GI201: From Engineering to Fulltime Apartment Investing with Deepareddy Akula

GI201: From Engineering to Fulltime Apartment Investing with Deepareddy Akula

Deepareddy Akula is a full-time real estate investor and multifamily syndicator based in Seattle, Washington and is a General Partner in 1300 units and a Limited partner in 1700 units throughout TX, AZ and FL. She holds a Master’s degree in Mechanical and Aerospace Engineering from the University of Missouri-Columbia.

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Announcer:
Welcome to the Global Investor Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host Charles Carillo combines decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now, here’s your host, Charles Carillo.

Charles:
Do you have money sitting in the stock market? And you’re worried about it or worse. You have money sitting at the bank, not keeping up with inflation. My name is Charles Carillo, founder and managing partner of Harborside Partners. And since 2006, I’ve been investing my money and my family’s money into income producing properties. These are real assets, real properties with real addresses that produce real cash flow. At Harborside Partners, we provide passive investors who love real estate with a turnkey investing solution. If you want to put your money to work in real estate, but can’t find deals, don’t have the time to get funding in. The last thing that productive people want to do is manage real estate. We find the deals. We fund the deals and we manage the tenants, the termites and the properties. Partner with us at investwithharborside.com. That’s investwithharborside.com. Go to investwithharborside.com. If you love real estate, you like the idea of passive income and believe that income producing properties will appreciate over time. Go to investwithharborside.com. That’s investwithharborside.com.

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host Charles Carillo. Today we have Deepareddy Akula. She is a full-time real estate investor and multifamily syndicator based in Seattle, Washington and is a General Partner in 1300 units and a Limited partner in 1700 units throughout TX, AZ and FL. She holds a Master’s degree in Mechanical and Aerospace Engineering from the University of Missouri-Columbia. So thank you so much for being on the show.

Deepa:
Such a pleasure. Thanks for having me. Charles. How’d

Charles:
I do with the name? Was it fine?

Deepa:
Yes, it was perfect, yes.

Charles:
Okay, good. Thank you. So tell us a little bit about your background, both personally and professionally prior to getting involved in real estate investing.

Deepa:
Yeah, sure. Yeah. So as you mentioned, I have a master’s in mechanical and aerospace engineering and my background has always been in mechanical engineering. And I’m an immigrant from India and got my master’s in University of Missouri. But unfortunately I graduated during the Great Recession and also I did not know that Boeing, who paid for my master’s, I got a free ride. Boeing, who paid for my master’s, whom I was doing all the research for, was not hiring foreign-born engineers who didn’t have a green card after nine 11. Oh, wow. And I found that out a little too late. And I was researching different fuselage materials for Boeing on how to make ’em stronger and how to get the heat affected, zone smaller. And one, everybody that worked with me and for me, all the bachelor’s students that worked that did research under me, they all got hired <laugh>.

Deepa:
I was the only one who didn’t get hired. So I was like, okay, what do I do? My only options are to find something else and pack up and leave the country because I was an immigrant. And fortunately at that time the only job I got, I at least got a job offer was in, was in civil engineering. Hmm. So I was like, okay, you know what everything I’ve done so far in my, in my life research-wise was designing things that fly and move. Now I’m in civil engineering and we don’t want our structures to move. And you know, I worked in civil engineering for years and got my professional engineering license when I was practicing engineer, I had I was licensed to practice civil structural engineering in nine different states. And yeah. And from there I kind of moved on little by little over into real estate.

Deepa:
As I was working, as I was earning my w2, I got, I was looking for options to lessen my tax burden because me and my husband, we are living in Seattle and we were paying, getting close to six digits on paying taxes. Wow. So we’re like, okay, you know what? There has to be a way to reduce the tax burden that that’s just way too much leaving. You know, it’s all about how much you keep and not about how much you make. So we were making, making this money and not keeping all of it, or most of it, well, we were keeping most of it, but you know, a big chunk was going to the towards tax liability. And in my research and in my quest for tax havens and, you know I, I got into real estate, I learned about syndications and started slowly investing as a limited partner. And step by step I became a general partner. And that’s what I do now full-time.

