Today I am presenting another written interview with Kurt Boyd. Kurt buys large houses near colleges and turns them into rooming houses for college students and young professionals. His company creates really cool atmospheres. Typically with this model they see 2x to 3x the revenue from a house that you could get by normal leasing/renting.
Check out the interview:
1. What got you interested in buying homes and renting them out to college students? Share your story.
I have two brothers, and we grew up with a single mom who didn’t work. Needless to say, we had very little money, and we didn’t always have food to eat. I knew if you do well in high school, you can get a scholarship to college. We had to fight to get into high school (our mother didn’t want us to go). Our dad sued and got custody when I was 14, and I got to go to school for the first time.
Walking through the front door of my high school, I thought “Okay, game over. I am going to be rich now. All I have to do is graduate at the top, get a scholarship, go to college, and then I’m rich.” I was very behind (I was amazed that I had to take English…we speak English, why would they teach English in school?), but I worked very hard, and I graduated valedictorian with a full ride to the University of Oklahoma. I graduated from OU with a 4.0 in mechanical engineering. I was recruited by a Fortune 5 company who moved me to the Chicago area to work. I bought my first home at age 22.
From high school through college, I dated very little and made very few friends. All I did was work and study; I could not understand or relate to my peers. Now I had a job and only had to work 40 hours/week, so I had figure out what to do with all the extra time. I didn’t know anyone in Chicago, and I grew up in small towns, so the big city really intimidated me. I stayed out of Chicago, but all the young people my age were in the city. I was lonely and very depressed. I had poor people skills, no friends, and was 100’s of miles away from everyone I knew. This was one of the hardest times of my life.
One of my co-workers mentioned that he rented out the extra room in his house for income. It sounded like a good idea, so I did the same. With the rent, my roommate paid about ½ my mortgage, and I enjoyed the companionship. My first roommate was actual an older woman (everyone made fun of that), but it was actually great because I had a terrible relationship with my real mother, so I benefitted from having a mother figure.
My older brother had graduated as an engineer as well and had joined the Navy as an officer. When he wasn’t away at sea, he would rent rooms from people on Craigslist. At one point he lived in a house where the owner had completely chopped it up so he could fit a lot of people in the house. We realized that you could double or even triple the rental income in a house if you got enough bedrooms and rented them by the room, but we envisioned a nice place where young people would really want to live.
My brother got out of the Navy and started working for a cruise line. He wanted to stay in Miami, but he was making ½ what he should be making as an engineer. At the same time, I was getting laid off from my job. I was just finishing my MBA, and I was passionate about starting a business. Growing up with nothing (sometimes going hungry and sometimes staying in homeless shelters), losing my job made me feel vulnerable and weak; I was just one step away from being poor again. I was determined to create my own business and never worry about money again.
Seeing that my brother was not happy in his job, I started talking to him about starting a business. We decided to buy a large house near a university in Miami, convert most of the house to bedrooms, and rent the rooms to college students. We combined our life savings and bought a house (we call it H1). I sent most of the money while my brother did all the physical work. A year later, we bought a bigger and better house (H2). My brother was able to quit his job and work on the business full time. Soon we bought house, H3. Last year, we bought a massive 5000 square foot mansion (H4). We are working on H4 now. We plan to remodel it so that it has 17 to 18 bedrooms. It has an olympic size swimming pool and over ½ an acre of land. It’s going to a really amazing place to live.
I know how hard it is to move away from everyone you know (whether to start a new job or go to college). We design our houses to be the perfect place for people far away from home. The houses have swimming pools, Jacuzzis, pool tables, and outdoor grills. We design them so people will hang out, make friends, and enjoy living there. Our favorite customers are international students and young professionals who just moved to the area. They really appreciate moving in and instantly making a lot of friends. They also save a lot of money and not just on rent. Instead of going to the bar, they hang out with each other at the house. Even after roommates leave, they stay in touch. People make life-long friendships in our houses.
What are some of the biggest challenges you face as a land lord?
We have 9 to 12 people living in a single house. Making sure everyone gets along is a challenge. We believe that people are innately friendly and want to be considerate and contribute. We pay a lot of attention to minor things that can cause arguments or conflict, and we find ways to eliminate them. We have developed a fairly rigorous method for choosing roommates, and each house votes in a new roommate. We have found that our roommates can make really insightful decisions when choosing a new roommate, so we really pay attention to their opinions. We pay attention to personality types, and we make sure we don’t put two personalities that will clash in the same house.
It took several years to get this right, and we learned by making a lot of mistakes along the way. Today the atmosphere and energy in each house is awesome. Prospective roommates meet our people and want to live there without even seeing their room first!
Other than that, my brother had to learn a tremendous amount about remodeling houses, building codes, electrical work, plumbing, and so on. He has spent 1000’s of hours researching and learning, and he has spent 1000’s of hours remodeling and improving the houses. He has always loved working with his hands and enjoys the work, but neither us had any idea how much work would really be needed.
3. Do you ever have any challenges finding tenants for the homes you own?
No, we actually have a waiting list. When someone moves out, we fill his/her room in a few days. There is an extremely high demand for what we offer, but most of our potential customers don’t know we exist. We are trying to find a better way to market what we are doing. We use Craigslist a lot, but most rooms for rent on Craigslist are weird/creepy (do you really want to live with a family and be the odd guy/girl out?). We would like to distance ourselves from Craigslist, and we believe if we market better, we can charge a much higher price because we are offering tremendous value. We have found that roommates who are willing to pay more tend to be better roommates. In addition, we can afford to make the houses nicer and offer more perks (ping-pong tables, foo’s ball Tables, really nice furniture, throw parties, etc) with the extra money.
4. How quickly did this business grow for you over time and what was that like for you?
We have been buying a house every year since 2011. In 2011, there were a lot of foreclosures and other good deals on the market. Over time, we have become very selective about the type of house and neighborhood we will buy in. For example, you need the ability to park 10 cars or more out front; that eliminates a lot of houses. House prices have continued to go up, and it’s becoming much harder to find houses that will work and make an acceptable return. The “mansion” we bought in 2014 was a reo, and is a huge project (there were massive holes in the roof. You could enter the house from the roof if you wanted to). We would not have had the courage, expertise, or money to take on such a project even a year earlier.
5. What are your future plans for 2015 and beyond?
We have reached a point where we must hire managers and workers if we want to continue to grow this business. My brother cannot manage everything, find houses, develop plans for them, and remodel them on his own anymore. Hiring and managing people is yet another job and skill set. It is very hard to find people that want to work hard and create value. In life, you have to pay it forward. First you work hard, and then you get paid. First a monkey climbs a tree, grabs a banana, and then the monkey eats the banana. Most people today want to eat the banana before climbing the tree to get it.
In 2015, I am focusing on investing in online businesses, and I anticipate that we will focus on online business in the future. With that said, I believe in “locking in your wealth” in real, physical, hard assets that also produce money (even if the return is small). Right now, I don’t know of anything better than real estate for “locking in wealth.” It’s another topic, but I don’t want to hold too much cash or anything else that can simply be printed out of thin air ad nauseam.
At the same time, we are really making a difference for people with these houses. We are creating tremendous value, and we cannot meet the demand (we got a lot of new roommates by word of mouth). We have also developed a lot of knowledge, experience, and skill in this business. We will find a way to leverage all that moving forward.