How do different generations approach building wealth through real estate? In this episode, Derek Dombeck sits down with Tom Keating to discuss the differences and similarities between their real estate journeys, from Derek’s early start in 2003 to Tom’s fresh take beginning in 2018. They share insights on navigating changing markets, financing strategies, and learning from each other’s experiences—whether it’s about leveraging traditional loans, managing rental properties, or adapting to market downturns. Tune in to gain a deeper understanding of how generations can collaborate and thrive in the dynamic world of real estate investment.
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How Generations Navigate Today’s Real Estate Environment With Tom Keating
This episode is awesome because Tom and I are talking about the differences between our generations. He started in 2018 and I started in 2003. Knowing that we can learn from each other’s experiences depending on how long we’ve been in business as well as our age category. It was an awesome episode. Before I bring on Tom, I do want to thank everybody for following us. If this is your first episode and you just found us, welcome.
We appreciate you. Anybody who’s been following us for a while, we’d love to have you spread the word. Grow the Generations of Wealth family. Tell everybody to read and give us all the love on socials, get out there, and rate us. Give us the thumbs up, five stars, shares, likes, and loves. All that stuff. With that said, let’s get on to our guest.
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About Tom Keating
As promised, the man, the myth, the legend, Tom Keating. Tom, welcome to the show. Why don’t you let everybody know a little bit about who you are and we’ll dive right into your story and what you’re doing right now.
Thanks for having me. I appreciate it. My name is Tom Keating. I originally grew up in Upstate New York. I went to college and studied business and went into finance. I went to work for a large bank and found real estate by accident. I was reading a book at my local library and learned about house hacking. That’s buying one residential dwelling, a two-unit property. I lived in one unit and rented out the other. That’s how I got started in real estate probably six years ago. Since then, I’ve been able to build the portfolio a little bit. I’m excited to talk to you about it here.
Six years ago. Were you twelve at the time you started house hacking?
I wasn’t twelve. I was 22 years old, fresh out of college. A little bit older than that.
You got out of college and I’m going to make some assumptions here. This will be fun going back and forth with you. Most people get out of college at 22. They have a mountain full of debt and trying to figure out how to get their feet under them. You jump into real estate and didn’t have anything to do with your degree and what you learned in college, or was the real estate business new learning or a continuation of what you already had?
What I learned in college was business. I studied finance so I knew the basics about numbers and I started working for a large bank. Numbers made sense to me. I was learning to get peace while working for that thing. In terms of buying your own properties and investing and stuff like that, I didn’t know much about it. At first, it was self-taught. I would read a lot and listen to podcasts.
When you started your journey and you were working for this big bank, have you always used banks for your deals? What does your financing look like?
As far as financing goes, that very first year, I got that job with that bank. It was a rotational program. I got to experience different parts of the bank. I was traveling a lot for work and when I wasn’t, I was living at home with my parents. That allowed me to save up a little bit of cash. On each property, I have a little bit of equity and debt.
Typically, for the non-owner-occupied properties, you see about 75% LTV, so 25% equity. Those loans have typically come from banks. Some of those first loans were from the bank that I worked for in Upstate New York. Sometimes, we’ll use brokers as well to get the best terms on the debt, the best rate, and the best amortization. Primarily, it’s debt financing combined with equity.
Future Rates
Is that your plan moving forward? A lot of what you talked about and what we’re going to talk about on the show is we’re in a different market than when you started, especially with rates. What do you think is going to happen with rates? What’s your plan for that?
As far as rates go, it’s expected that they’re going to decrease over the coming months, but I don’t anticipate that. I would assume that any refinance is the cherry on the cake. It’s not expected. I underwrite every real estate deal. With what’s going on in interest rates, I assume it’s never going to go down. Hopefully, it does. You got to get creative because when I first got started in 2018, it was a great market.
The interest rates on some of my first properties were 3%, 4%, or 5%. You’re not seeing that today, especially on non-owner-occupied and multifamily. Those are inherently a larger risk to the lender, so they’re going to charge you a higher rate. You have to get creative. You have to do things like maybe add a bedroom. Some of my rentals are student rentals in Upstate New York, right around college campuses.