Charles:
Awesome. And that’s, and one thing there is that when you’re talking about your tax burden, Washington doesn’t have, Washington state doesn’t have income tax. Yes. So it is all federal that you’re talking about <laugh>, that’s how Yes. Crazy. That was. Yes. Well that’s awesome. So taxes were what brought you to real estate investing and what brought you to kind of let’s talk about like, you know, you’re, you got involved, I imagined passively first. Is that correct? Is that how you started investing in real estate? Yes, yes,

Deepa:
I did. So I’m a big avid reader. I’m reading books. If I’m doing anything, my chores or whatever, I’m always listening to a book or podcast. And I got introduced to the idea of the Four Hour Work Week by Tim Ferris. Yes. And that great book really intrigued me cuz it was an amazing book. And I was like, oh, there’s another way to live not just eight to five or nine to five. And that kinda, you know put a seed in my head to look for alternatives. And that kinda got me to real estate syndications as I was reading through. I, I got to syndications and I didn’t know back then, you know, all of these were 5 0 6 B deals, so you need to know somebody to invest with mm-hmm. <Affirmative> and I did not know anyone that I could invest with. I knew that this thing existed, but it was just out there.

Deepa:
Mm-Hmm. <affirmative> and I kind of put a couple of feelers out and one of my friends said, Hey, I know this person who’s doing it. I don’t know how good he or she is, but just, just, you know, I’m not vouching for them, but you’re doing due diligence, but I’ll make an intro. And she introduced me to this person. And we are partners now. We worked together Awesome. And I started investing as a limited partner and as deals went full cycle. But even before I invested as a limited partner, I knew how to underwrite a deal. It’s my engineering side. I’m good with numbers and I like numbers. I like being in spreadsheets and I knew how to underwrite a deal and I don’t recommend that everybody know how to earn a deal before you start to invest because you lose a lot of time.

Deepa:
Yeah. I had analysis paralysis. I was on the sidelines for three years and it was a bull market. I wish I started investing. Yeah. But yeah I started as an LP and invested in a few more deals and all our friends are engineers. My husband’s an engineer, so just by the virtue of us both being engineers, most of our network are all engineers. And they started asking, how can we invest? And I I was like, oh mate, I’ll just see if I can get you in the deal. But, you know, they couldn’t get into the deal if un unless I was a general partner. And by that time I was already on asset management calls and you know writing investor reports or at least helping write investor reports. So the G p was like, why can’t we just make it official? Be on a cog P position, you could raise capital beyond the a asset management calls and write the investor reports. So that’s kind of how I got started.

Charles:
Interesting. So that’s great. So you were able to trans like really transition from an LP to a GP with the same sponsor. I’ve never heard that before. Usually it’s like most people start with an LP and then they’ll move into a GP role maybe with the on their own find their own partners. Right. But you literally what was, other than raising money, what has, like, how have your roles kind of changed? I imagine you’re much more on the underwriting side for your, your group now. Is that correct? That’s what you focus on?

Deepa:
Actually no. <Laugh> Okay. No, as, as much as I love underwriting so I do underwrite, but that’s just for myself to see if I wanna work on a particular deal or not. But going back to, you know, you, you have an interesting point going back to, like you said, you’ve never heard people transition into a GP deal with the same, with the same group into a GP in the same group. Both. I invested with two different groups as an LP after doing due diligence on them. And I’m a GP with those two groups right now <laugh>. So it’s in both of them. And you know, what I do is I’m on the due diligence team. I go out because I’m a structural engineer that helps to mm-hmm. <Affirmative>, you know, to just look at the structure and different things. I’m a civil engineer. My civil engineering backgrounds helps out to be onsite. I’m on the due diligence team. I raise capital and I’m on investor relations side and I, I love talking to people and explaining and I’m on asset management calls <laugh>, and I write the the investor updates, the monthly investor updates.

