Sharad Mehta Interviews Rylee Knox: A Real Estate Journey and Personal Reflections

In this fascinating edition of the REsimpli Podcast, Sharad Mehta looks at Rylee Knox, a Central Maine real estate investor, on his amazing journey into full-time investing. Rylee discovered his unintentional attraction to real estate after his wife purchased a nice house. Since then, he has created a significant buy-and-hold portfolio; now he is looking at a 16-unit condo and a 49-unit deal.

Original approaches for seller financing have significantly enhanced his performance on larger, more diverse enterprises. He purposefully divided his belongings and spotted possibilities others would have passed up. Sometimes, you have to give up the good to go for the great, and you need to embrace the uncomfortable to truly grow from where you are. Looking at off-market real estate, Rylee turned from MLS to direct mail marketing.

Rylee believes these changes damage the more varied market, which lowers sales ranging from five to fifty products. Smaller diversified buildings, including 2 to 4 units, he notes, are still highly sought after as investors give ongoing net operating income (NOI) top importance above speculative development.

Excellent brokers who actively negotiate pay with customers will thrive despite this change, he argues. Being able to make the people you do business with feel valued and providing benefits to them helps build long-term relationships and partnerships. Rylee’s analysis of how the NAR lawsuit changed real estate pay scales caught everyone’s attention. Rylee thinks these changes will increase industry openness and help businesses constantly provide value to their consumers. .

He considers his passion for the great outdoors, adventure, and how the Bible and Set for Life changed his viewpoint on money. Rylee talks about miscarriage and his urge to see his kid one more just before a program loss in the final minute. In the areas of personal and professional life as well as in terms of persistence and inventiveness, Rylee’s biography stresses the importance of values. His analysis of his life reveals that his experiences and ideals differ from those used in the real estate industry.

This perceptive episode with a conversation between Sharad and Rylee addresses real estate rules, life’s ups and downs, and the status of the market now.

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Transcript: 

Sharad Mehta  0:06  

Hey guys. My name is Sharad. I’m the host of the REsimpli podcast, bringing you another very special guest on this call, Riley Knox. Riley, welcome to REsimpli podcast. How are you doing today?

Riley Knox  0:20  

Hi Sharad Mehta, Knox, I’m doing well. I’m glad to be here.

Sharad Mehta  0:24  

Yeah, absolutely, yeah. Thank you so much for being on the podcast. Let’s get started. Let’s tell us a little bit about yourself, where you are joining in from, what kind of real estate investing do you do, and how long you’ve been investing? For sure,

Riley Knox  0:36  

I’m in Central Maine, and I am primarily a multi family buy and hold real estate investor kind of at the core we fix and flip wholesale. And I’m a real estate agent as well. So that’s kind of how I that’s the active side of my income. But the long term, passive strategy is a buy and hold multi family.

Sharad Mehta  0:56  

Yeah, you have a lot going on. How did Are you buying these properties in Central Maine area? Yep,

Riley Knox  1:03  

most all of our assets are in Central Maine, with the exception of couple assets in Southern Maine. And we just purchased our first short term rental in the Smokies.

Sharad Mehta  1:14  

Okay, great. Congratulations. How did you get started? Tell us a little bit about that. How long have you been investing for?

Riley Knox  1:19  

We’ve been investing Since 2017 and we actually got started accidentally, my wife, she was my girlfriend at the time. Was just looking for her next place to live and looking for an affordable option, and she stumbled on kind of, let’s buy a duplex as an affordable option. So started looking for multifamily homes, and ended up finding a three unit. And then when we got married, I moved into that three unit and started managing the tenants. And that is kind of where the light bulb went off and the passion for real estate investing began.

Sharad Mehta  1:57  

Are you doing full time now? Are you investing full time? Yeah,

Riley Knox  2:01  

I’m a full time investor, agent, flipper, so I’m full time in the real estate industry.

Sharad Mehta  2:05  

And what were you doing before you kind of got caught by the real estate buck?