I might go in and see there are two bedrooms in this apartment, but there are also two living rooms. Do we need a second living room? Maybe we can convert that to another bedroom. Oftentimes, students pay for rent by the bedroom. That’s one way that you could increase revenue in this environment. For example, on a recent purchase, let’s say we can get $500 for a bedroom. It might only cost us $1,000 to put up a new wall with a door and a closet and call it a bedroom. You’re getting your money back in two months in that situation. You have to be creative with space in this environment given the higher interest rates for sure.
We have a building that we converted into a 12-bedroom and 6-bath facility and lease out per bedroom. It was like a group home for troubled teenagers. Originally, it had 8 bedrooms and 4 bathrooms. That was an interesting project. The conversion was easy because I have a construction background and that doesn’t bother me but the management of twelve strangers sharing bathrooms. We’ve had that for a few years and it’s been a unique experience.
Do you provide all the cleaning services for the common space? I’m curious. Do you provide toiletries and stuff like that?
We don’t provide toiletries. Other than in their the first day they move in, they got a little starter pack. We do have a cleaning service that comes in there and does the common areas. We have camera systems in the common areas and the parking. I’m trying to cater to traveling professionals, nurses, and construction workers, but we get all kinds of different types of tenants.
I noticed those working professionals who are coming to town, as you said, travel nurses. They take good care of the property. They’re primarily there to work. They want to go home and go to sleep. I’ve heard great things about that. That’s awesome.
The hard thing is the different shifts. You might have a traveling nurse that works all night and now she’s in a building with other people living there that are awake during the day. It’s a challenge for them to sleep. A lot of those little things you don’t think about until you’re in the situation. You’re like, “Now what?”
I never thought about that. Interesting.
As much as you try to reduce noise, it’s impossible. Doors slam and people are walking up and down stairs. It’s part of it.
Do you do twelve-month leases on them? Maybe they’re shorter-term leases as well.
We’ll go as little as a week but most of them are a month to four months. Now I have people managing it. I lease optioned it to friends of mine because my original business partner that I did that project with is no longer a business partner. I didn’t want the management of it. I never wanted to manage it, so I’ve lease-optioned it to friends of mine. They’re doing a great job with it.
That’s awesome. The leasing part is probably not the most enjoyable part. It’s good when you can offset that if you can.
The leasing part is probably not the most enjoyable part. It’s good when you could offset that if you can’t. Share on XIt takes away from what I love doing, which is this. That’s what we have to choose when we’re figuring out our vision for our business, what we want to do, and what we do not want to do. I have plenty of stories in the last twenty-plus years about tenants. I don’t need or want more stories about tenants.
I hear you there. That’s funny.
Growing From A Duplex
You started with the first duplex. How did you build from there? What were your next steps?
I bought that duplex and I realized I’m living downstairs. I have my tenants paying rent upstairs. They’re pretty much paying my mortgage every month. Now I’m able to save that second-year salary while working for the bank because I’m pretty much living for free. My tenant paid my mortgage, then I was able to go out and buy a triplex. I do the same thing all over again. At that point, I was living in a building with three units with three bedrooms each, so nine total bedrooms in the building.
I had six students living upstairs and two units upstairs. My unit is a three-bedroom unit. I’m only 23 years old at this point and I said, “I’ll take the master bedroom in this one and I’ll rent out the other two.” I had a medical student and a law student who were my age and living with me in that unit. Now, I’m living in a building with eight tenants. I do my best to make friends with the students upstairs so they don’t trash your place and throw big keg parties.
I swear they had a dartboard and they never hit the dartboard. There was a hole in every place in the wall but the dartboard. That was my next purchase. I slowly continued to do that and did the small duplex and triplex thing. I was like, “This real estate thing is cool.” That’s what I’m thinking while I’m working at the bank. I said, “I’m enjoying real estate. I would love to make this like my full-time career.”
I decided to go get my MBA from the University of North Carolina because they have a great real estate development program and it was in the South. I like the South for a myriad of reasons, warm weather. I’m a huge college football fan, but also because of the great real estate down there at the time. This is back in 2020. You were seeing appreciation through the roof. The rent growth is going crazy. I was like, “It’d be great to transition there from a lifestyle perspective and also for the real estate opportunities.”
