Episode 625-Mark Khuri

Gabe Petersen (00:02.323)
All right, we are back with another episode of the real estate investing club. I hope you guys are having a great day, great week. It is still the beginning of the year. So I hope you guys are crushing it already getting off to a good start. I know I have at least I got my workout in. So that’s what matters most. It’s still kind of early in the day and it’s only the second day of the year. I’m, we’re doing good so far, but it’s a good day for a second reason. Cause we have Mark Curry with us on the podcast from SMK capital management.

Mark is our SMK Capital Management. are a private equity firm in real estate. So all you guys, if you’re interested in the investing side and not necessarily the active GP side, but understanding how things work on the top level, finding sponsors, that kind of thing, then this is the episode to listen to. So Mark, I am super excited to jump into it. Thanks for hopping on.

Mark Khuri (00:52.844)
My pleasure, Gabe. Thanks for having me.

Gabe Petersen (00:54.991)
Absolutely. I told you before we got on here, we always like to start with stories. We like to hear how people got to where they are. So why don’t you take us back to the beginning of your story in real estate and tell us how you got here.

Mark Khuri (01:06.936)
Sure, yeah, I’ll keep it brief, Gabe, but my real estate beginnings kind of started when I was a kid. My father and mother owned just some apartments in upstate New York where we’re from. And it really started by counting the coins on the family room floor at night from the laundry machines, right? And so we’d have to put them in the sleeves so you could deposit them in the bank, right? This is probably in the 1980s. it’s been a while, but it’s always been around us.

And I actually got my formal start in 2005 before the recession started investing in real estate, predominantly single family, residential, small multifamily, partnered with my family members for a few years, buying mainly distressed assets, Gabe, directly from the bank during that time through the 08, 09 recession. This was all while working full time in finance and,

Gabe Petersen (01:56.371)
Mm.

Mark Khuri (02:03.074)
We built a small portfolio by 2010. I was hooked into real estate, left the W-2 in the finance world and that’s what 15, 16 years ago now. so the rest is history as they say, but that’s really the beginnings and how we got started and then formed our company in 2010, SMK Capital Management. SMK is my father and I’s initials. So we partnered and kind of grew up into the more commercial real estate space that we invest in today.

Gabe Petersen (02:32.999)
Very cool. Yeah. And when you hear about the 2008, 2009 time in history in real estate, there’s always like, there’s the good and the bad stories, the people who were kind of, you know, they, they, they were overexposed in that time and they had a rough go at it. But then there was also the people who realized the opportunity, saw what was there and took advantage. So it sounds like you guys had really had a good opportunity there and you’re able to come out looking well. What kind of assets were you actually buying at that time?

Mark Khuri (03:01.42)
Yeah. Yeah. mean, part of it was, was, you know, beginner’s luck, if you want to call it that, but we, we were basically buying, you know, beat up boarded up houses from the bank direct, you know, all cash purchase, single family. And small multifamily 12 units or less from, you know, call it 2008 till 2012, that period of time where you could buy things at 50, 60 % off what they were previously sold for just a few years prior. So

Gabe Petersen (03:11.283)
Single Family.

Mark Khuri (03:28.044)
You know, it didn’t take a genius at the time to know that you could buy low. And at the same time, we were very picky in particular and nervous and scared. know, the wheels were falling off the bus around us in many different markets, industries, areas. And so it was a scary time for sure. A lot of fear and uncertainty. But, you know, some of the buys back then, you just, you never see those prices again, of course.

Gabe Petersen (03:52.135)
Yeah, yeah, but every single market has its opportunities. There’s always opportunity out there, including what we’re in today. So since then, you guys have kind of shifted from the active investor GP model where you’re going out buying your own deals, and you focus more on the private equity side where you’re placing capital. Tell us about that transition. How did it go? And what were some kind of insights that you learned along the way?

