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:
Welcome to another episode of the Global Investors Podcast; I’m your host, Charles Carillo. Today, we have Sandhya Seshadri. She is a former electrical engineer who now invests in large multifamily properties in the competitive Dallas/Fort Worth market. She has invested in over 3,000 units as a limited partner and general partner, and today, she shares her perspective on underwriting deals and managing properties. So thank you so much for being on the show today.
Sandhya:
Thank you so much for having me here. It’s an honor to be a guest on your podcast.
Charles:
So please tell us a little bit about yourself, both personally and professionally, prior to getting involved in real estate investing and what you’re doing now.
Sandhya:
So, back a gazillion years ago, I arrived with two suitcases in hand, like most immigrants to go to engineering school here in the Dallas area. And I just remained here ever since. Soon after my graduation, I got a corporate job with a local company, Texas Instruments in the Dallas area. And then realized very quickly marketing and sales folks are making all the decisions while engineers are just, you know, grinding out the product. So I got an MBA part-time that my company paid for, got my financial knowledge, got into the stock market, et cetera. And then once I had children, I went full-time into the stock market, realized that, you know, the stock market was favorable, so I was doing well and my husband had a W2. We had no way to save on taxes and you know, it was a big check every year to the IRS.
Sandhya:
So I found my way to real estate. I looked into single family homes, didn’t see the margins and property values don’t appreciate hugely back in the day in the Dallas area like it has in the recent years. So I just didn’t see the margins and for making a few hundred dollars a month, I didn’t wanna be called to fix a leaky toilet for a Thanksgiving day or something. So I ended up going to a weekend seminar and they talked about acquiring large multifamily. I assume that all these large buildings you and I see when we drive around is you know, owned by billionaires and stuff. I didn’t know ordinary people like us could own a piece of it. And then, you know, with the leverage from a big loan, and I discovered the syndication process. So that’s what I’ve been doing for the last five years is syndicating multifamily, started out passively and then moved to the active side.
Charles:
So what are some of the benefits? Because I, I started actively as an active investor, but when I got into syndications, my first one was done passively just to see behind it. And this was several years ago now, like 20 17, 20 16. What are the benefits and advantages you see that you realize from being a passive investor?
Sandhya:
The biggest benefit of being a passive investor is like you get to look over the shoulder as much as you want without taking on any of the risk, and it doesn’t take any of your time. So you could be pursuing some other hobby, full-time, job, anything else you wanna do. If managing assets and running deals is not your cup of tea, it’s not your favorite thing to do. And you could learn about it just like being a passenger in a plane first before you choose to be a pilot. And that’s my favorite analogy is you even know if you like to fly. Do you like being in an aircraft before you say I’m gonna, you know, go take flying lessons and be a pilot, like at least ride a plane once. So I’m actually passively invested in 26 deals. About eight of them have gone a full cycle.
Sandhya:
It’s because I had my retirement money left over from my corporate world and I didn’t wanna take it out of retirement just yet. So I used that to invest passively. And there’s a lot of other benefits too. One, it helps me establish relationships with active syndicators. So if I ever needed help and you know, I’ve trusted you with, you know, $50,000 of my money, you’re probably gonna answer my call and give me a few tips for you know, running my own deal. So let’s say I have a storm damage or something, I have a network of hundreds of people now who I can call on for help and say, what should I do first? Excel, you know, so the network is great. The other one is I passively invest in the Dallas area, which is where I knew I wanted to be active. So this gives me all the insights I need into financials, how, you know, what is a value add, what strategies work in that area, et cetera, without having to be responsible for other people’s money. You know, so that’s a big responsibly that needs to be taken seriously. So those are some of the benefits. And of course, you know, you’ve got the cash flow and depreciation and appreciation, all of that stuff coming to you, but without you having to do the work.
Charles:
So when you made the transition from passive investing to active investing, kind of tell us how that process was maybe some of the hurdles that you had to overcome that might have been harder than you expected?