I went to school in Chapel Hill. Ultimately, post business school after two years of doing that. I worked for a developer, ground-up construction on groceries and shopping centers. I did that for about a year and got the itch again. I wanted to go back to work for myself. It had always been a goal and a dream of mine. I continued to grow and scale this small multifamily thing.
You started growing your multifamily thing. Now you’re in North Carolina. You still have some properties in New York. What was that transition as far as management like for you?
It was tough at first. I relied on friends and a network of people that I had met through local real estate groups. I still have one guy who helped me lease out apartments when I’m not there. He has a great personality. Very care charismatic. He’ll help out when tenants are looking at a vacant unit to see if they would want to be a tenant there. I have someone else who is a handyman. He could do pretty much anything. He stays away from plumbing and electrical but can do all the basic stuff.
He could paint, and fix leaks and sinks. He does that and I think it was a blessing in disguise. When I was there, I was not the handy guy. I was trying to YouTube everything. It was taking so much time out of my day. The fact that I left New York and I’m not going to fly up there to fix a leaking sink helped me take a more hands-off approach and focus on finding new deals. It allowed me to offset some of those tasks that saved me money in the short term, but my time probably wasn’t worth it in the long term.
That’s for sure. I had done the same thing when I first started meaning I was buying rental properties in Wisconsin but I was also investing in Florida real estate, and then the markets crashed in ‘07.
Outside in Florida in real estate in general.
The reason I bring that up is because I had to grow relationships and find people that I could trust or thought I could trust. Everybody who wants to invest remotely has to go through that phase and figure that out. I feel like it’s a lot easier now with the internet and being able to do background searches on people very easily and quickly, versus back then. It was very much word of mouth. You knew somebody that knew somebody and they hooked you up.
The Next Five Years
When the market changed and corrected, all those people that I thought I could rely on were gone. Jobs dissolved. People disappeared. There was a lot of drama and trauma that came from that. I want to compare a little bit between you getting started at a young age, which is awesome, and doing it in a market that was consistently increasing. Now we’re starting to see the leveling off of the market. In your age bracket versus my age bracket, what do you think is going to happen in your business in the next five years based on what you see in the market?
It’s so tough to predict. I mentioned interest rates earlier. I feel like it’s very hard to do. You can’t predict the stock market. You can’t predict interest rates. You hope for the best, but you have to plan for the worst. I almost think of it as if I can reduce my leverage, if I make sure I keep the loan to values at a low enough rate, that should help. We want to make sure we’re cashflowing not 1% or 2% on each acquisition, but maybe 7%, 8%, 9%, or 10%.
Each of these things is a way to reduce my risk if we do come to those times. I’m on the younger side of people investing in real estate. I plan on being in this for the rest of my life. I love real estate. I can’t see myself ever fully retiring. I like to do the things that I like but I also like real estate. For the rest of my life, I’m going to be doing this. There is going to come a time when there’s going to be a market downturn. Hopefully, not be as severe as what you experienced in 2007 and 2008. When we do get to that point, hopefully, I’m prepared because we have put those things in place to reduce that risk for sure.
I can tell you from my experience and the people who know me, listen to this show, and see me at other events or speak on other people’s shows, you make decisions based on the knowledge and information you have at the time. At the time in 2005, 2006, and 2007, we were not over-leveraging. We were doing 80% to 90% LTVs in a growing market, which seemed wise at the time because many people were doing 125% LTV loans.
COVID Hits
When those markets crashed and went down by 75% in value, it didn’t matter what LTV you had. I don’t think that we’re going to see that severity, hopefully, again in at least my lifetime. There can be Black Swan events like COVID. After you moved to North Carolina, COVID hit. How did that play out for you? That was your first big hiccup in your real estate career, I’m assuming.
That was extremely frightening because I was living in Albany at the time. I was renting to a lot of college students. This is March 2020. I didn’t move to North Carolina for business school until August 2020. I was still in Upstate New York at this point in time and I’m living in this building with eight tenants. Every single one of those eight tenants was in either an undergrad, in college, or a graduate program. That ultimately shifted from in-person classes to remote classes.