Mark Khuri (04:15.95)
Yeah, yeah. So, you know, I’ll mention this. We were active GP from formally 2010 to 2017 on just about every deal that we provided our investor network. But at the same time, myself and some of my family members were diversifying our own personal capital, Gabe, as LPs into other deals, right? We got into mobile homes and self-storage and we invested in, honestly, about a dozen different asset classes within real estate, including

oil wells and student housing and vacant land and short-term notes. We did that from 2010, 2011 till 2017. So we had built up kind of two business models. One formally was an active GP and then also with a personal capital as LPs. And we just compared a contrasted risk reward, operators, sponsors, real estate sectors. We had a good amount of data that we could

essentially pull a thesis from for the next 10 years or so is what we were thinking. Cause in 2017, there was a lot of writing on the wall that, perhaps the low hanging fruit that we had been buying in the single family, small multifamily space was, you know, coming to an end, right? Those deeply discounted foreclosures, audio, short sales, margins were getting squeezed, competition was increasing. And so we pivoted to what we continue to do today, which is

partnering with operators and different asset classes that we know, like, and trust, and raising capital from our investor network, either as an LP or co-GP or JV structure, really with the focus of diversifying, right? We wanted to spread our risk out across people, different operators, geographies, real estate sectors, strategies, income, growth, you name it.

really with more of, I would say, a lower risk strategy. And so that’s consistently what we do today as well.

Gabe Petersen (06:20.059)
Nice. So you mentioned, mean, you guys have a lot of data like experiential data to pull from you’ve gone done your own deals. And then you’ve invested in multiple you said a dozen different asset classes. With all this experience, it’s really good, you know, for the listeners and for anybody just starting out or who wants to improve their own operations. To hear what were the best elements of all the different, you know, asset classes that you saw what

which ones kind of stood out to you as the ones that you prefer and that you see really long term growth with and which ones are the ones that you’re like, I’m going to stay away from those I’ve been burned too many times.

Mark Khuri (06:56.152)
Sure, I’ll start with what we stay away from, Gabe. The list is a lot longer, but… And really it comes down to risk versus reward. And so we’re constantly assessing risk and risk comes in lot of different… With different faces, comes from people risk, strategy risk, operating partners, of course, but also real estate sectors and whether or not they’re correlated to the overall economy.

the stock market, you name it. And so we try and find those that we think have the lowest risk with a very attractive return. So what we stay away from right now is new construction or development, high risk, not such high return in my opinion for the amount of risk that you take.

Gabe Petersen (07:33.927)
Hmm, interesting.

Gabe Petersen (07:40.148)
That’s a, and I don’t want to take over here, but it’s interesting that you say that because new construction is the thing that at least from my, know, I’ve had 600 people on this show. And from my understanding of where a lot of investors stand is that they see new construction as kind of the gold standard for returns in terms of like, if you want to get, you know, 30 to 20 to 30 % IRR, you’re, you’re doing new construction, but you, you feel like the risk that you take in investing in new construction outweighs that

potential return that you could see.

Mark Khuri (08:12.426)
I do. Yeah. Predominantly, I’d say the last couple of years, obviously interest rates have gone up and the amount of development risk out there from an execution strategy. We always look at a deal, Gabriel, ask ourselves at the end of the due diligence process, do we feel a lot of conviction that this deal has a very high likelihood of meeting or beating the projected return? And we constantly find ourselves saying no on many of the new construction development deals out there.

And so that’s essentially how we think. Also importantly to note, we do have a focus on income. We like to have passive income. We like to have cashflow and distribution starting in year one. so doesn’t mean we won’t do a development deal just because of that, but it just doesn’t really go into our buy box for some of these reasons.

Gabe Petersen (08:52.591)
Ashflow, yeah.

Gabe Petersen (09:03.281)
Yeah, no, that I mean, that is my hard and fast rule. If I’m not making money on day one that I don’t want to buy it. So makes a lot of sense to me. Awesome. So I jumped in there, you had we were talking about the deals you stay away from first, and then we’re going to go into the ones you like the most. So keep going down that road, new construction number one, stay away from those.

Mark Khuri (09:10.254)
There you go.

Mark Khuri (09:14.691)
Sure.

Mark Khuri (09:22.734)
Yeah, I would say office for obvious reasons. We also haven’t invested in office over many years for a lot of reasons, but again, risk reward profile, student housing, lodging, hotel, motel, Airbnb, indoor malls. I mean, those are a few that we don’t pursue.

