LUR 115 | Commercial Real Estate

Want to invest in commercial properties but not sure where to start? Today’s guest has the answers you need! Prashant Kumar is the owner and CEO of My Realty Gains, with a passion for assisting ultra-busy professionals in identifying great investment opportunities and making their money work for them while they sleep. He joins Lisa Hylton to break down how you can take the first step into passive investing through commercial real estate properties with multifamily syndications. Tune in as he shares valuable advice on finding the right markets, projecting future growth, and what to do before making that jump on a property. Stay tuned!

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Make The Most Of Your Passive Investments In Commercial Real Estate With Prashant Kumar

I have a special guest on the episode. Prashant is the owner of MyRealtyGains. He is passionate about assisting ultra-busy professionals in identifying grade A investment opportunities and providing stable cashflow returns and long-term capital appreciation by buying those assets. He has acquired and managed over $32 million in real estate. He has appeared in over 100 podcasts with various hosts, and he runs webinars and meetups, writes blogs on real estate investing, and speaks on real estate subjects across the country. Welcome to the show. How are you?

Lisa, I’m very well. Thanks for the great introduction.

You’re welcome. I’m super excited to have you on. My episodes are broken into three parts. We get into your background, a little bit about you, and what you’re all about. We’ll get into the meat of the show and then close things down with the level-up questions. I want to ask you, “Where in the US do you live?”

I live in Long Island, New York.

What do you and your family like to do for fun?

I always have liked adventure sports, although I don’t have that much time. If there’s one thing I always do is my meditation. I meditate, and I help others meditate also. I’m a certified trainer, and I do that voluntarily. My family supports that endeavor of mine. It may not sound fun, but it gives a lot of peace to my heart. I get the benefit of it. My family gets the benefit of it, hopefully somehow. My goal is to impart and teach everybody how to gain peace in their hearts. That’s my favorite pastime. I would do that any day, every day, the whole day if I have time.

I want to transition right into the meat of the episode. Can you share how you got started investing in real estate?

I started in real estate by accident or by force, I would say. One of my family members buys single-family homes. He pushed me into buying three single-family homes a year. I bought them. After months, I realized that’s not something I wanted to do. Even though he still does that, he has properties all over the country. I moved on to multifamily right away. I bought multifamily for myself, but then I realized money was insufficient. I had to start doing the syndication. This was my journey from single-family to owner of multifamily to 450-unit syndication within one year.

LUR 115 | Commercial Real Estate

Commercial Real Estate: If you want to get into multifamily, the only space is syndication.

 

What year was that?

This was years ago.

Did you transition from single-family to purchasing your small multifamily or large multifamily?

Initially, I bought this small multifamily for myself, 24 units. After that, I bought a slightly bigger one for myself.

Can we talk about you buying that initial 24-unit? A lot of people who read the show sometimes they’re like, “I would buy a 24-unit or 30-unit, anything under 100.” Can you give maybe three things that were beneficial for you in making that acquisition and even the subsequent acquisition that was less than 100 units?

You have to find somebody you trust when buying a property like that. Knock on wood. I was lucky at that time. I found an old friend of mine who was a wholesaler. It was only nineteen days from the day I signed the contract and the day I closed. I visited the property on the 12th of December. I remember that because that’s my birthday. By the 29th of December, I had closed the property. All is said and done in 19, 20 days because I had a wholesaler who had connections, bought properties, and held my hand.

I was on the phone for a whole day. That’s an unusual scenario. Twenty days closing doesn’t happen at all. What I’m saying is if you trust somebody’s giving you a good deal, go ahead, and make the purchase if you have some money. Follow somebody’s footsteps. It doesn’t matter whether you are a leader in the pack in this business.

For that particular deal, I envision it was owner financed or all-cash?

Follow somebody’s footsteps. In this business, it doesn’t matter whether you are a leader or a herd in the pack. Click To Tweet

The bank gave me the loan.

The bank gave you a loan in nineteen days?

The bank wanted to close it before the 31st of December. The bank said, “I will give you the loan.” He came and visited the property. “I’ll give you the loan as long as you can close in twenty days.” I said, “I’m going to close that.” We did that in twenty days.