They were only in this area for the college. They were there going to school and they left because college closed down. Their classes went fully online and none of them lived locally. They all went home to live with their parents. I was very fortunate. I think it comes down to relationships. Relationships in real estate are so important, whether it’s a relationship with your maintenance team, your brokers, your partners, or your mentors. Whoever. Every single one of those people, because I was living there, they had a personal relationship with me.
They can continue to pay rent for the remainder of the lease term. Their lease ended at the end of May. They could have not paid March, April, and May rent but every single one of them did. That came down to relationships and getting to know people. I am not in the same situation now where I get to know all my tenants on a personal level. That’s one thing I was very fortunate with at the time. For sure, that was one of the scariest months I’ve experienced in my career. I said, “I can’t afford for all eight of these people to not be paying rent,” especially when I was just starting out. That was a frightening experience for me and I got very lucky with it.
Going back to my history, when I was starting out, I used banks for everything and then I realized I had no control over my business when the banks were shutting down or the relationships I had with my commercial loan officers. Those loan officers are getting walked out the front door with a box of their stuff off their desks.
I bring all these up because we are twenty years apart in age and have a lot of different experiences but we can learn from each other. We can learn from each other’s generation. I see this as an opportunity. I want to see up and down markets because after you live through a couple of down markets, it’s like the end of the movie. You start to see things that are not hard to see but the majority of people don’t. That’s an opportunity.
2008 Crisis
That’s exactly right, so 2008 happened. My question for you is how long of a break did you take? When did you jump back into real estate?
I never took a break but I had to shift because I wasn’t bankable anymore. I had eight active foreclosures against me at one time. That took three years to clean that up. It took time with the banks because there were so many. We ended up learning how to short-sale all those properties. I started embracing everything I could find about creative deal structuring, negotiations, and sales. I got better and better every day talking to people to the degree that I have a negotiation training course now that I teach people.
For anybody tuning in to the show, shameless pitch, go to NoMeansNotYet.com and check out my negotiations training. It was a necessity because there was not a bank in the world that was going to do business with me for a long period of time. The relationships I had built were mostly gone and I had to start from scratch. I have not used a bank for an investment property since 2011.
For the most part, is it hard money loans? Where are you finding your financing?
Funding And Underwriting
We started raising private capital for our deals and then we got to a point where we had more private capital than we had deals. I co-owned a hard money lending company up until the end of 2023. My business partner bought me out. For yourself moving forward, do you have intentions of looking at alternatives to purchase property other than using institutional funding?
I’m open to that. Typically, the bank debt has been the cheapest up to this point, but if you want to grow and want to scale sometimes, your ratios aren’t the best. What I’ve shifted to at this point is I’ll raise outside equity for a portion of the capital. We get the bank debt. I co-sign on the bank debt with an investor. We had to bring 25% to the table but because I found the deal, source to deal, and underwrote the deal, conducted the complete due diligence.
My equity partner will provide a larger portion of the equity than I will. Maybe, for example, to keep the numbers super simple. Our purchase prices are higher than this. Let’s say we purchased a $100,000 property. We get 75% of it via loan and then 25% via equity. In that 25%, my equity investor might put in 60% and I might put in 40% but we’re 50/50 partners. I’ll take a property management fee off the top, 10% for doing like communicating with tenants, getting leases signed, and all that stuff. We’re 50/50 partners after that.
That’s how I’m currently structuring deals. I’m certainly open to giving your breath of experience a lot longer than mine. I’m always open to hearing different opportunities and playing around with different financing structures. I’m a numbers guy. Whatever the numbers tell me to do is what I’m going to do. Every deal that I look at as a potential acquisition, I run it through on Excel before I ever go look at the property. It comes down to the numbers. It’s important.
Whatever the numbers tell me to do is what I’m going to do. Share on XYou’re running that through Excel. A lot of people use different software platforms or they go on to places like BiggerPockets and use a rent calculator. Everybody is a little different. What are you specifically looking at when you underwrite that deal? You said you do that before you even walk the property, which is what I do as well, but what does that look like?