Gabe Petersen (09:43.025)
Really, Airbnb and hotel motels that I mean, that again, is an asset class. A lot of people like it. A lot of people are have been flocking to it, but it’s one that you don’t see the risk reward ratio.

Mark Khuri (09:54.796)
Yeah, we just, have trouble getting comfortable with, you know, kind of more of the sporadic revenue and demand cycles, seasonality trends, short-term user needs versus more of a longer term user need. so the ups and downs are a little less consistent in lodging hotel, motel, Airbnb. And some of them can have higher expense ratios, less cashflow due to that, just based on.

Gabe Petersen (10:00.562)
Mm.

Mark Khuri (10:22.03)
the way they’re structured and operating expenses being higher than other sectors that we do pursue. And so it doesn’t mean you can’t do well, you can, but we just find that they come with a little higher risk than the preferred sectors that we do focus on.

Gabe Petersen (10:35.259)
Okay, so if I’m checking off things in my head, the ones that you have not touched on yet are multifamily, industrial, mobile home RV, self storage, and then all of the kind of the niche ones that I’m sure you guys don’t even consider like recreational golf golf courses, that kind of stuff. So it was that exhaustive of your I don’t buy list or are there more on there?

Mark Khuri (10:57.238)
I mean, there’s definitely more, I would say, nuanced niche sectors that we probably won’t get into either just because of lack of understanding of them completely. And also maybe they’re much, much smaller segments of the market. And so you don’t know if that segment is growing or shrinking. We try and always look at our exit, hey, in five, seven, 10 years, when we’re going to sell, are there going to be more or less buyers for this type of real estate? And we try and stay away from those that are going to be less.

Gabe Petersen (11:22.983)
Makes sense.

Mark Khuri (11:26.786)
That’s a big part of it for us. But yeah, as far as those that we do invest in, Gabe, you hit on a bunch of them. We’d also add in, know, private real estate debt is another one that we focus on as well.

Gabe Petersen (11:38.481)
Okay. So there are so yeah, like I said, the ones remaining, we got industrial mobile home parks, RV parks, self storage facilities, multifamily and I guess strip center retail. So of those which are give me your two favorites and then tell me why you like those the best.

Mark Khuri (11:56.27)
mean, mobile home parks, number one. And then I would say number two is probably tax-exempt apartments or tax-exempt multifamily.

Gabe Petersen (12:05.81)
tax exempt. Somebody came on the show and was talking about that and I was just my brain was exploding with how that actually works. So by tax exempt multifamily, you’re talking about subsidized housing that gets a tax break because they’ve invested in low income housing in a specific area. that correct?

Mark Khuri (12:28.334)
partly correct. Yeah. It’s, it’s not necessarily subsidized. so, you, basically, when we say taxes, that means the property doesn’t have to pay property taxes. so a portion or all of it, depending on how it’s structured, but basically what they are for us gave us a public private partnership where we’re creating, affordable housing. So 50 % of the units at the building are kept affordable by definition. It’s a formula.

based on area median income. And each year, area median income changes. It’s published based on zip code and location. And you have to keep half your units affordable to the local population there. And by doing so, you get a 50 to 100 % property tax abatement, usually for 99 years, transferable to the next buyer. So you can see attractive multifamily deals in growth markets.

already stabilized 90, 95 % occupied at acquisition where you can get a higher yield day one because you’re basically eliminating or reducing your property tax payments, which is of course one of your highest, if not your highest expense line item. And so it’s a niche within the niche, right? And so we love that space. You have very favorable financing too, Freddie, for example, has specific loan programs for affordable housing.

Lower interest rate, better term, interest only for seven to 10 years only, fixed. It’s great. So we like that space a lot.

Gabe Petersen (14:02.717)
So both of those two, you your favorites top asset classes that you like to invest in mobile home parks, and then tax, tax exempt multifamily, they’re both have to do with affordable housing, they have to deal with lower income housing, which is a big, big need in the United States. I’m assuming that that is the common thread that you guys like to pursue.

Mark Khuri (14:23.916)
Yeah, I mean, this has been a long-term thesis for us for many years as far as the lack of supply of affordable housing. I mean, it’s massive when you think about truly affordable. Every state has a lack of supply and affordable housing. These are just data trends that we have been watching and tracking for many years. And then you look at the amount of people who can and can’t afford to buy a home.