Sandhya:
For me, the biggest, again, fear that was you know, that I had to overcome was, I don’t know much about real estate. I’m so new to this business, how can I go buy something this large, this is a large sum of money, and take so much of other people’s money into an investment and say, Hey look, I’m gonna do just as well for you as an alternative investment. You know, that fear. And I overcame that by partnering with people who had the experience. So it’s not just, you know, you my neighbor, my friend trusting me with your hard earned money. It’s, we have a whole team and everyone has expertise and therefore we fit all the pieces of the puzzle to make a complete team. I’m the local, I know my market, I’m available to run to the property, you know, at short notice, et cetera. So that’s what I have to offer. But my partners had experience, they had run multifamily before. So that helped me overcome the barrier and fear in my head of going from passive to active. The other logistics is, of course, I had the training from a mentoring program. We had coaches who guided through the underwriting and everything every step of the way. I had done a lot of practice underwriting, et cetera, before I got into
Charles:
Did you struggle? Did you struggle raising capital for your first deals?
Sandhya:
Yes, I struggled hugely. I had to use the resume of my partners and they were very nice and they said, it doesn’t matter how much money you raise, and I didn’t ask for a big share of any of the compensation, right? So that was the, you know, that that immediately took the pressure off, oh, you must raise $3 million to get this much of a GP share and do these activities. And it’s like, no, we took the pressure, I was like, let me just call this my intern face so I get paid like an intern, but I work like crazy and I learn everything I need to know so that next time I can be the lead. And it worked out really well. The deal did extremely well. And it was during the time that multifamily was flourishing in a cap rate compressing time. So from 2019 we bought it in 2021, we sold it in like 27 months.
Sandhya:
We like tripled investors’ money and stuff. So that really helped me in terms of, you know, feeling confident, oh, all these value add examples I saw on paper actually work. We do get a hundred dollars rent pump by doing this, or we do get $25 by doing this, right? All of those strategies that you read in a book, you don’t know if it’s gonna work until you actually do it. You have to take action. And it was wonderful to see that. And now I still have a huge network of experienced sponsors I can go to because you never know everything that’s gonna ever happen in your property. There’ll always be a surprise. And so I think the concept of having a network is very helpful.
Charles:
So tell us about today, about your company and your current investment strategy.
Sandhya:
So engineered capital is my company and I look for value add multifamily in really good locations in the Dallas area. My biggest criteria is always going to be location, because that’s the one thing you cannot change. You can’t just pick up the building and move it, right? So real estate is still always gonna be about location. So some of my criteria for the location is I already know the Dallas area while having lived here for over 30 years. So give me an address and in two minutes I could tell you whether I want, I’m even interested. So I know my good suburbs, I’m now familiar having run so many properties in this area. I’m familiar with the counties, their laws, the taxes the justice of peace, all of that stuff when it comes to things like evictions. So I have my little box defined and one of them is always, I I’m a bargain hunter.
Sandhya:
I don’t like to pay full price when I shop. And it’s the same, you know, the immigrant mentality of never pay full price, always buy it on sale. So the properties of rents must be far below the market. Rents in that one mile radius of similar competitive properties that are true comps. You know, you can’t compare your c class property built in the seventies to an a class property built in the last five to 10 years and say, oh, I can get $300 more in rent ’cause I’m on the same street. No, it doesn’t work that way. What is a true competition, right? What is a potential resident going to look at when they look at your subject property versus the others? So once you do a thorough analysis of that, the rents have to be below market. And I typically find that when the property has been held by the same owner for at least 10 years, those are the really good ones.