Charles:
So when you were doing the transition from passive investor to active real estate investor what were some of the lessons I guess you learned during, you know, from passive investing that you brought along with you into becoming an active investor, maybe becoming a better active investor because you knew those lessons?

Deepa:
Oh, yes. Thank you for that question. So, because I was investing my own money as an LP and I knew I was a pain in my neck, you could ask my gps, I had asked so many questions <laugh>, and they, they would ask, Hey, I was like, Hey, in this PPM over here, you called this, this thing. And in page number 46, you call it something else, <laugh> and they’re like, did you really read the pp m the whole thing? I was like, yes. Three times. Do people really not do that? They were like, no, <laugh>. So they, I I just, you know, just by my background engineering and being diligent about reading documents, I just would dig deep and learn everything before signing a document. And that came in really handy when I was raising capital for my own deals. Yeah. I had all these questions that I would ask mm-hmm. <Affirmative> and when someone asked really tough questions because I was there and I had asked these tough questions to my general partners, I can, I can see and understand and answer them better. Being on this side of the fence now,

Charles:
Because you were answering a lot of questions from other engineers and you knew that you Yes. Right. <laugh>, I have to say I have read ppms before. I’ve never read one three times, so you got me beat there. But I’ve read it and I’ve realized with a lot of different, depending on their law firm you’ll see a lot of, it’s like boiler plate, boiler plate for like 20 pages. And then you’ll see something that’s like where they actually change something or like where the numbers are. And then that’s, that’s where I’ll like really focus in when I’m doing it now. But it’s cuz that’s where they’re talking about the splits and the spreads and waterfalls and all this kind of stuff that they’re trying to do. But three times that’s, that’s remarkable. That’s fantastic. That was

Deepa:
The very first time. But you know, like you said, now I know what to look for. I do skim through it and if it’s boiler plate, I do skip over it now. So

Charles:
Yeah, I think the attorneys, they have a boiler plate and then there’s like different, they just have a number of different fields that are the ones that get updated and they make it in different fonts, so it is easier to do it, but Right. That’s great. That’s great. So whereas as an engineer in you’re, I imagine a conservative underwriter when you’re reviewing properties and when you’re reviewing deals, and even though that’s not what you focus on per se with your group you definitely are reviewing these deals before you get involved with them or your group gets involved in, I mean, what are like specific types of deals or deal parameters that you will not touch because you feel it’s too risky or, and or like what does conservative underwriting mean to you per se?

Deepa:
Yeah, you know, conservative underwriting is just means so, such different things to different people. Yeah. And, you know so the very first thing I would look at just for the property, for the deal, you know, after making sure that the market and the jobs and population growth, just the macroeconomics of the market, once that is in place that checks the bar the first thing I would look for in the property is how many units mm-hmm. <Affirmative> because there’s certain number of units where we start to see economies of scale actually kick in where the property can speed out in enough cash flow to have its own crew, have its own onsite staff. Mm-Hmm. <Affirmative> a leasing officer, a community manager and and maintenance technicians. Some people say it’s around 70 to 80. I would want a safety factor of two, so I would really not work on any properties less than 150. Units. I’ve been fortunate to just start big in the very beginning. You know, a lot of people start small and then, you know, just graduate to bigger deals. I’ve just started big been lucky in that sense. And the debt service coverage ratio is, is a big thing for me. I would lenders lend at anywhere between I would say 1.2 to 1.25 debt service coverage ratio. Even though

Charles:
Can you, oh, sorry, can you explain that a little bit to somebody that’s listening?