One other question that also comes up is, “A lot of times when people are moving into commercial, some lenders years ago it was an issue, but these days some lenders are asking for experience. How did you overcome or deal with that?”

That time, I was moving to the right place at the right time. Years ago, it was different. I had some experience in multifamily, but in single-family, before that, I had months’ worth of experience, plus my balance sheet was okay. My W-2 was very strong at that time. The lender knew my friend because he had bought three assets through the bank. It all came together. The lender came and visited the property the same day I visited the property. The lender had seen the property before I came there. It all worked out fine. Follow the leader. If you have somebody, have them sign on loan with you.

Not only was your friend the wholesaler in terms of bringing that deal, but he also helped because he had experience purchasing multifamily, and he had connections with the bank. The bank had financed other properties that he had in the past.

If not for him, I would not be in this business. What I say is find that leader for you whether you join a group or meet somebody like yourself. Connect with those and hold their hands for some time, but not for a long time, because you are following in their footsteps.

Do you still own that property?

LUR 115 | Commercial Real Estate

Commercial Real Estate: Have your relationship with those investors so that you can capitalize on that in the future, irrespective of how small the investor is.

 

I still own that property. I bought it for more than $1 million, and it is appraised at approximately $2 million. That’s sleeping. I don’t do anything. I’d just touch my phone. I’d send one text to the property manager and ask her, “What’s going on in the property?” That’s about it. It’s a cashflowing property and appraised $1 million more in years. What else do I want?

That lit the fire to get into further multifamily. What was the moment that you realized that you needed to do syndication?

I did not realize that I had to do syndication. I was buying this property, and then I started attending many of these seminars, Jake and Gino, Radcliffe, you name it. I started going there, and I didn’t know what syndication was. As I had developed so many contacts, I was able to connect with so many syndicators, and one of them approached. I come from a decent background in my corporate world. I present myself hopefully differently in some ways. Somebody approached me, and they said, “Do you want to help out in this project with us?” I said, “Yes, I will help out.”

It was a difficult project. I put myself on the line. I brought my money and my investor’s money in. I signed in the loan. With the collaboration, we closed a big deal. It was 450 units. It did work out well. That deal is cash flowing from that day and I got the check. I’m an equity partner in that deal. I manage some responsibilities on the asset management side also. Whatever I invested in grows probably 2 to 3 times in 2 to 3 years. Overall good stuff.

Given your experiences, what advice would you give to people thinking about moving into the syndication space?

If you want to come into multifamily, the only space is syndication space. You can buy some things by yourself, but soon you realize you can buy only 1 or 2 projects. Someday, even if you have $1 billion, money will dry up. You will not have enough money. You have to utilize the investor’s money. Don’t use the word OPM in multifamily. In single-family, there’s a lot of OPM. In multifamily, we say investor’s money where a higher goal secures your goal. Your goal is to create value for investors. When you do that, you get paid automatically.

Respective of whether you have money or not, if investors start trusting that you will guard their money with your life, and you will not make the wrong decision, it will harden investors’ interest. The moment they start trusting you, they’ll start giving you the money. Once you build that trust in the industry, it’s exponential growth. It’s organic growth also. You have one investor who brings three more. Those three more bring another three more each. Have a good relationship with those investors impact. You can capitalize on that in the future. Respective of how small the investor is, never say no to them. Try to accommodate them.

I have had investors who want to invest $25,000 many times on a project which I usually take $75,000 or $100,000. To create a space for them, I allowed them to start feeling out. I allowed them a little bit, not a lot openly. I allowed them to invest in getting the benefit out of the project. Once they see the benefit out of the project, over a period of time, they’ll start investing more with me.

You cannot take past growth as an indication of future growth. Click To Tweet

This leads nicely to, “Can we talk to passive investors now?” For people who are busy working professionals and they want to invest in multifamily real estate. Multifamily is your specialty. You also do another asset class, right?

I do assisted living also.

We’ll touch on assisted living. We’ll stick with multifamily. As they look at properties in the current market, as they are introduced to them in the current marketplace, what are some key things they need to look at? As someone on the other side of the table who knows more and comes with wisdom, what are some things that passive investors should look at to ensure that they’re protecting their capital as they deploy them?