And it’s just going in the direction that is unfavorable for most people, of course, because everything’s becoming a lot more affordable. And so we think this is going to continue for better or worse. know, econ 101, supply and demand imbalance. That’s where we like to focus a lot of our attention on investing.

Gabe Petersen (15:08.455)
Yeah, yeah, I’m this is a total aside, but I’m I’ve just been considering and thinking about how AI is going to be impacting the economy in general globally, because it’s going to create so much more productivity. And eventually you are I feel like the only way to do to keep people housed is to provide us, you know, basic income lower, you know, basic income to pretty much everyone, which I’m I’m very against. I’m a very capitalist person. I I I

don’t feel like the government should be handing out money, it feels like that’s the way that it will trend. But anyways, that’s a complete aside. So one question, mobile home parks, that’s what I buy and so I know a lot about it. We also buy RV parks. That’s something that we are really interested in. I did not hear that on your list, so I’m curious what your position is on RV versus MH.

Mark Khuri (16:01.676)
And we do have some exposure to RV Gabe. I’ll just say we tend to not seek it out only because it’s a smaller, of course, sector of real estate, that there’s less buyers for it when we go to sell. I also think there’s, for what we have invested in, what we’ve seen in our analysis, there’s more, it’s more transient based, less consistent monthly revenue. It’s a little more volatile throughout the year. And so that’s part of the reasons why we don’t.

focused too much on RV, but we do invest in it from time to time.

Gabe Petersen (16:34.919)
Yeah, that makes sense. we, we really like RV, but, because we like to operate it as a mobile home park. it’s not as sticky, obviously you can’t, know, the people are, doesn’t take $5,000 to move the home out of the park, but, it does. We’ve been pretty successful at operating these parks, bringing in long-term, you know, long-term stay people and having, you know, our average occup or, length of stay for, our parks is over a year. And so, yeah, it makes a lot of sense.

So mobile home parks and tax exempt multifamily. You’ve already talked a little bit about tax exempt. Talk about mobile home. Why is it that you like that asset?

Mark Khuri (17:13.87)
Yeah, I mean, there’s lots of reasons, but I’ll start with, you we’ve been investing in it. started passively as LPs in 2012. And if you were invested in MH back then, gosh, I mean, it was like 10 % preferred return getting paid day one and going in cap rates were high, very high 10%. You could buy mobile home parks that had, you know, a hundred percent of the homes owned by the tenants, no park owned homes and

Yeah, there were, there’s a lot of them out there. The space has since become very competitive, as you know, I’m sure, Dave, cap rates have compressed pretty significantly. And so there’s pros and cons there as far as, you know, where the sector is in its life cycle from an investment and equity standpoint. But at the same time, some of the underlying fundamentals that make it so attractive are there and likely not going anywhere. And so one of them, of course, is lack of supply. I’m sure you

speak to many of your investors about this, very hard, if not impossible to build a new mobile home community in a desirable location that is actually affordable for the tenant. so you have a moat around the sector from a new supply risk, which is kind the opposite of self-storage. Although we love self-storage, it’s very easy and low cost to build new self-storage. The new stuff competes with the old. And so

mobile homes tend to have a pretty favorable, somewhat unique supply moat around the space. And so that’s a big part of it for us. And then of course, we talked about affordable housing, be able to provide that to local community. It’s a big, part of our thesis, ongoing, you know, 10 year plus cycle. We think there’s going to be consistent and growing demand in mobile home parks. We continue to see that.

And then you can look back, like there’s this great chart, Gabe, that got me into mobile homes, you know, I don’t know, 12, 15 years ago when we first started looking at it. Equity Lifestyle Properties has, it’s the largest mobile home park owner in the country. They’ve got this chart that they’ve been producing. It goes back to like 1985, 1990. Shows net operating income per year. All the way up through, I think the most recent one is

Mark Khuri (19:38.97)
Q2 2025. And it shows you the NOI during good times, bad times, you every single year. And you can see the low correlation or almost non-correlation of mobile home parks to the overall economy, right? So you look at the 2000 dot com bubble and crash, you look at 08, 09, and you look at 2020 and you look at the last couple of years and you see, they compare it with apartments and other REITs.