I’m backing into the cash-on-cash return. That allows me and my LP investor to compare it relative to other assets. We know that historically, over the last 100 years, the S&P 500, the total market is stuck. You could probably expect like 8% to 10%. If we can get an 8% cash-on-cash in a real estate deal, I see that as a stronger investment because you’re not only getting that 80% cash-on-cash. You’re also getting things like principal paydown. Every month, a portion of the rent that those tenants are paying is going towards your mortgage to pay that down.
You’re also getting the appreciation. Historically, real estate in the United States over a long period of time has appreciated. You have those ebbs and flows. You have the screen down times like in 2007 and 2008. If you hold for the long term, whether the variances and whether the store, you will appreciate over the long term. We account for a long hold period where it’s not a fix and flip. We’re typically going in and we’re holding for the long term for sure.
Partnerships
All sound advice. I’m curious about your partnerships. This is something raw for me yet because my partner and I didn’t have a bad partnership break up. We did have different visions for where we wanted our lives and our businesses to go. That’s what we’re all about at the Generations of Wealth. “Live your vision and love your life” is our tagline for a reason. You mentioned that you’re 50/50 partners with these people. How do you protect yourself? How are they protected? Do you have buy-sell agreements in place? What do you do with that?
One way to protect ourselves is each property is purchased in an LLC. That protects us from a legal perspective. It protects us from a liability perspective realistically. Someone slips and falls. Hopefully, they can go after that, assuming we don’t intentionally do anything bad. For the most part, attorneys have advised those that they can go after that one individual entity and whatever that holds. That’s one way we protect ourselves.
We are conservative in our underwriting. Almost every time, we’ve outperformed underwriting in terms of rents and expenses. We try to be extremely conservative there. I’m completely transparent. When I’m raising equity for these deals, what I do is show them the Excel. I hop on a Zoom call and the first thing we do is do a street view of the property, walk the neighborhood, and understand what the neighborhood is that they’re buying in and what it looks like.
I talked a little bit about other properties that are surrounding it that I own and my experience with the property management there. We then walk through the Excel model. It’s a super quick and easy one-page Microsoft Excel model that backs them into a number. We go over some best-case and worst-case scenarios for how the asset could perform and I’m completely transparent. It’s all done probably in a 30-minute to an hour Zoom call in which case I present for about 30 minutes and they ask questions throughout. I have a good idea before you even go into that call if it’s a deal that someone would be interested in or not. These are people I’ve known, liked, and trusted for years. That’s how I’ve gone about it.
After the fact you guys got the deal, you’re moving forward. It’s in an LLC. You mentioned that they’re limited partners. They don’t necessarily have voting rights or decision-making.
That’s exactly right. We have an operating agreement, which is a legal document between myself and the other individual. It goes through each thing when we’re intended to sell. We could hop on the phone at any point in time. That’s business. It’s all about trust and relationships. As long as you’re communicating with each other and letting them know, “We might consider selling this asset. How does this look for you from a capital gains perspective? How is this going to impact your taxes?” Those are important things. Constant communication is imperative in this business.
Constant communication is imperative in this business. Share on XI have a good friend and he speaks every year on our Generations of Wealth Voyage which is our cruise. He puts out a newsletter and I was reading it. It comes out I think twice a week. He talked about the eight Ds of business. Each one is something different that you should look out for. The one that caught me by surprise was he talked about drugs. Specifically, an operating agreement should have language in it that talks about what if one party becomes addicted. It doesn’t have to be necessarily drugs.
It could be addicted to anything or they’re not performing. I know very few people who put any of that stuff into their operating agreements. It could be not their choice. They can become impaired from a car accident or they can no longer physically do what was required of them in that original operating agreement. Jeff Watson is the attorney. I don’t even know Jeff’s email address or his information but you can start googling Jeff Watson and you’ll find him or check out his information at my website TheGenerationsOfWealthVoyage.com for the cruise.
That’s great advice. Honestly, that’s something that I’m taking away from this learning from you because I don’t have anything in there that says, what if I become impaired or unable to perform the tasks? That’s something I’m going to want to go back and have a conversation about. I appreciate that. That’s great advice for me.