Sandhya:
Versus there’ve been, you know, what I call the syndicator spin or a flip every two to three years. Then most of the value add is already taken. So you may not find them. So that’s an important one. The other one is low crime. I do not like high crime areas. I do not wanna battle crime. I know there are some people who can tackle, you know, drug dealers and all of that and revitalize the community. That’s not me. I want the safe suburb where a mom like me can get down in the middle of the night and walk around the property and feel safe. So I drive by these properties by day as well as by night if I’m getting serious. Oh, this is a great location. Like Carrollton, Plano, Garland, you know, Irving, these are great parts of Dallas, but even those I drive by, I do my competitive analysis. And then low crime, low poverty, high diversity of jobs within one to two miles, which most of the Dallas suburbs have that anyway. You’re not depending on one industry and then rent’s far below market. It’s gonna be very important because rent growth isn’t there, like the way it used to be in the past.
Charles:
That’s true. I find it very funny what you were saying about ’cause that’s about the longer the previous owner has owned that property because that’s when, and it’s it’s all size properties. It could be large properties like you’re talking about. If someone’s buying small multi-family, the longer that owner’s had it, they’re usually, they’ve gotten comfortable. They’re not pushing rent how they’re supposed to. And their property management, if it’s not the same person or company has got comfortable too with not pushing stuff because that’s what the owners like. They don’t wanna put more money into these things. So it’s, it’s funny that you, you find that because the deals that we have found you know, they have to be, you know, six, seven years plus with the other owner and that’s where you’re gonna find a real value add opportunity. Mm-Hmm.
Sandhya:
<Affirmative>. Correct.
Charles:
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New Speaker:
So you, you source deals what else do you specialize in and kind of really focus in on your company? Are you, do you focus on raising capital as well?
Sandhya:
I do all of the above. I don’t have a specific area that’s the, you know, my little box. I do all of the roles. So if a partner, I have a couple of partners I really trust, if they find a deal first and underwrite it, I’m gonna double check it or independently underwrite it myself and do the drive by myself as well. I don’t just jump into a deal because somebody else found it. I have to do my independent analysis and then we have to have a conversation around it. So underwriting is important for me. I live in a neighborhood with four brokers in the Dallas area. So I already have those connections. I knew them as neighbors and I knew them, you know, their wives from mom’s clubs before I got into real estate. So I got the connections with brokers and because I’ve closed deals now, that’s what any broker wants to know is certainty of close.
Sandhya:
Have you closed a similar size deal in the past and do I know that you’ll close a deal? So that’s important. Underwriting is always something I can’t skip, so I will independently do it. Asset management is sort of my favorite piece because I’m local, usually my partners might be outta state, et cetera. So I’m the one physically going to the properties on a frequent basis, having the connection with the onsite, getting a pulse for what’s actually going on in addition to the weekly asset management calls. So I always asset manage my deals along with one or two other partners who wanna be involved. But that’s a piece I always do. We all have to raise capital. I don’t think that’s a piece you can skip and say, oh, I’m not gonna raise a dime for this deal. You know, it doesn’t happen that way. Everybody has to do their part because there’s a lot of investors looking at the very tiny percentage of deals that have not gone well and they’re getting scared by all the news. So they’re generally scared of the economy. So you have a lot fewer in investors in 2024 ready to, you know, get into these multi-family deals than you had in 20 22, 20 21. So you’ve gotta overcome that. So everyone has to do their part.
Charles:
So you’re talking about asset management and you’re talking about how what we’re seeing right now nationwide is you know, rent increases have really gone a little stagnant, right? Mm-Hmm. <affirmative> over the last 12 months. So turnover is one thing at our properties that we’re always working to decrease. How do you effectively increase the renewal rates at your properties? ’cause That’s a great way of going right to the NOI without having to raise rents.
Sandhya:
We have several different strategies and that’s one of the things we discussed in my ACE operators, which is a mastermind I launched last year to discuss operations. And one of the biggest ones is how do you compensate your onsite staff? And it’s not just your leasing manager or your property manager, it’s also your maintenance staff. So all my four or five people on site get a bonus if we reach a renewable target of 60% or better. So on a weekly basis, before a day before our asset management call, one of the things we review is the rent roll, the lease expirations, and then the you know, their favorite res residents who pay on time and are good residents, et cetera. When the renewals come up, we look at that list and say, who do we wanna renew? Who has always been a problem, et cetera.