Deepa:
Yes. So it is also a safety factor. A debt service coverage ratio is how well you could cover your mortgage, your senior debt from the income that you’re generating from the property. So if your mortgage is let’s say a hundred thousand dollars a month, which is really high, but for ease of numbers mm-hmm. <Affirmative> your, your property has to generate at least 125,000. Okay. For, for the debt coverage ratio to be 1.25. So, so the, the lender just wants a safety factor, a cushion so that you are not generating a hundred thousand and all of it needs to go to your to covering your mortgage. How do you run the property mm-hmm. <Affirmative>, so that, that cushion, I would like for it to be a little bit bigger mm-hmm. <Affirmative>. So yeah, the, just the, if, if the number of units where we make sure that the econom economies of scale is there and then the debt service coverage ratio and make sure we implement the business plan so that the n O I keeps on increasing, then the net operating income keeps on, it’s on the up and up.

Charles:
How is your, we’ve, we’ve over you know, over the past year I guess over the last several months, but by the time this goes live, it’ll be over the last almost year that interest rates have been going up. I mean, how has your team been able to find deals that still pencil and then be able to protect you know, protect with rising interest rates? Are you guys doing, are you bridge you know, you do a lot of bridge financing with rate caps or are you strictly doing fixed fixed rate debt?

Deepa:
So there has been a transition in the past few months, I have to say at least six months. Mm-Hmm. <affirmative> fortunately all the properties that we bought last year or in 2021 and early part of this year were all bridge loans with a rate cap. And we were thinking, ah, do we need a rate cap? But, but the fed was talking about rising the interest rate, raising the interest rate. So we’re like, okay to be conservative, we need, we need a rate cap. And that had been the play, but now we are transitioning, the last property that I worked on was a Freddy loan was an agency loan with a fixed interest rate. So there has been a transition. If we can get agency loan, we will.

Charles:
Okay.

Deepa:
It’s super scary with bridge loans and floating interest rates.

Charles:
Right, right now, yeah. It’s we’re seeing some properties, I was just talking to one of my partners earlier this week and we’re seeing properties that have, that we passed on six to nine months ago that are coming back around. And we’re also seeing properties that we looked at like a year ago, they’re going into receivership because people, I mean, you’re were, you know, three and a half percent or 4% higher than what they signed on. And that can, especially when you’re a very tight market and you’re buying stuff, I mean, you can’t you can’t service a debt and that becomes something that, that we’ve seen. So it is a real thing. I mean, and it’s just if we get into more of a recession, you might have lending that tightens up more or might freezes, you know what I mean? So you Right. It’s a difficult spot to be in, especially if you have a good asset. That’s the problem. If you got, usually these are good assets that are cash flowing with people that wanna rent there, but if your financing is not, you know, succinct, I guess you would say you’re, you’re gonna be in some trouble. Right,

Deepa:
Right. We have seen sorry, one last thing. No, in the, in the last few months, we have seen as the interest rates keeps going up on each of our properties month over month, we’ve seen the mortgage go up $40,000 each on each property. This was before the rate cap kicked in, but still it was, it was painful to see that. And I’m glad to have agency loan now.

Charles:
Yeah. Yeah. It’s the agency loan. If you are you know, if you’re finding deals like that and if you’re, you’re putting down that much money initially to get it. I mean it’s it definitely is it makes it a much easier sell and with your investors and then also it’s a much more consistent, less volatile type of product because you, you know, what you’re gonna be paying for the next five, 10 years depending on how long it’s

Deepa:
I agree.

Charles:
So what are some common mistakes you see real estate investors make? I know we were just talking about financing, but are there other mistakes that you think real estate investors, whether they’re syn indicators or whether they’re just active, even passive investors that make that you see regularly done?

Deepa:
Yes. I, I would say, you know, not just real estate investors, investors in general mm-hmm. <Affirmative> as a group, our memory’s kind of short. So if the, if, if the market’s on bull market and we’ve never seen 14 years straight bull market like we’ve seen in the LA in, in the, the past one and everybody’s like paying more to buy those assets and being from an a, a group that underwrites really conservatively, we were like, oh my God, you guys, the market’s good now, but think about what’ll happen if there’s a downturn. Mm-Hmm. <affirmative>. And on the flip side looks like we are heading into a downturn now. Now is the time to invest. Just don’t be afraid to invest. Now we’ll see, you know, the prop, some good deals coming on. People who did not underwrite conservatively, they’re not able to hold those properties. They may be back on the market. And if, if investors out there are sitting on cash, now is the time to invest in, in some good deals.