I’m trying to remember all eight Ds. I know there was death, divorce, drugs, and disability. I can’t remember the other ones off the top of my head, but it was interesting to think about.
That’s a key takeaway for me.
What’s Next
What’s next for you? What do you want to see happening in your real estate journey?
What’s next is I would love to grow the portfolio to do a little bit larger deals. I’ve primarily been focusing on those small 2 to 4-unit properties. I would love to do a little bit larger deals. I’m still staying in my wheelhouse and making sure that we’re doing good underwriting. It’s not something too large to handle. I like giving back. Many people have been incredibly helpful in my career.
I do have an advantage getting started young where people want to help the next generation as your show name implies. Many people have helped me at the beginning of my career so I love giving back to people who are looking to get started in real estate. I have friends. I have friends of friends who reach out looking for advice on buying their first duplex and triplex.
I’ve started Keating Capital Consulting, a mentorship program that is less of a program. It’s more of we’re going to have conversations and I’ll help you underwrite your first deals. Hopefully, we’ll get you on a path to success and also have fun while you’re doing it. I’ll introduce you to my network of brokers, lenders, maintenance team experts, and attorneys. I love helping people get started in real estate. I’m so passionate about it. I love it so much. It’s a great career to be in.
I know that we’re going to have the contact information for you. Everybody can go to TheGenerationsOfWealth.com/consultwithtom. You can check that out if you want to get a hold of Tom and see if he’s a good fit to help you out in your journey. A lot of people know that I asked this fairly often. Tom, what’s one question I should have asked you that I did not?
What has led to my success to this point are three things. One is people. I’ll mention this over and over again, mentors, advisors, and people who’ve been in the experience longer than myself or maybe longer than you. Sharing their experience, telling these stories, and helping me with running the numbers are super important.
The next thing is to know your numbers. There’s no good deal with bad numbers. You have to understand what the numbers are. Finally, it’s a risk. What could go wrong? Plan for that. Keeping leverage to a reasonable level is important. Working with good partners that you know, like, and trust is important. Getting good tenants in your building, and conducting good background checks and reports. Those are three things that are imperative to success in the real estate industry.
No doubt about it. The fun thing about this business and the frustrating thing about this business is it constantly changes as technology changes. When I started, we used to advertise in newspapers and buy and sell property in newspapers. I know that’s funny now to think about it, but that was what we did. Twenty years from now, we might be laughing and joking about how we used Facebook Marketplace. People are like, “What the hell is Facebook?” We don’t know. That’s the exciting part and potentially the frustrating part because you can get stuck in a rut and get left behind as well.
That’s the good thing about having mentors, people like yourself who are willing to help anybody and do the analytics on deals and help them out with that. I appreciate you coming on the show and sharing your knowledge. I didn’t want to bust on you too much about our age gap but you and I had talked about that a little bit pre-show. I did want to compare it because there is a lot of knowledge that we can share back and forth.
Also, when I’ve been through a shit show that I’ve been through, I like to be able to let people know what I think is going to happen but there are no guarantees. The downside with that is I’m going to be more conservative potentially. That keeps me out of deals that maybe I should do, but we still always have a little PTSD about losing everything.
That’s exactly right. It’s great advice. It’s better to be overly conservative than overly aggressive. It’s been an absolute pleasure. Thank you so much for having me. I appreciate it.
It’s better to be overly conservative than overly aggressive. Share on XI look forward to seeing what you do in the future. To everybody, thanks a lot. If you’ve just found us, it’s great to have you. If you’re with us every episode, thanks for coming back. Please share this. Tell your friends about Generations of Wealth. Tell them to go to TheGenerationsOfWealth.com. They can go and watch every episode that’s been released. Also, you can go anywhere that hosts podcasts. Try and spread the word as much as you can. Give us all the likes, shares, love, and five-star reviews, depending on where you find us. Until the next episode, go out and live your vision. Love your life. Thank you.
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About Tom Keating
Tom began his real estate journey at the young age of 22, fresh out of college with nothing but $10,000 in student loan debt and a strong desire to succeed.