Sandhya:
And based on that we have our compensation structure. The second thing is the PTM mom in me comes out and I do resident activities very frequently. So at least on a quarterly basis, if not on a monthly basis, we have something like, we had sand out at our properties for December. We had a Halloween costume contest. We have, you know, a pet contest, we have back to School bash, we have summer kickoff with a pool drive, we have Easter egg hunt and things like that. We have National night out, we have a local police officer, the SWAT team come over. So all kinds of these activities build that sense of community residents speak to each other, they know the onsite staff. So when there is a problem, like they lost their job, we figure out how quickly they can get back on track to pay.
Sandhya:
Because if they’ve been in a really good paying resident and this happened to them, we wanna be able to work it out so we retain them. So 60% renewal is our target, but the next piece of it is, let’s say some tenant is not going to leave, the price is gonna move out because of a $75 increase in rent, which I don’t think is a huge quantity in the LA grand scheme of things. Even over, you know, if you look at over 12 months, how much is that? That’s like 900. Yeah. Yeah. So that’s not a huge amount of money when you think about the cost of your unit turn. So sometimes we’ll offer them a short lease, like especially when we get through the off peak season, you don’t want renewals coming in December. So we’ll try to do six month or 13 month leases and stagger those leases so that it’s easier for us to turn those units if we have to.
Sandhya:
But also to let them think about, listen, this is a great property, we take care of you. Why do you wanna leave? Look at the cost of a move, et cetera. So we try to tell them, or we’ll say, you’ve been such a great resident, can we give you an appliance package or some other nice amenity that will make you stay and start sending that renewal notice earlier? Don’t wait for 60 days. You could even send it 90 days. And another thing you could do is when you send that 90 day renewal, you say renew by this day and we’ll take 25 bucks off your rent or 50 bucks off this renewal market rent, et cetera. So you could have those kind of approaches too. So there’s numerous ways for you to retain your good residents. So keep doing that because it’ll minimize turn costs and you’ll never have vacant days when the rent unit is not collecting rent. Like, you know, the empty seats on a plate after takeoff, you’re never gonna recover that money. So renewal is huge for us.
Charles:
Yeah, you answered one great question I was gonna ask you was that you say 90 days out and that’s great because it’s usually like 60 days out and if people are a little unsure what they’re doing, they’re already out searching. So 90 days out, I love that because now you’re able to get them before they start, you know, searching for other, walking other units, touring, seeing all the incentives everybody else is giving them to move. So that’s a great way of doing it. I also like the idea of going through with the property manager and you know, you, they know the problem tenants in there and you know, you can offer you can offer more generous plans to people that maybe have been easier to work with and been better tenants at your property. So that’s, that’s great.
Sandhya:
You just have to make sure you keep up with fair housing laws. So you could offer it by unit type, like all our two bedrooms we’re offering this renewal versus one bedrooms are harder to lease, so we’re offering a little bit more of a discount, but you wanna make sure you’re keeping up with fair housing by offering the same thing for the same unit type across the board. You can’t be nicer to the one person because you feel more connected with them versus this guy. Right. You know, in terms of whether it’s, you know, payment plans, evictions, et cetera. It’s gotta be fair.
Charles:
Yeah, it’s gotta be yeah, what you’re doing for one tenant you’ve gotta do for the rest. So I mean, you, you partner obviously before when you were a passive investor. You partner now as a general partner. Obviously you are much more active in the property operations as kind of leading your asset management team. But you know, when you’re, when you’re doing this, how are you effectively, what are some effective methods that you’ve used for vetting deal sponsors and maybe some that you suggest to passive investors to do as well?