We have to look at the growth potential in the market. That is the bottom line. Anything else, you can talk about crimes or whatever you want to talk about. The fundamental is what are the economic drivers of this market in the long run? What is happening in the market? What has happened is not what matters because that is in the past. I cannot take past growth as an indication of future growth. I can project future demand. As long as I can project the demand for employment in the market, I can project the rent growth for my multifamily.

That’s a fundamental truth. Employment growth is the driving factor of any market. If there’s no real evidence of employment growth in a market, I will stay away from those markets. I’m talking about today’s world, the current market as of July 1st, 2021. We are already at the peak of the curve. We are probably starting to slide a little bit somewhere in some markets. In some markets, we are still going up. Our projection is which markets have higher incoming jobs? Where are people moving in? Markets like Texas, San Antonio, Houston and Dallas. I love the Texas market, but there are markets like Boise, Idaho, you name it, where people have been moving, and there was a lot of job growth.

You have to understand when the job grows, the demand for multifamily increases multifold. It is not just one employer means only one employee will move there. It is also about how many supporting jobs will get created there. Amazon coming in at a certain location doesn’t mean that only 2,000 jobs will be created for the Amazon warehouse. How many supporting jobs will be created there, and how many people will move in from different places in that market?

I’m working towards my CCIM certification. I have learned it in depth. I plan to probably teach this a little bit or make a creative webinar on this topic. How to calculate the demand for multifamily in a market, depending upon your economic drivers? Once you know that, then you will know the rents will grow. If the demand is much higher, then rent will go much higher. Plus, you have to see how much new inventory is coming into the market. Demand minus new inventory is the leftover inventory, pressure on the leftover inventory. When the pressure gets created on the leftover inventory, the rents start to grow up.

Can we talk a little bit about interest rates? Interest rates are super low. The housing market in buying single-family homes is hot across the country regarding very high prices. Inventory is on the market for a very short amount of time. A lot of multifamily acquisitions sometimes use temporary loans. Can you talk to passive investors about what your stance is on these temporary loans in the face of an environment where interest rates might increase in the future?

LUR 115 | Commercial Real Estate

Commercial Real Estate: The best investor is reading the articles on the internet.

 

As a passive investor, you should know whom you are investing with. If I’m a passive investor investing in stocks, I do my research completely about the stock. What’s the P by E, volatility and so on. I track it for years, months, and then I keep on buying or reselling. Similarly, we have to track our sponsors to see what they do. Are they taking risky loans on their properties?

If you are going to the bridge products, bridge products have a little bit higher rate. Bridge products are very good, but eventually, as the rates rise, the rates will be higher when you convert from bridge to perm. In the underwriting, as a passive investor, you should know what the impact is and if that impact has been considered in the underwriting of the sponsor or not.

Lisa is a good syndicator. I would be dumb enough to invest the money in Lisa’s project if I did not know what loan we have and what refinancing has Lisa included in her underwriting. If I say I’m taking a bridge loan for 4% and I’m going to convert it to perm financing, I would be the fool here. We have to make sure that our assumptions are correct. You can get a ten-year permit at 2.75%, but can you get that ready ten-year term, and they are fixed after 2 or 3 years? After three years, maybe 24.75%, who knows? What does the underwriting say?

It’s very important for investors need to know if it is a bridge product. If it is a perm product to begin with, and if you have a ten-year perm, then you are good. You don’t have to worry. Most likely, you’ll exit from that perm within ten years anyway. If the returns are projected, how are those returns projected on paper, and are they risky assumptions?

People wouldn’t invest in a deal that has a bridge alone. You want to understand how the underwriting on this property has considered that potentially in the future, interest rates will increase. Are they factoring in higher interest rates when they might potentially need to get permanent financing at a later date? Those are some of the things to think about.

Another key assumption that I’d love for you to talk about, given your deep experience with the CCIM designation and having gone through that experience, is cap rates. None of the things that we talk about here should be looked at in a vacuum or solely, but in combination, they’re good to think about. Could you talk about your stance on cap rates, especially from a perspective of initial versus exit cap rates on what they should look like and anything else on the side of the cap rates?