And when other real estate sectors are down from an NOI standpoint, mobile homes continue to chug along and have positive NOI growth. And so we just don’t see that with almost anything else, Gabe, that is that consistent of a producer of NOI growth even during economic downturn. So that’s a big one for us as well, of course.

Gabe Petersen (20:31.079)
Yeah, that makes a lot of sense. And I’ll add on to it. You were mentioning that a lot of municipalities don’t want to allow parks to be built additional parks to be built. But I’ll add on that we’ve even tried to expand parks that we own that have additional acreage and they won’t allow us to add add sites to a land that we already own that already has a mobile home park on it. And so it’s it’s ridiculous, but it is like it definitely like you mentioned it, it constraints supply and so it gives what’s there.

a lot of value to the people that are renting from it. And so if you lose somebody, it’s kind of easy to bring them in. I won’t say it’s easy. do infill. At least what we’ve found infill is very difficult because you can’t, we can’t get somebody to bring their mobile home in. You have to bring in a mobile home yourself and you have to fill it yourself. And that’s really the, that is where a value add is for mobile home parks, at least from my perspective is getting, bringing units in and then selling them on contract.

it’s a more difficult to you sit in than it sounds to be honest. We’ve been trying it and we, we definitely haven’t mastered it yet, but it’s a, that’s where it’s at. all right. And then, I just lost my, my train of thought. yeah. We were talking about not building only, and you were talking about, mobile home parks being asset or a recession resistant. they say that also about self storage, but I have not found that, you know, we own, we had, we were own.

Mark Khuri (21:34.488)
Sure.

Gabe Petersen (21:55.901)
just at the beginning of last year, we owned five self-storage facilities and we’ve been selling them after they’ve kind of hit stabilization rates. But we have not found the recession resistant asset class, we haven’t found it to be recession resistant. When people aren’t moving, you lose occupancy. At least that’s what we found in our operating of these assets. they’re not, when mobile home parks stay full, you don’t really lose occupancy.

upcycle downcycle they always kind of stay full but we haven’t found that to be true for self storage have you found the same

Mark Khuri (22:30.158)
Yeah, it’s interesting. There’s some data that shows self-storage rates in 2008 that were up, you know, I think 5 % when everything else was down 30%, Gabe. And so during that downturn, they were definitely recession resistant, which is where I think a lot of the term comes from for self-storage. And if you think about it, you know this, the demand for storage comes when somebody or family has a change of life. What does that change? It’s a change of job, career.

moving, downsizing, whatever it might be that increases the demand for storage. But what we’ve seen over last several years is that change has reduced. People aren’t moving as much. People are not changing jobs. They’re not necessarily increasing the demand for storage. And we’ve had a lot of new supply come online. So when you couple those two things together, the self-storage market has been soft for the last few years, to say the least. There’s been

Rental rate declines, occupancy declines, overbill.

Gabe Petersen (23:31.603)
and overbuilt, know, you know, the people just in Texas is where we own most of ours. It’s like they just build them left and right. It’s like guys stop building these facilities. What are you doing?

Mark Khuri (23:36.493)
Okay.

Mark Khuri (23:41.102)
Yeah, we’ve been invested, or we were invested previously in a market in South Carolina, Gabe, in self-storage, where there was a moratorium put on self-storage new construction in that specific city. And the municipality said, look, there’s way too much self-storage being built here. No more is allowed. And so it doesn’t matter if you have self-storage zoning approved. No. And so again, biggest supply, biggest risk in self-storage is supply, but also

Gabe Petersen (23:59.344)
you

Mark Khuri (24:10.266)
The housing market has been stalled for several years. People aren’t buying and selling. You a lot of folks stuck in 2%, 3 % mortgages long-term. I shouldn’t say stuck. I mean, it’s a great place to be, but it reduces the amount of sellers and then the market, which then reduces the amount of demand for storage. But we’re starting to see it pick back up just a tad here, Gabe. We recently made a self-storage investment in the last two months. so we’re excited about it.

You know, everything goes in cycles and waves. And I think the worst is behind us so far in self storage for the last few years.