Riley Knox  2:11  

Yeah. So I was actually, I was a w2 nuclear test engineer for the Department of Defense. So that’s what I was. I was doing some work. I enjoyed that season of my life, but I I would not, not go back to that. I’ve loved being in the real estate industry

Sharad Mehta  2:27  

Absolutely. So you bought that three unit and what happened after that? Like, how did you go about? Hey, I want to buy more of these multi units. Like the when you’re buying it for yourself, it’s a totally different process and experience versus when you’re buying specifically as an investment property, correct, for sure.

Riley Knox  2:47  

So we started out without much money. So we house hacked our first couple so that property in 2017 my wife brought with an FHA loan, and then I bought another four unit in 2019 on an owner occupied multifamily and that was quite, quite literally just from saving pennies at our day job. And then 2019 is the year I left my w2 employment and became a full time real estate agent. And in 2020 we bought three or four multi family assets. And from then on out, it was kind of traditional 20% down bank loans for the most part. So three or four acquisitions in 2023 or four acquisitions in 2021 all small multifamily three to five units, and then in 2022 is when we really started marketing for off market deals, using some creative financing strategies to kind of make our our down pay, our available down payment funds stretch a lot farther.

Sharad Mehta  3:49  

So the multi units that you’re buying, are they all like, three to five unit? Or have you looked into like, bigger apartment complexes, or you’ve looked into some single family also? Yeah,

Riley Knox  4:00  

our our largest so, so our largest property, owned by my wife and I independently, is a 16 unit that’s in Thomaston Maine, and we use some creative financing on that deal. And then I’m a general partner in a 12 unit syndication in Berwick Maine, which is a Southern Maine town. And we are actually pretty close to the finish line on a 49 unit acquisition that I’ll be that’s a three way partnership with myself and two

Sharad Mehta  4:31  

other partners. Nice. Congratulations. How are you finding these deals? Yeah, so

Riley Knox  4:36  

I would say in the very beginning, it was MLS. I just scoured the MLS, but basically in 2022, so I’m an investor friendly real estate agent. I primarily specialize in investment properties and primarily multifamily assets. And I was really successful at finding my clients properties that. Math worked out on on the MLS up until late 2021 early 2022 and then I just stopped being able to consistently find properties that penciled out in a way that was attractive to my clients and myself. So in 2022 we started working with a group called backyard homebuyers, who works off the REsimpli platform and sending a large amount of direct mail marketing and kind of building out that that funnel and process. So since 2022 almost all of my acquisitions have come from off market deals.

Sharad Mehta  5:36  

So you’re sending letters and postcards,

Riley Knox  5:39  

yeah, sending letters and postcards and then working the you know, it’s not that hard to send the mail. Sending the mail is kind of the easy part. It is the sales process that follows when those when those warm leads come in, calling them, nurturing, getting the information and working them down the funnel to acquisition, and

Sharad Mehta  5:58  

then you’re trying to do creative finance now, right? Like,

Riley Knox  6:01  

I mean, yeah, we’ve done we’ve taken opportunities, right? So the nice thing about off market sellers is, instead of having one property, one seller and 15 buyers and kind of getting a little cutthroat, usually it’s one seller and one buyer. Usually we’re the only buyer at the table, or one of two or three. And what it allows us to do, really, when you have real estate agents involved in the transaction, in order for the seller to talk to the buyer, like the seller has to talk to the seller’s agent, who has to talk to the buyer’s agent, has to talk to the buyer. There’s this big game of telephone, and sometimes it can feel like we’re on opposite sides of the negotiating table and then the way that we are. But what I have found is, when we are working with off market sellers, we can really get on the same side of the negotiating table and just say, hey, Sharad, what are you looking to sell? What are you looking to accomplish? You know, what’s your pain point and what do you need to get out of this deal? And then we usually focus on those pain points, trying to solve those problems. And then, you know, work in alternative solutions that are also helpful to us. So usually the way that that plays out is a seller who wants to get rid of an asset, maybe they have some sort of a capital gains issue. So we can usually do, do one of a couple of things, sometimes, if they’ll carry a second position seller finance, or even a first position seller finance, that will allow us to get into a deal with less money down, will allow them to kind of spread out their capital gains burden over a number of years. The other thing that we’ll do usually is, you know, we’ll close on their on their date of choice, right? So sometimes we’ll negotiate a deal and then they’ll want not four or five months to close, because they’re going to execute on a 1031, exchange. So for us, we tend to focus on the two things that are pretty important to us, which is purchase price and down payment funds, how much capital we’re going to have to allocate to the deal, and we try to give the sellers everything else that they that they want. So when, when those opportunities arise, we take advantage of seller finance opportunities and use those to stretch our dollars a little further