Sandhya:
I really think it’s the power of your network and connections. If you were gonna hire a contractor to do a 50 K kitchen remodel, would you just go off the Google listing of that you know, contractor? No, you’re gonna call your friends, your neighbors, your whoever has used them before and ask how well they did the job and your criteria, what matters to you. They finish on time, do they start charging you more later, et cetera? All whatever is the pressure. I say do the same thing. Did somebody else refer you to the sponsor as a great sponsor to work with, et cetera, right? So always ask for references from other limited partners or other co-gen partners who you wanna join with. That’s number one. The second one is it doesn’t hurt to do a background check and you can let them know, if I did a background check on you, is there anything I should know about before I run this check?
Sandhya:
It’s so inexpensive to run it and it just, you know, gets through the basic fraudulent activity problems with the SEC, prior history, have you had any foreclosures, bankruptcies, et cetera. All of that will come out and that’s really helpful. And then it’s, again, I use the analogy of a brain surgeon. You know, if you’re gonna go to a brain surgeon, what are you gonna do? You’re gonna get some second opinions. If you have to have surgery, you’re gonna make sure this brain surgeon is not doing their first deal. Just like with me doing my first deal, you have the confidence that I have other experience partners in the room doing the deal with me doing the asset management. They were the leaders. I was a follower learning. So you wanna make sure the team is experienced. You also wanna check if they have skin in the game.
Sandhya:
A lot of people go for the acquisition fee, they’re only involved in the front end and then they’re gone with the wind once the deal closes after, you know, 60 or 90 days. So if they have no skin in the game, which means once they take their acquisition fee of whatever amount, it’s, so let’s say it’s 50,000 and then they say they invested 50,000 in the deal, they actually have no money in the deal. So if the deal goes down financially, they’re not taking any financial risk. I like to know how much money each individual partner has put into the deal. So I actually have a long checklist, veta sponsored checklist that anyone is welcome to download for free from my side if you wanna send those links in your, you know, podcast notes. They’re welcome to do that. But those are some of the biggest things for me experience in that market, in that asset class and how many full cycles they have had where they have done better than their projections or at least met their projections to investors. And tell me about your worst deal. What happened there? How did you get out of it? Did you lose any investors’ money? Right? And would I hear anything differently from what I’m talking to you about? Right. On those same questions if I start asking around, so the power of a network, whether it’s passive investors or other active general partners, you wanna ask around liens, lawsuits are all important too.
Charles:
That’s a lot of great points. One thing that I add on when I am passive investing is the property management company. So who’s the property management company that they’re working with and how many deals they’ve done with them? Because moving property management companies I’ve done a personal portfolio before and it is it’s a lot of work and luckily we’ve never had, it’s, yeah, it’s painful. It’s, it’s just, it’s a huge process and it’s something that I don’t wanna go through as any investor in a project if I don’t have to. So it’s something that I always ask and if it’s like, oh, this is our seventh deal with them, or fifth deal with them, then, you know, listen, they, they’ve worked out the kinks in the relationship. They know it works and this makes me feel better about moving forward with them. It’s just one personal thing that I look at too.
Sandhya:
It’s a really good thing to look at. But I actually in the Dallas area have three different property management companies. Oh. And I see it as minimizing my risk because if, you know, we had this really amazing property management company I worked with on the deal where I did, you know, phenomenally well my first deal, but then couple of the key people in that company left or retired, and then the company just started going down and six months later I’m like, what is going on? You know? So I like to spread my risk. So ever since that happened, I try to get a property management company who’s already managing a property on the same street or within a couple of miles of my subject property because then if I lose maintenance staff or something, I can always borrow somebody for a few hours for emergencies till I get my staffing back, you know, from temp staff to full-time staff. So I’ve got three different companies on my properties in the Dallas area and I, I, I really think each one has their own little box of expertise, if you will. So if it’s more of dealing with certain you know, demographic or to have tenants or it is more of, I need more lease up, I need that collections to be done, I need you knocking doors, whichever it is. I think each one has their sweet spot.
Charles:
Yeah, that’s great. I, I’ve never heard that before doing it and diversifying, but if, if it works, I mean that’s, that’s a great strategy you have of spreading out your risk between different PMs.
