Sam and Daniel Kwak, known as the Kwak Brothers, scored their first rental deal in 2017 — a portfolio of four single-family properties in Illinois. By the end of that year, they had accumulated 75 rental doors.
At the time of their first deal, the brothers didn’t have the money to make traditional purchases, so they looked to owner financing — an arrangement that allows the buyer to acquire the property via monthly payments to the seller.
“One of the biggest myths that people have is that they need money to invest,” Daniel told Business Insider. “We immigrated to this country in 1999, and our family had very close to nothing.”
When they first got started in real estate, Sam was 21 and Daniel was 19. In fact, Daniel told Business Insider that he had a negative balance in his bank account, but the drive to succeed and learn about the industry kept him going.
“We had absolutely no money to do deals, but you know, I noticed that I was very good at networking,” Daniel said. “I would literally go around asking people, ‘Hey, what’s the No. 1 challenge I can help solve for you?'”
Soon after, he began connecting two types of people: those who had great deals but no capital and those who had capital but didn’t have the time, knowledge, or team to get deals done.
“That’s how we started learning, by doing,” Daniel added. Eventually those connections led to their first deal. Then they started going after multifamily buildings by raising capital from people looking for tax benefits and solid returns on their money. By the end of 2017, most of the 75 rental doors they had accumulated were apartment units.
Since then, Sam and Daniel Kwak have used their platform to educate and empower people in the real-estate industry. Sam is the host of the “Landlording Automated” podcast, and Daniel is the host of the “First Deal Experience” podcast. They also offer educational courses on how to be an effective rental-property investor and are launching a book on June 11 detailing their journey.
In an interview with Business Insider, the brothers walked through their story and laid out an eight-step guide on how to become a successful beginner landlord.
If you want to be a good landlord, Daniel said, you have to understand that it is a business, not a hobby. That means implementing a system, following steps, and being proactive instead of reactive.
“That mindset will give a far better chance of becoming a good, ethical, moral, yet profitable landlord,” he added.
Figure out what your financial goals are
How do you find a good deal? That’s the thing everyone wants to know, the brothers said. But it’s not an easy question to answer.
“A good deal for me may not be a good deal for you,” Sam said.
The first step is to figure out why you want to get into real estate and, more specifically, landlording.
Find a local landlord who can mentor you
Finding a local landlord who has been in the industry for a long time is crucial because they can help you gain knowledge and awareness of the market.
Take them out to lunch and ask them about their story, Sam suggested. “The idea is to get the right expectations. I think one of the biggest mistakes that people make when first starting out on this real-estate-investing journey is they don’t have the right expectations,” he said.
Source out a good deal
The brothers suggested looking for off-market opportunities.
“There is so much competition and cheap capital happening in the general popular market space that it’s overinflated,” Daniel said.
To find good off-market deals, Daniel added, you need to be both active and passive.
Daniel said that early on in his career, he would go around and call all the buildings that had “for-rent” signs outside and ask the owners if they would be interested in selling. Another trick, Sam added, is targeting signs that are handwritten because it indicates that the building is owned by a person, not a property-management company.
In addition to going out into the field and finding deals themselves, the brothers said the relationships they’ve built and maintained with local property managers have landed them many deals.
“Whenever somebody wanted to sell, they would notify us,” Daniel said.
Put together a team
Before heading into any deal, you need a team. According to the brothers, it should include a reliable maintenance or repair worker, an attorney who practices real-estate law in the area you are buying in, a mentor who can walk you through the process, an insurance agent, and a certified public accountant with expertise in real estate.
“A lot of people don’t talk about the tax benefits that real estate can bring. And people don’t realize that if they were to switch their CPA to someone who knew real estate a lot more, they could save potentially tens of thousands of dollars in the long haul,” Daniel said.
Look for red flags when touring a property
When touring a property, the big-ticket items the Kwaks look out for include the lifespan of the furnace, the roof, and the water heater.
“If you’re looking at a single-family house or a duplex, and you have to replace the furnace, that may be an entire year’s worth of cash flow,” Daniel said.
When touring a property you are interested in buying, it is important to bring your property manager and/or a contractor who will be working on the building. These people will be able to point out issues with the building you might not notice on your own.
When negotiating the deal, identify the problems and provide the solutions
Once you’ve found a property you’re interested in, it is important to go into the negotiation process with an open mind.
“I share this formula with a lot of my students and a lot of my clients,” Sam said. “Find the people, identify the problem, provide the solution, bring the value, and then you monetize the value.”
Keep asking why until you have all the information you need about the seller’s financial circumstances, he added. Once the problems are identified, and solutions are provided, the rest is usual smooth sailing.
For example, if you’re negotiating a deal using seller financing, and the seller needs a lot of money down to pay off commissions, expenses, and the like, ask for a lower interest rate. Sam said he has found that if you are able to address a seller’s main problem, they are typically more open to finding ways to compromise.
“Go collaborative, not competitive,” he said.
Get a copy of the existing lease or leases
In addition to looking at the existing lease, it is important to find out if there are any existing promises that the previous landlord has made to the tenant or tenants.
It is also important to track down where the security deposit is. This can cause a problem down the line when it is time to for a tenant to give the deposit back, and you have to get in touch with the old owner.
Visit the property once a week
The first property will teach you the most, Daniel said. That’s why it’s important to make sure you live near the property so you can visit it at least once a week.
In addition, the brothers suggest not rushing into the next deal. In fact, they suggest you wait about three months before you buy a second property so that you have time to take in the experience of being a first-time landlord.