Sharad Mehta  8:12  

with the with the high interest rate right now, what are you noticing with multi family investors? Is there higher motivation, lower motivations, or like people are just kind of waiting on this sideline to see the direction interest rate is going to

Riley Knox  8:27  

go in. That is a really great question in our market. So Central Maine, I have seen little to no slowdown, if any, in the residential multifamily space. So two to four units, people are still buying those like crazy, multiple offers. For many people, it’s when they get priced out of the single family home market. They start looking at those duplexes and triplexes as alternative, really affordable housing options in the larger multifamily space. So five to 50 units, which is primarily where I operate, I have seen a slowdown. A lot more hesitancy from buyers. A lot deeper due diligence being conducted on properties that do go under contract, more retrading. Sellers are more willing to work with buyers when things come up during due diligence that 18 months ago would have probably just got swept under the rug, and the transaction would have moved forward, we are seeing some retrades and just the buyer having a little bit more weight to throw around in those transactions.

Sharad Mehta  9:39  

And you are you noticing more because it’s it’s a challenge with residential market where, you know there’s a lack of inventory. Is that what you’re noticing on the the bigger, you know, five to 50 unit properties, or is that starting to, like, just open up a little bit? Now,

Riley Knox  9:56  

I’m starting to see more inventory. We’re still historically. Low, but starting to see a little bit more inventory, and properties just sit on the market a little bit longer, long enough for the sellers to get a little bit nervous and maybe realistic. You know, one of the major differences I’ve seen is 18 to 24 months ago, a lot of properties were trading based off noi projections, right? Future noi projections, right? And in general, that’s like not that great of a practice, right? You want to buy properties based on today’s noi, and then any increase in the NOI you want to be rewarded for as acquirer of the asset. And 18 to 24 months ago, we just were seeing properties kind of trade up to their full potential, regardless of where today’s noi was, and right now, the pulse on the market is buyers are really scrutinizing today’s noi, and They are not willing to pay a premium for opportunity or potential noi growth in the future. They’re really interesting. They’re really, really honing in and fixating on the current noi the assets, I think some of that comes from rent stabilization as well. Yeah, definitely seen less rent growth in the last nine months than we had in the 18 months prior to that.

Sharad Mehta  11:27  

Interesting, you know, I mean, like, similar to, like, the five to 50 unit, you know, those apartment complexes I’ve started noticing in our market, like, where locally I live in the San Diego area, there’s, like, more it’s still low, but there’s still houses are sitting on the market for a little bit longer, and then it’s taking this more inventory available. I don’t know if that’s what your experience been, also on the residential side, but at least it’s interesting. The neighborhood that I used to, that I live in, there weren’t any houses for sale for like, six months, and they were, you know, selling pretty quickly. Now there’s like, four houses on the market. They’ve been on the market, like, 234, weeks now, some of them, and you’re like, Okay, you know, maybe the market is starting to change just a little bit. It’s interesting to notice, like, the same thing is happening in, like, the bigger apartment complexes.

Riley Knox  12:18  

I agree. It seems to me that it’s starting to get a little bit more balanced in our market. Part of my business is home flipping as well. And where we used to see 24 months ago, we probably would see we would list a property and have 20 to 30 people through the property in seven days, and probably receive close to 10 offers the last several dispositions that we have done on fix and flip single family homes. We’ve received one or two offers, and they’ve had contingencies, and they’ve just been a little bit more balanced. The buyer seller dynamic has been just a little bit more balanced. One question I want

Sharad Mehta  12:58  

to ask you, since you’re in a very interesting situation where you’re an investor, you’re doing couple of different things. You’re also an agent, you know, with the whole National Association of Realtors, this whole thing that happened where the seller should not pay for buyers agent, and it’s supposed to take effect next month, July, or something, you know, I I’m not very aware of, kind of, you know, informed with what’s going on, any thoughts on, kind of how that’s going to change the market on the retail side and, more importantly, on the investor side, yeah,