Sandhya:
Yeah. Otherwise I’ll have to take all my five, six properties and change PMs all at once and each one, you know, you have to beg the lender. And that whole process is tedious as you know, having changed PMs.
Charles:
Yes, yes. So what has been one of your biggest challenges as a active real estate investor over the years?
Sandhya:
The biggest challenge, of course is the interest rates because I do have floating rate bridge loan deal. And even though we performed extremely well in terms of meeting the revenue projections, we’ve never had to reduce our rents or anything like that. It’s like this constant uphill battle and every mile, you know, extra dime we make seems to be just going to pay this mortgage. So I’m just really grateful that the property performance was good enough that I’m right now in the middle of a cash, slightly positive refi, like, we’re gonna come out ahead by like 700 k versus, you know, a few months ago I was like, oh my gosh, this is gonna be a cash in refi where I have to put in millions just to be able to refinance to a fanny or a Freddy loan. So I’m just glad to be getting over that hurdle. But that was a rough few months. I had to tell my investors that we’re not making distributions. That’s always a difficult message, but when you, you know, look on the bright side, it’s like, okay, people have had foreclosures and capital calls, at least haven’t done that. But I can’t wait to finish this refi so that my mortgage interest is less than what I’m paying now, even with a rate cap on my bridge loan. So it’ll be nice to have some cash flow and eventually start distributing to investors. But that’s a big hurdle.
Charles:
Yeah, it’s a tough conversation to have with investors about pausing distributions. We did it we have it on one property right now and we did it before the covid, no one knew what the heck was going on, so that’s when you had those conversations. And it’s difficult to say that, you know, the property’s not, you know, this is a, this is a measure that we are being proactive in and but still it’s still difficult. Some people just don’t understand it, you know what I mean? So, but it’s what it is. We’re investing into businesses that are real estate. So as we’re finishing up here, what are some common mistakes I guess you’ve seen over the years you have a mastermind from other real estate investors making?
Sandhya:
I think the biggest common mistake back in the day when cap rate compression helped us is you didn’t have to manage your asset as closely and you could still make money in it, right? So people say, let me just turn the keys over to this property management company and you know, money will, you know, pour into my bank account kind of mentality. That’s not the case. It’s like the government spending, you know, taxpayer’s money. The property management company doesn’t realize that, okay, if I spend a little bit more, it actually is going to affect the returns for these investors because they just see you collecting, oh, you just collected a hundred thousand dollars for this property, you should have a lot of money. Let’s go spend, you know, $500 on a fan when it should be more like $80 or $90, right? Just as an example or a fixture.
Sandhya:
So you’ve gotta monitor that closely. You’ve gotta have certain limits for approving, you gotta have weekly calls, you’ve gotta have metrics to track. And if you don’t do that that’s the mistake I’m seeing is people are too focused. Also on NOI and NOI is extremely important in three phases. Anytime there is a capital event. So acquisition, refi disposition, your NOI really matters the rest of the time. It’s your bottom line, it’s your net cash, it’s like a household. You’re a pay living paycheck to paycheck, that’s a problem. Make sure you at least have enough to pay all your bills and have a little cash left over. So net cash is an important metric that I’m seeing people forget and doing these 15 k remodels and then waiting for lender draws and then it’s like, oops, I got no money in the bank. Well balance that net cash month to month.
Charles:
That’s a lot of great information there. So how can our listeners learn more about you and your business? And I can also put the link in there. We’ll put the link in there for your gp question list.
Sandhya:
Yeah, the Veta sponsored checklist can be downloaded from my website, which is engineered capital.com. And if they’re interested on the operations side as general partners, it’s ace operators.com and you can find me on LinkedIn. That’s the platform where I post the most and I’m most active.
Charles:
Well, thank you so much for coming on today and looking forward to connecting with you here in the near future.
Sandhya:
Thank you so much for the opportunity. It’s been a great conversation.
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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