Charles:
So over the years of being in being a professional and then becoming a real estate investor full-time, what are do you think are some of the main factors that have contributed to your success over the years?

Deepa:
I would say my love of learning. I just, I just love to learn and if I am in a spot where I need to L grow mm-hmm. <Affirmative> like being a civil engineer the professional exam, the professional engineering exam takes eight hours and you need to pass another eight hour exam to even sit for that one. It took me about 3000 hours of shutting myself in a room and practicing, because I am not a civil engineer. I didn’t go to SI school for civil engineering. So my love for learning, and that’s kind of how that’s what kind of landed me here too in real estate. If I’m interested in something, I just constantly just dive in and learn, keep improving, love for learning and implementing it. Like, I could read all the books I want <laugh> if I don’t implement, you know, it’s no good. So I try and implement it in my day-to-day life and grit not to give up. So, so Right.

Charles:
So you’re, oh, just circling back on, on your love of learning when you’re working with other engineers, and you said it took you three years to get involved in passive investing, right. Or how are you seeing similar timeframes for other engineers that you’ve spoken to? Or do you see that shortened because they know you and it’s more of a personal relationship?

Deepa:
Yes. it, it’s definitely shortened. It takes longer maybe close to a year. Mm-Hmm. <affirmative>, but it has definitely shortened. And in my case, I did not really know anybody personally. You know, if you know a friend, they are more tending towards giving them, giving you their time. If you know a friend who’s in the field, you could just call them up. You have that comfort to just ask them all the questions. I just did not have that person. Right. I, I kind of had to read books and, you know, reading books, you have to read through a lot of information to get to the, the parts that you want to really learn. And there’s no easy way, there’s no shortcut. If you have a person, you could just ask them, Hey, this is what I’m thinking, what do you think? And, and you answer’s right there.

Charles:
Yeah. It’s, you’re getting the the cliff notes version of stuff that, what you have to look for and what you have to avoid and what mistakes you made and how to avoid that. And then they can soak that all up and that’s really shortening their learning curve and probably their timeframe for getting into a deal because now they probably understand it a lot better than they did before, so. Right. That’s great. That’s awesome. That’s an awesome service that you can provide to friends, family, coworkers, previous coworkers and colleagues from before. That’s awesome.

Deepa:
Thank you.

Charles:
So tell us how can our listeners learn more about you and your business?

Deepa:
I’m active on LinkedIn. You could reach out to me on LinkedIn. My full name is the Par Dala and please also visit my website. It’s Inside Capital with the V and those are the two places where you could get in contact with me.

Charles:
All right. Well thank you. I’ll make sure to put those links into the show notes. And I wanna thank you so much for coming on today and looking forward to connecting with you here in the near future.

Deepa:
Alright. Thank you so much for having me, Charles. It was such a pleasure.

Charles:
Talk to you soon. Bye-Bye.

Deepa:
Bye.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

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About Deepareddy Akula

Deepa is a full-time real estate investor and multifamily syndicator based in Seattle, WA. She is a General Partner for 1300 units and a Limited partner for 1700 units in TX, AZ and FL. She is a licensed Professional Civil/Structural Engineer and served as Head of Engineering for a utility pole manufacturer. She holds a Master’s degree in Mechanical and Aerospace Engineering from the University of Missouri-Columbia.

She is passionate about generating excellent returns for her investors and financial literacy. She is a published author and an advocate for financial literacy. She is the President of the American Society of Civil engineers for the Tacoma/Olympia chapter and is a standards committee member for American Plywood Association.

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