Gabe Petersen (24:45.587)
It’s good to hear. All right, we have run down the clock. Before we move on, I always like to ask, you know, if you could just give the people listening one piece of advice in their real estate career, what would it be?

Mark Khuri (24:59.188)
Yeah, I I would say if you’re an investor looking at a lot of deals, know, don’t believe the pitch deck. All right. There’s a lot of information, but that is a marketing tool. You have to be able to do a lot of due diligence and deep dive into what’s actually happening under the hood. And so that’s a big one for us. You know, a lot of people just take the OM and tend to make decisions based on that.

And so I would say do a lot more homework, do a lot more due diligence, make sure you understand the risks and the likelihood of executing on the business plan, whether it is high, low or not at all. And we’ve seen all the above.

Gabe Petersen (25:40.497)
Yeah. Yeah. You and I were actually just talking about this beforehand. so we, I just sold one of the, our self storage facilities that kind of went full cycle. And so we have a, about a million dollars that we need to do a 10 31 with. And so I’m going out to brokers and I’m like, Hey, send me your deals. And I, just through this, this deal, this OEM that I got into perplexity. And I said, underwrite this aggressively and give me the gist of it. And it came back and it had all these, these red flags, that it knew about the local Metro.

about the specific, P &L, all this stuff, and it did it within five minutes, and it said this is overvalued by 40%. The real value is X, Y, but it really cuts down using these AI tools, Perplexity is what I used. For the initial look, the initial pass on a deal, it is so, so amazing. I’m very happy that they’re so accurate these days that it can kind cut down on that review time.

Alright, well with that said, it’s time to jump into the quick question round. Are ready? Alright, starts with education. It could be any form, could be a book you’ve read, a conference you’ve gone to, mentorship program you’ve been a part of, anything like that. I just need one recommendation that you would recommend people to advance their real estate career.

Mark Khuri (26:43.342)
Sure.

Mark Khuri (26:58.478)
Yeah, I would say investing in real estate private equity is a book that I find to be very well written by Sean Cook. It just talks a lot about the structure and fundamentals of private investments, Gabe. Some of the math underneath the hood, you got to look out for really for LPs and GPs and kind of a bit more of what’s norm as far as deal structure goes and something we focus a lot on when we’re looking at our investments.

Gabe Petersen (27:28.307)
Nice. All right. Next question is for your younger self. Let’s go back to the Mark who was still working in finance back in I think you said 2008 2009. Go back to him look him in the eye give him one piece of advice moving forward.

Mark Khuri (27:44.563)
Um, I would have taken even more action, honestly, Gabe, uh, earlier on in my younger career and, know, in your twenties, for example, it’s, it’s easy to just have a great time and work that W2, but, uh, take more action, uh, attend more conferences, get more, much more educated and do it as, uh, as much as you possibly can, uh, while still having a life of course. so.

I would say, yeah, just double down on education, taking action and investing.

Gabe Petersen (28:15.717)
And that same sentiment has been echoed across so many episodes. Your episode 600 and something. And whenever somebody says something along those lines of I wish I got started sooner, I wish I did more back in the earlier days. I always like to point it back to you the listener. If you are listening to this episode, and you haven’t done your first deal, just go get it done. It doesn’t matter what it is. Could be a, you know, single family house mobile home park, piece of land out there, but just get a single deal done. Get that ball rolling. 10 years down the road, you’re going to be happy you did.

All right, with that said, next question is about the US. It’s a big place. There is a ton of opportunity out there. Give me the single Metro you’re most excited about investing in today.

Mark Khuri (28:56.504)
Gosh, I don’t have one, Gabe. There isn’t a single Metro. And the reason why is because we invest in about three dozen states nationwide. Yeah. So we, I’ll mention this. look at, yeah, it’s a lot and it’s on purpose, but we look at two to three deals a day. We invest in maybe six to seven a year. so 98, 99 % of the deals that we see, Gabe, we don’t invest in.

Gabe Petersen (29:05.694)
wow. Three dozen, that’s like more than half the country.