Riley Knox  13:33  

what I’ve, what I’ve seen around that, and kind of, my instinct, um, my take on The whole thing is that the 8020 principle applies to real estate agents. Realistically, 20% of the licensed agents are doing about 80% of the volume. Those top tier agents are already having conversations with their buyers about compensation, and they have that for years. I have always charged a certain compensation to my buyers. So when we sit down and buy our consultation, we talk about how, how I get compensated, what that compensation is, and that a portion of that compensation could come from potentially the seller or the listing agency, and that a portion of that compensation could come from, could could need to come from the buyer directly. And I think that top tier agents have been, have been doing that for a long period of time. They’ve never really allowed the listing agent to dictate how much they would get paid. So I think it’s, it’s sort of an issue for the other 80% of agents who who don’t have a consistent book of business and are really relying on those listing cooperation commissions to pay them, I think that buyers will always recognize value. So if you are a. Estate agent that’s working with a buyer, and you’re bringing real value to that buyer. You’re educating them, you’re taking the time to understand their needs. You’re bringing them on and off market opportunities that work well for them. You’re negotiating well. You’re providing excellent service. I think that those buyers, in my experience, those buyers, have always been happy to work to make sure that their agent gets compensated fairly.

Sharad Mehta  15:23  

It’s interesting. Like, I’ve, like, You’re the first agent that I’ve talked to where they’re already getting compensated by the buyer. If you don’t mind, like, I’ll be very interested sure kind of what is that compensation structure look like, and then are you getting any pushback from buyers, some buyers, or, you know, all buyers are like, Yeah, it sounds fair that we’ll, you know, we’ll be willing to compensate. You sure, that’s,

Riley Knox  15:48  

that’s a great question, and I want to stay away from specific percentages, because that’s kind of the basis of the lawsuit. You know that we’re, there’s really not supposed to be, you know, whenever you say people, you’ll hear people say, you know, this listing percentage is the norm. I always try to correct that and say there is no norm. There’s not allowed to be a norm. You know, there’s no standard. That’s really the word that we try to avoid, is standard. This is yes to answer your question. I have received pushback in the past. I’ll present to a buyer, and I’ll say the buyer agency commission is x. In an ideal world, we will be able to collect the entire, the entirety of the buyer agency commission from the listing agent. But that may not be the case, and if that’s not the case, we’re going to have a conversation about that ahead of time while preparing the offer, so you will know when you prepare the offer, how much of the buyer agency, commission is going to be paid by the listing agent, and how much you’ll be responsible for, so you can factor that into your offer. And whenever, I kind of when you sign these buyer representation agreements, right? And I describe the buyer representation agreement as a two way agreement, right? It’s, it’s, it’s my agreement to provide all of these services, which I take very seriously. But if you sign that agreement, you’re kind of on the hook to provide those services. So if there’s a competitive offer situation going on, right, and a property is listed on a Thursday, and there’s an offer deadline on Saturday, and you’ve got a wedding Friday night, and your client wants to get in and see that property, you signed a buyer representation agreement. You know, you’ve got to work to find them a solution, to get them in a position to be competitive. So I kind of describe this as a two way agreement right there. They’re offering you exclusivity in most cases, not in all cases, that you don’t have to sign an exclusive buyer representation agreement, and they’re agreeing for you to be compensated. I have the benefit of having a large sphere of influence and a lot of past clients and a large book of business. So it is not the absolute end of world. The world to me, if a buyer decides that what I have to offer is not what they want to pay for, right? But when I’ve received pushback in the past, right? Because I would say, like, maybe 5% of the time, 10% of the time, I’ll have, I’ll sit down for a buyer consultation with a buyer, and I’ll present my services, kind of the Covenant, what I promise, what they promise. And, you know, and I’ll present my compensation structure. And every now and then, they’ll say, I don’t, I don’t want to do that. I don’t want to commit to paying that 3% and in some, some cases, the answer is, I can’t afford that. I don’t have that money. Yeah,

