse to do business anymore. It’s all part of the fallout of having a shady business partner.

[00:17:27] – After taking a survey for the property, they listened to the investors on how they wanted to proceed based on their ownership. That is the downside of syndication. You don’t have to go the direction of where the majority of the vote leads you.
[00:18:33] – As a result of the bad deal, Mark became more leery about who he partners with and now very few things phase him. You develop a thick skin and avoid sugar coating things.

[00:20:03] – Mark makes sure investor stay abreast of the situation. You can’t hide things. Sometimes he’s a little too blunt and tends to tell investors exactly how it is and that can freak out people. “You can still be blunt with investors as long as you have an action plan in place.”

[00:24:03] – Mark doesn’t guess anymore. Mark’s biggest lessons learned from his worst deals are not buy into existing LLCs and to take each deal slow. Don’t be too eager to get involved in a deal. Make sure you ask the right questions upfront.

To contact Mark you can reach out to him via email at mark@thinkmultifamily.com

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