Mark Khuri (29:24.886)
And so for us, it’s not necessarily, A, we just want to go invest in, know, Fort Worth, Texas. That isn’t how we think. There’s so much more to it than just location. A lot of the investments we invest in are portfolios of properties. And so we like diversification. It really helps reduce lots of risk, of course. But if I had to say one thing, I would say, you long-term, you probably aren’t going to go wrong in Texas. Dallas, Houston has two good areas.

Gabe Petersen (29:53.085)
Texas Triangle.

Mark Khuri (29:54.144)
Yeah, exactly. So trying to give you something there to work with.

Gabe Petersen (29:57.915)
Yeah, no, no, no. I it sounds like you guys are dear deal first location second, which makes sense provided the location is a good one, obviously. And I just want to call out the metric that you just mentioned there because it’s worth noting. You said you review two to three deals deals a day and you invest in six or seven a year. So let’s take the higher end of both those. Let’s say you take three a day, seven a year. That means that you invest in point six percent of the deals that you look at.

For everybody’s out there who wants to get into good deals, it takes more than you think. You’re gonna look at a deal and you’re gonna be bummed that it didn’t work out, but that’s okay because that’s part of the game, looking at all these deals, underwriting all these deals and finding the good ones, the gems out there. Yeah, anyways, that’s an aside. I just wanted to call it out because it just goes to show the volume that’s required to find those gems, those good deals.

Mark Khuri (30:54.2)
Definitely.

Gabe Petersen (30:55.923)
All right, next question is about lessons learned. Not every deal we get into goes the way we expect it. In fact, pretty much every time something goes wrong and that’s when we get to learn a lesson. So what was the deal that went a little bit sideways for you? And then what was the lesson you pulled from it?

Mark Khuri (31:11.438)
Yeah. I mean, there’s several, that’s what I’m trying to think of which one to give you here, but we’ve had properties burned down. We’ve had, you know, a tenant almost blow up a property by leaving the gas on, locking the doors on purpose. foreclosed on, excuse me, she got evicted and she got arrested for that, of course. So we’ve been through a lot of hurricane damage, flooding, you know, this stuff happens when you invest in a lot of properties.

Gabe Petersen (31:27.308)
jeez.

Gabe Petersen (31:33.433)
Yeah, Jesus.

Mark Khuri (31:41.007)
And so I wouldn’t say there’s any one specific deal. I just say that there’s always a challenge literally in this business, always from market risk, recessions, drop in values, rents. We talked about self storage and that’s kind of organically came down the last several years. know, storms are a big part of it. We love Texas, but you got to be careful. so

We’ve worked through a pandemic, course, interest rate hikes, fastest rate in 40 years. All these are challenges. This is part of what makes what we do hard. But if you have a strong spine and you think you’re a really good problem solver and you’re in the business of problem solving, you can be very successful as well. so I’d say to overcome these challenges, know.

Build your inner confidence. Make sure you’re working with a really reputable, highly experienced team. That’s a big one for us, Gabe. Our sponsors and operators that we partner with are just, most of them are just damn good at what they do. We’d rather invest with them than try and compete with them. And so that’s kind of our motto on how we look at things. And just remember that if you’re with the right team and you never quit, you’ll get through the difficult times.

Gabe Petersen (33:00.091)
Yeah, I like that. Alright, on the other side of that sometimes deals just go right and it stands out in your mind as one of your favorites. Take us to that deal for you. Which one was it?

Mark Khuri (33:11.534)
Sure, I think the first one that comes to mind is during the pandemic, And I’ll mention this in March of 2020, we were raising capital for a two property strip retail portfolio. And we were already investors in these properties personally, and there was some equity that came available. And so we were raising it from our investor network to invest alongside us. Now, then COVID hit.

It was in the middle of the capital raise. And so we paused and returned our investors money to them. It didn’t have them invest in the deal. And then we waited about six months before doing anything as far as investing. you know, we tracked our portfolio, our operating partners portfolios, tons of data. There’s a scary time, of course. But by the middle end of summer, we started realizing that there was a lot of tailwinds happening from a rent growth standpoint, from a

cap rate compression from high demand from buyers. And so we made our first investment in August of 2020 into an apartment community in Phoenix. It was a income and growth investment, provided positive cashflow, but also had a renovation plan. Our operating partners were planning to renovate 30 % of the units and then sell it in three years.