Sharad Mehta  18:32  

it was going to be my my question, like, follow up question, like, that’s where I see it being the biggest challenges. Like, for like, we flip houses in Indiana, right? Our ARB typically is 151 75 to like, maybe 250 is the price point we stay at. And these are buyers, FHA buyers, and they need some help on the closing cost credit. How will these buyers be able to come up with money in addition to the down payment, you know, other expenses that they have to also pay the agent. That’s where it’ll be very interesting to see, like, how all this unfolds. I mean, higher income, maybe it’s a little bit different, you

Riley Knox  19:12  

know, where, in large part I’m working in the same price point, you know, kind of at or slightly below that, median, median home price, price point. And we do run into it where, where they they don’t have an extra 1% or an extra 2% of the purchase price. That’s 245, $1,000 and in many cases, they were already tight on the down payment from the beginning. And what I offer in those cases is, hey, I’m only going to get paid if you purchase a property, right? So we are going to have to work together to solve this problem, and in many cases, that falls on the agent to make sure that the buyer has access to the to the best lenders with the best programs and kind of the best knowledge to be able to navigate these liquidity. Shortfalls among buyers, as well as going to the seller and presenting a really strong offer that includes some buyer concessions or some some seller credits, right? Yeah, either closing cost credits or commission credits. And I think that that really kind of falls on our ability to to negotiate and strengthen the offers in other ways, right? There’s, there’s different ways to strengthen offers, and I think that we’re just entering a season where, and it’s always been the case that people with more money have an advantage when making offers on homes, right? The cash buyer has always sort of had the most advantage, followed by the conventional buyer, followed by the FHA buyer. So certainly, a buyer who doesn’t have the funds to pay their agent is at a slight disadvantage. But that doesn’t mean that we can’t negotiate for that to be paid by the seller. Yeah, I’ve

Sharad Mehta  21:01  

heard from some, you know, people in the industry talk about that there may be, there may be some lenders willing to make it part of the loan, where the commission gets paid out of the loan, and it just gets, you know, for the buyer, it just gets, I

Riley Knox  21:14  

think that that’s coming down. Yeah. One thing is, with VA loans, it has always been against the policy for VA loans. VA buyers are not able to pay their real estate agent additional funds that didn’t come from the listing agency that’s for my entire career. And that rule is changing, and the VA is now allowing buyers to pay their agent. So I think you’re starting to see changes in the lending landscape that I think will all, quite frankly, line up pretty well with the timelines on the NAR settlement. And you’ll probably see things change around pretty quickly in lending, because at the end of the day, what I don’t want to see happen is more unrepresented buyers, yeah, you know, I don’t think that that’s the solution. And that’s my fear is that there’ll be more buyers without representation. And that’s a concern of mine. I think that representation is is important, yeah.

Sharad Mehta  22:15  

And I think, do you see it as some buyers that are not serious, we’ll get, you know, we’ll just stay on the sideline until they’re actually serious. Because now you have this, you know, barrier of, hey, I need to have a little bit of money in the game. And some buyer’s agent may start collecting a little bit of compensation, you know, in order to even show the houses, yeah, you know,

Riley Knox  22:38  

I think you’ll start to see a lot of different compensation models pop up. I mean, at least in our state, there is a place in the buyer representation agreement for a retainer fee, and a lot of agents don’t charge a retainer fee because it’s not widely accepted and buyers aren’t used to it, and if all the competition isn’t doing it, sometimes it’s tough to negotiate that in I think you’ll start to see things like retainer fees, even hourly wages. You may start to see that become more and more prevalent. You might start to see agents say, Hey, I charge, I charge 100 bucks a showing, you know, or $70 an hour. And I think that all the whole purpose of this thing, right is to push the real estate industry away from anti competitive behavior and towards a competitive, fluent marketplace. So I think having multiple types of compensation models available and multiple levels of service, right? Not all, not all, real estate agents and brokerages will provide the same services, right? Some will only list your property on the MLS. Some will do open houses. Some won’t some will only show you property, you know. So I think that having a suite of services and a suite of expense profiles for those services ultimately will lead to a healthier, more competitive marketplace,

Sharad Mehta  24:01  

right? And even with that, there will some still be some sellers that are or agents that are going to follow the traditional or how things have been done, right? Really

