Invest in Apartment Living – With Palmi and Nancy – the Kitti Sisters

Palmi and Nancy Kitti started their career in fashion manufacturing, earning good incomes. But their business was dependent on one source of income. One evening they got a notification saying their primary customer was shutting down all their retail stores.

“And just like that, our sense of security just vanished,” said Palmi. “95% of our income was tied to this company, and then shutting down all their stores meant our income evaporated. So overnight we went from a really successful fashion manufacturer to … we don't have income. So we actually had to act very fast. And that's when we started diving deep into real estate investing, because it's an industry that we feel that can truly create long term wealth.”

They started flipping houses in Los Angeles.?

“But the problem was, we were still trading a lot of time for money,” said Nancy. “We didn't want to be in that hustle culture anymore.”

“That’s when we got introduced to commercial real estate apartment investing,” she said. “And through that, we started doing apartment syndication.”

While they didn’t have any background in this arena, they soon came to the realization that they could apply the same skills they knew from their time in the fashion industry.

“Real estate apartment syndication and fashion manufacturing is pretty much the same thing,” said Palmi. “You either manage the factories, buying buttons and all those details, or you're managing property management and the maintenance teams, etc. So for us, we felt like our business acumen can translate. We just needed to pick up the knowledge about multifamily. And that's what we did as we started first passively investing in multifamily.”

“Our focus is: how do we create passive income? And how do we gain that knowledge as we start becoming passive investors?” said Palmi.?

They started researching the best vehicle for them to grow.?

“That's how we started passively investing in other people's deals,” she said. “We were in an LA bubble. And previous to that we didn't know that there's markets outside of Los Angeles that were thriving. Honestly, we were pretty ignorant at that point. So, as we’re passively investing, we figured out, oh, Dallas is hot. Phoenix is hot. Atlanta, Houston, Nashville, all these cities that we never knew were doing well.”

They started passive investing right away and felt like they were getting paid to learn along the way.

“We’ve invested in a lot of these deals,” said Palmi. “And I feel like the knowledge gap isn't that wide anymore. And so we were like, flipping is nice, but we're still trading a lot of time. And we're dealing with the contractors, the city, all these things that are really not fun, these headaches that we don't want to deal with anymore.”

That’s when they moved to apartment syndication, where “you actually don't just help yourself, you actually help your passive investor – your tribe,” said Palmi. “And that's what we kind of want to go after is not just us, but actually helping other people's creating that financial security through apartment syndication.”

Today, after just a short time in this arena, they now have over $200 million of assets under management and recently completed a $70 million capital raise.

They shared their 3-step process.

The first step is to always know about your investment goals.?

“What we mean by that is to know how much cash flow you want to actually produce a month,” said Nancy. “That's what we call the freedom metric. It is the number in which your cash flow covers the expenses of your bills, like either car payment, credit card payment, big expenses, everything else. So you need to define your goals.”?

The next step is to go out and have the investment details

“Meaning, what market to invest in?,” said Nancy. “Is it gonna be like the Palms, Dallas, Houston, Phoenix? Who's going to be your team? I think that's most important is who's going to be your team … You need to actually get to know, like, and trust and most importantly, see their track record. Try to see their track record and go with your gut feeling because you're not investing all your money into their deal. You're kind of just testing it out. You need to have money that you're willing to risk, right? Because any investment, there's still risks.”

The third step is finding your fund. This means how much cash is going to be there when you retire, plus other benefits, including tax benefits.

They also believe the recent increase in interest rates is helping to create a buyers market.

“If you already own the asset, inflation really helps you or the value appreciate,” said Palmi.??

The interest rate hike has allowed them to purchase other properties at a lower price.

“We're going back now and we're saying like, look, whatever price you thought you could sell the property for in January 2022 that price doesn't exist in July or August of 2022.”

So they might ask for a 10% discount or whatever makes sense

“If we buy a property for 10 million, and we get them under contract for 10 million, and we ask for a discount – they gave us a $2 million discount, it's now 8 million. Yeah, the interest rate right now is five plus percent. But we have the option to refi in a couple years and drop that down again,” said Palmi.?

Interest rates will come down, she said, but that price discount of 2 million, they can’t come back and ask for that back.

“So this is the best time to invest,” said Palmi. “Because you can get discounted prices.”

To watch or listen to Dan Lesniak’s full conversation with the Kitti sister, check out Episode 386 of the HyperFast Agent podcast.