Cap rate is an investor’s way of evaluating a market. Atlanta is below 5% or Houston, Texas is 4.2%. Cap rate is a way to divide by the property’s purchase price. If the market goes down, the cap rate will get decompressed. If the interest goes up, the market will likely come down a little bit or some correction. As with everything else, there’s always a change happening. You cannot continue to go in one direction. There will be a downward slope.

When that happens, most likely, cap rate will get decompressed. You may be buying at 4.2% in Houston, but are you considering selling at 4.2% after years? In the underwriting, you need to look at how savvy the syndicator is. You always have to create some caution at least ten basis points a year, maybe more. Maybe 50 or 20 basis points. To begin with, at least ten basis points, if I’m buying something at 4.5%, I should project that I’m able to create certain returns for my investors.

Employment growth is the driving factor of any market. Click To Tweet

Ten basis points per year to 4.5% to 5% or 5%to 5.5% cap rate. The cap rate itself doesn’t tell us much. It shows how conservative we are in our projections for the future. Can it be off? Yes. Can you be off? Yes, you can be off. You will be doing a disservice if you project returns at the purchase cap rate. Maybe you are lucky. You can buy it at 4.5%, and you’ll sell it at 4.2%. That’s icing on the cake. You cannot go to a syndicator who’s already over-promising you. As a syndicator, you have to look for underwriting.

We covered a lot of good stuff here. One other thing that I wanted to ask you about in the vein of passive investors, probably also connected to underwriting, is the assumption on rent growth. Can you share with passive investors as they’re looking at these multifamily deals? Any advice you’d give them when they’re looking at the rent growth projections to get comfortable?

The whole business depends on rent growth, the entire multifamily. That’s one thing that needs to be researched correctly. Many reports need to be read, and we have to determine how much the market has been. To my earlier point, past performance is not the indication of future promise and future growth. To me, I would look at the demand and then try what can be my rent growth rather than my historical information. Your rent may be growing 3% to 4% in a year over the last years, or 5% or maybe 7%. If the market starts slowing down, the rent growth will go down.

What is an easy way for passive investors to check demand?

For a passive investor, it is easy. What is the passive investor doing? The passive investor is reading the articles on the internet. Google companies moving to employment growth in Atlanta, Indianapolis, Austin, Texas or Salt Lake City, Utah. The moment you type that, you see articles. You start to feel the sense of how much was the employment growth in a few clicks away.

You can find out anything and everything about the city within fifteen minutes. In a couple of articles, you know what’s going on in the city. When you start reading about multiple cities, then you know what’s going on in those cities. You know that this city is on the right track. How much it is, you don’t know. You look at the underwriting of the sponsor. How much is he projecting? Maybe he’s right. Perhaps he has not looked at demand, which is all right. He has been lucky to project something, and it’s happening. If you know a little bit, then you can validate the assumption.

It’s all about reasonableness. Is it fully reasonable? As a passive investor, you don’t have access to CoStar and all these things. It’s all about, “What are some of the ways I can gut-check to make sure we’re going in the right direction and that things are looking good?” One more thing before we get to the level-up questions, I wanted to touch on assisted living. Can you share your decision with passive investors or investors, in general, to add assisted living to your portfolio of investments?

I started investing in assisted living from a deeper feeling to help others, especially elderly people. That was my real motive. As with anything else, this is also a business, and it’s a good cash-flowing business. If you know how to run it, it can be a very good business. It is more management intensive. You have to have the right third-party property management company. It is not giving the key to the tenant, and you potentially may not see the tenant for the rest of the duration of his day or years later. You see your guest every day, whole day, morning until evening, in sickness and health.

LUR 115 | Commercial Real Estate

Commercial Real Estate: Everybody has money in their bank accounts, and it’s just losing value.

 

You have to have the right team to take care of that property for you. You get involved with more. The asset management is a little bit more because you are the one who’s making decisions for the property management company. If somebody comes in, they tend to stay with you for the rest of their lives as long as you take good care of them.

It’s pretty stable. You have good cashflow there, typically much higher than multifamily. If you can have a couple of them in your portfolio, that’s it. You don’t need anything else. It’ll be enough for you to lead your life properly. It’s not every day somebody’s selling these multifamilies. Passive investing’s more of a consistent, stable cashflow without too much of a ripple effect and typically higher returns than multifamily.