Riley Knox  24:13  

clear. It is not that the rule, the legislation that is coming down, does not discourage sellers from agreeing with their listing agent to compensate a buyer. Yeah, what the rule is discouraging is for MLS is to require this, which has been kind of a barrier to entry, right? You can have a real estate license. So in my case, a main real estate license. But in order to get MLS access, you have to join your local Board of Realtors, which is part of the National Association of Realtors. So there are things that are legal in the state that you’re practicing real estate. Gate that are realistically not able to be practiced because NAR and local MLS is are kind of the gatekeepers, or have historically been, kind of the gatekeepers, to common practice. And I think that one of the things that this lawsuit kind of targets is common practices for us to have less industry cooperation, if you will. And some would call it collusion and just more competitive behavior. They want more competitive behavior in the marketplace, and that really means you have to go to a more open model. Yeah, no,

Sharad Mehta  25:38  

I think it’s going to be very interesting next six months to a year where people get used to this new compensation model and see how it impacts

Riley Knox  25:48  

quit, I think you’ll have agents move on to other industries, but I also think you’ll start to see agents get really creative and strengthen their value proposition. Yeah, which is, which is a great thing,

Sharad Mehta  25:59  

absolutely, absolutely. Riley, this has been incredible. Yeah, thank you so much for, you know, sharing some information on this whole NAR thing. Yeah, I’ve been, I love, like, some of the creativity that’s going to come out of it. It’ll be interesting to see how that does. Alright? We have couple of other questions on the next segment of our podcast. What do you do for fun?

Riley Knox  26:19  

What do I do for fun? I am I have a three year old daughter. Oh, cool. Congratulations. Yeah, door, thank you. They bring so much joy to me. I am an explorer at heart, an adventurer. So climbing mountains, mountain biking, water sports, white water rafting. I like to be outside and in nature, so we rock climb and ice climb. My daughter does a lot of these things with, Oh, yeah. That is awesome. What’s her name as well. Her name is Aspen.

Sharad Mehta  26:52  

My wife’s name, nice. That’s that’s such a name after the mountains. Yeah, yeah, fake it, yeah. That’s awesome. Man, congratulations. Yeah. What’s the one book that’s had the biggest impact on your life? It could be a business book, a personal book, or one of each.

Riley Knox  27:08  

I’ll start with the Bible really has framed who I am and how I view the world, and a lot of my financial principles have come from the Bible. When I first started my career, Scott trench wrote a book called set for life, and there’s really one page in that book that has really impacted our trajectory, and that page has a graph, and it graphs kind of the net worth impacts over time of choosing to be a renter, choosing to be a homeowner and and choosing to be a house hacker. And that one page is really what caused us to choose house hacking does our first real estate strategy. And that’s the book that I give away the most. It’s

Sharad Mehta  27:59  

that’s amazing. That’s amazing. Yeah, it’s Isn’t it incredible that you know, you read a book, but there’s like, one line that you read or one page that you read that has such profound impact on your life? Yeah? Incredible answer, man. Thank you. By the way, Bible is the number one answer so far on the podcast, yeah? Yeah. It is. It is. Final question, if you could spend a day with anyone, dead or alive, who would you want to spend the day with, and why

Riley Knox  28:28  

I so my daughter’s three, and her name is Aspen. Before we had Aspen, we had a child that we miscarry, we planned to name Denver. So if I could spend one day with anyone, it would be dead. Ver I would like to have met that child. We don’t know the gender it was. It was earlier in the process, but that’s who I’d like to spend the day with.

Sharad Mehta  28:53  

Yeah, sorry to hear about that man. Yeah, but yeah, thank you for sharing that. All right. Riley, if someone who’s listening to this podcast wants to connect with you and learn more about your journey. What’s the best way for them to do that? Probably

Riley Knox  29:06  

Facebook. Riley Knox on Facebook, muscle Riley knox.com there’s a contact me link in there, and I do respond to all my messages and emails. So that’s the best place to find me.

Sharad Mehta  29:19  

Perfect. We’ll put links to all of that in the show notes. Riley, thank you so much for coming on the podcast. This has been absolutely incredible, especially going into the this whole NAR, you know, legislation, I think it’s going to be very interesting. Thank you again. Riley, thank you so much for being a guest on REsimpli podcast.

Riley Knox  29:36  

Thank you for having me. I really enjoyed it.

Sharad Mehta  29:37  

Thank you so much.