They renovated about 20 % of the units in the first 15, 16 months. Rent projections were much farther below what we actually were able to achieve because of the tailwind. We underwrote cap rate expansion when we actually had cap rate compression. so essentially, we hit a giant home run. Our investors doubled their money in 18 months, 96 % IRR to our investors.

Gabe Petersen (35:06.995)
Wow.

Mark Khuri (35:07.31)
It was, was a combination of great execution from the, on the business plan, also market timing, just to be transparent. That was, uh, that was something that we didn’t project.

Gabe Petersen (35:18.567)
Well, a lot of times when I ask this question, luck is a big factor. But hey, when luck comes your way, you take it because half of everything is luck. You do all the work you can to prevent, you know, poor luck from coming your way. But when the good luck comes your way, you take it and it sounds like that was a good one there. All right. Next question is about

Mark Khuri (35:36.525)
Definitely.

Gabe Petersen (35:41.299)
AI this is kind of a new question that we’ve been asking. I try to implement AI in as many places as I can in my business responsibly so. So what is a way or first do you use AI in your business and then how do you do it and how can you suggest people use it in their own?

Mark Khuri (35:57.293)
Yeah, mean, we use personally, chat GPT and perplexity are the main two really for cost lots of reasons, gay, right? It’s analysis, research, and even just writing. There’s a lot of different ways to utilize these tools that we’re just scratching the surface on to be honest with you. Underwriting is a big one.

But then you also have a lot of software that’s coming out and has recently come out for property management across different real estate sectors like apartments and self storage. And, you know, I would say, think about dynamic pricing, right? What is the value or what is the market rate of a self storage unit today at 123 Main Street in this city?

And it’s been around for a few years, but it’s getting really, really attractive to have these types of softwares implemented at the property level for leasing, rental rates, determining what your competition’s doing down the street and being able to adjust pricing by the hour if you want to. so think about the airline model and the hotel model. It’s very much happening and has been happening in different real estate sectors from property management.

And then also for screening, there’s been a lot of fraud on tenant applications. That is growing. That’s one of the negatives of AI is you may have a fake person with a fake pay stub and a fake everything, and you may not be able to tell. And so there’s AI that battles against that as well. And that’s been implemented across many of our projects to help make sure that you’re renting to people with

valid incomes and backgrounds. And so that’s another big part of it as well.

Gabe Petersen (37:53.752)
Nice. All right, well, that leads us to the very last question. This is for the listeners. You’ve given us a lot to think about. I’m sure people want to reach out, get in contact with you. Is that a two parter? Where can they find you? And then what can they expect when they reach out?

Mark Khuri (38:07.222)
Yeah, I think the best place to start is our website, smkcap.com. Again, our company is SMK Capital Management. I would suggest everybody to join our investor network. It’s something you can do that gets you learning about how we look at the real estate market. We share a lot of education and content on updates in the market, what we’re investing in and why, what we’re passing on and why.

underwriting due diligence, really just a great spot for people to learn more about us and also what we do and why we do it and how. And then of course, reach out if you think it’s a good fit and you’re looking for some passive investment alternatives. That’s our specialty. We work with accredited investors. We’ve been doing this for 15 years and it always starts with a phone call, a Zoom call, asking questions of folks.

Why are they even interested? What are their goals, Gabe? That’s the big part of it for us. And then seeing if there’s a good fit and taking it from there. So that’s how I would suggest folks connect with us.

Gabe Petersen (39:16.595)
Perfect. I will put that link in the show notes. So if y’all want to reach out to Mark, all you got to do is click the little more in the description. It’s going to pull down that full description and in there you can find his links. All right, man, that wraps it up. Thank you very much for up and on the show.

Mark Khuri (39:32.226)
Yeah, thank you, Gabe, for having me. It was fun.

Gabe Petersen (39:34.771)
Absolutely. For everybody who’s with us today, thank you guys for showing up. You are the reason we do this. So if you guys have any questions, reach out to me, Gabe, with the real estate investing club.com. If you guys want to support the show, just leave us a comment, a review, anything like that. Other than that, I hope you guys have a great week. Keep rocking real estate, and I look forward to seeing you on the next episode.