Has it grown that much? It has not. Would it grow? Whether reading in the newspapers or doing research, it seems like a growing industry. It is a very growth-oriented industry. Nobody’s getting younger. From that perspective, there’s a need there. As with multifamily, you need a place to live. Similarly, as you get older, you need a place to live, too. It’s a great asset class to be involved in.

This brings me to the level-up questions that I ask all my guests to close things out. What are you grateful for in your life?

I’m grateful for a lot of things. I would say my mind, which keeps me sane. I don’t get involved in funky stuff in my life like everybody else. I’m grateful that I’ve been able to take care of things in my life, my family and my parents. Every day I have gratitude in my heart, but nothing else.

What has attributed to your success and continuous growth?

Success has not come to me easily. It is not by luck. Luck is always there. Luck favors those who deserve it. Nothing succeeds success. Your hard work gives you some success, and you keep working on it. Keep on pounding. Keep on taking bigger steps in your life. You get success out of it. Sincerity and persistence are two important things.

What do you now know that you wish you knew at the beginning of your real estate journey?

Past performance is not an indication of future promise. Click To Tweet

If I knew real estate when I wanted to buy my single-family, I would have been in a different space altogether. I feel lucky that I moved from a single-family to multifamily very quickly. I’m very fortunate that way. Could I have started my real estate journey much sooner? I would close my eyes. If you give me $1 million, I would say. I would’ve done it. It’s an amazing asset class. I love real estate. I love helping people. Everybody has money in their bank accounts, and it’s losing its value.

Inflation is high. Your employer is giving the 3% raise. You don’t realize that you are losing money in that raise, and you have $100,000, $200,000 or $500,000 sitting in your bank account. They are going down as every day passes. This asset class is amazing. Passive investing brings me so much cash in my pocket. I invest especially in other’s projects too. It brings money. It keeps coming.

On top of it, I get the depreciation benefit. You take that advantage of those depreciation benefits by doing nothing. I’m not a nerd looking at the stock market the whole day. I invest once, and that’s it. Once in a while, all I do is check my emails to see what is going on in the project. Talk to the syndicator once in a while. I have never called any syndicator. I read their reports. That’s it. They’re doing their job.

It’s an amazing asset class. It gives you so much depreciation, depending upon your level of income. Whether you qualify for professional real estate or not, that depreciation sits on your account as a loss forever until you utilize it completely. If you can start saving $2,000 per month in a year, you save $25,000. You invest that, put it in the spreadsheet, and compound growth by a 15% yearly return. Do that exercise for me. Your eyes will open up how much money you will have at 35. Considering that you started earning at the age of 25 and 10 years, you would have more than $1 million in your account. Twenty years, it would be more than $10 million. It’s a very powerful tool.

I’m so grateful that you came onto the show. There are so many good nuggets in this episode. It’s going to deliver some good information or tip. Passive investors interested in investing and people interested in breaking into the multifamily space are reading your story. If my readers want to learn more about you, what’s the best place they can go to learn more?

They can learn more about me on Facebook, on my website. My website is MyRealtyGains.com. Prashant@MyRealtyGains.com is my email ID. Prashant Kumar on Facebook and LinkedIn. I have another website, MultifamilyRealtyGains.com. Feel free to drop me an email. I would love to talk to you.

Thank you so much, Prashant, for coming on. You are much appreciated.

You’re very welcome, Lisa. Thanks for having me.

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About Prashant Kumar

LUR 115 | Commercial Real EstatePrashant Kumar, CCIM is an Enthusiastic, Passionate and Goal Oriented Multifamily Operator. He applies his 25+ years of experience in corporate America to analyzing Income & Expenses, calculating Net Operating Income (NOI) and calculating Purchase Price based on NOI and Market Cap Rate. He acquires and holds stable, income producing multifamily apartment complexes in emerging US markets with long term capital appreciation. He runs meetup in NY and runs online masterminds with many groups. He does JV and Syndication deals. Along with Multifamily, he has passion to purchase Assisted Living Properties. He lives in Long Island with his wife, daughter and son.

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