GI248: Becoming a Real Estate Investor with Vessi Kapoulian

GI248 Becoming a Real Estate Investor with Vessi Kapoulian

Vessi helps busy professionals tired of working 60+ hours a week create passive income streams. Her professional background includes 15 years of commercial lending and 4 years of business management experience. She started her real estate journey in 2017 and controls a portfolio of investor real estate properties in Florida, Tennessee, and Georgia.

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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:
Welcome to another episode of the Global Investors Podcast; I’m your host, Charles Carillo. Today, we have Vessi Kapoulian. Her background includes 15 years of commercial lending and 4 years of business management experience. Vessi started her real estate journey in 2017, and today, she controls a $35 million portfolio of properties in Florida, Tennessee, and Georgia. And just went full-time in real estate as of earlier 2024. So thank you so much for being on the show today.

Vessi:
Thank You so much for having me, Charles. I really look forward to our conversation today. It’s a pleasure to be here.

Charles:
So I touched on your background briefly, but can you give us a little bit more information about yourself, both personally and professionally prior to getting involved with real estate investing?

Vessi:
Absolutely, yes. My journey, I could argue real estate journey really started in Bulgaria, back behind the Iron Curtain growing up. Because at the time, and I would say even today, there isn’t very developed stock market. So when people talked about investments they really always referenced hard assets like real estate, commodities and such. It was always my dream to come to the US and push through that iron curtain. So I learned English, got a scholarship, came to the us and really I was inspired to follow that American dream. And for a while, I really followed a traditional path of going to school, getting good grades, joining a firm and climbing that corporate ladder. But it was a few events of adversity such as the global crisis of oh 8, 0 9, my employer going through a couple of restructures that unfortunately left people without jobs and for some at their, at later stages of their life.

Vessi:
And that really caused me to take a step back and, and pause and ask, am I climbing the right ladder? Is this what really success looks like? And what if that happens to me? If I’m 60 facing a layoff or a down market, I realize this is not something I can control restructures and markets, but what I can control is my investment choices. And so at that point, that seed of real estate finally germinated. I decided to take action, started small with a single family home investment that eventually grew into a small portfolio. And eventually I decided to that light bulb went on. Wow, this can be not just a small retirement nestec as a hedge against corporate events or market events. This can be something bigger and, and really can turn into a, a pretty sizable cashflow stream. At that point, I transition into multifamily, and now I have the privilege of doing that full-time and helping other busy professionals create more optionality in their life and create those additional income streams and, and tax efficiencies and, and hopefully live the, the life of, of freedom and fulfillment that they dream of.

Charles:
That’s an awesome story. I, I found I have some family friends from Eastern Europe from previous communist countries. And one thing I’ve I’ve seen, and I never really thought about too much but it’s when they, when they did come over real estate’s the first thing they buy and they would pay it off. I had one friend from Poland his parents came over, it was like, purchased it and like paid it off within like five years or seven years or something. It was like, I’m like, that’s not American at all, man, that has to go out like 30 years and refinance it four times. But did you see it too? I imagine you have other friends that have done similar what you’ve done.

Vessi:
Absolutely, yes. And, and that’s how we are raised. First of all, it’s not very common to get a 30 year fixed trade mortgage in a, actually anywhere in the world, I think probably, I guess is the only place. And, and definitely debt is something that we are taught from an early age to stay away from, which I, I think was great because it’s still very good financial habits in me. But down the road people need to differentiate right between good debt and bad debt. And so that was definitely a learning curve for me. But it was role models around me that I saw in invest in real estate and hold onto these properties and, and that’s how they were able to build wealth over time.

Charles:
Yeah, definitely. So tell us about your transition from residential to multifamily. Why you did it and you know, what were the main factors for making that choice?

Vessi:
Yes, that, that’s a great question. Once my single family portfolio, residential, ’cause I had some duplexes there as well, once it picked up speed. And my primary objective was also investing for cashflow because I wanted to create that additional income stream, I think the light bulb went on, wow, this can be something bigger. And then I did the math and quickly realized, wow, I have to buy it hundreds, literally hundreds of single family homes to achieve that scale. And I took a step back wondering, well, can I do it differently? Is there a more efficient way to do it? And multifamily emerged as a natural answer to that question for me for a couple of reasons. One, I could leverage my background as a commercial lender in evaluating multifamily deals, which fall into the commercial space. Two, I could apply my skillset managing residential properties out of state. And so between the leveraging my historical experience and the desire to scale via partnerships with, with others is how I ultimately selected multifamily, basically wanted to stay in one lane. That’s the residential space. Just how I applied it was slightly different.

Charles:
Interesting. Yeah. So tell us about your business what your investment criteria is and your strategy. I, I know that you do syndications, but you also do joint ventures.

Vessi:
Yes. I definitely wanted to keep the, the door open for both. And just like even in, in single family, I started with one single family home before I moved to duplexes. So very similar in the multifamily space. My first deal was an 11 unit joint venture. So I started small before jumping into larger deals which I’m focusing on today. Specifically what I look for are good operators with a proven track record who operate in markets with strong fundamentals supported by population growth, job growth, media and income growth and job diversity, and investing in class BC plus properties that are stable value add. So no, no major repositioning in, in those markets with the opportunity to effectively double the invested capital over a five year horizon. So if the operator, the market and the due parameters meet my criteria, then I invest in those deals and correspondingly invite others to do the same if, if they’d like to.

Charles:
One thing I mentioned at the beginning of this, which was joint ventures and syndications. Can you give us a just a quick overview of what the difference is between, for people that probably don’t know that? That’s

Vessi:
A great question. So joint ventures tend to be smaller in size. And, and for that reason, the team that’s required to take down these properties and operate ’em generate also tends to be smaller in size. So four to five people that are typically all actively involved in some aspect of the investments, whether it’s sourcing day-to-day management rehab project management and such. So for that reason, there is a lot of flexibility, but also, generally speaking, there is a larger amount of upfront capital investment required given that the investment is split among a smaller group of investors that are all actively involved. With syndications, one has the opportunity to scale up those investments and take down larger properties naturally because they’re larger, that typically requires a little bit more work. So there may be a few more people involved on the management team but by syndications people also have the opportunity to passively invest. So if they’re not inclined or willing to do the heavy lifting and day-to-day management they can find an operator that they know, like, and trust and passively participate while enjoying the same benefits of real estate.

Charles:
Yeah, no, that’s a great, great explanation. One thing you mentioned about being an OUTTA state investor, and I know with the syndications a little different ’cause you probably have a team on the ground there, property manager on the ground there. And that’s taking care of a lot of your daily tasks. You have a smaller property though which I imagine is a little bit more time intensive on that end because a property manager is not being overseen. It’s, it’s literally just you know, just when you have smaller properties, you usually get pulled in a little bit more in the asset management than you would on a larger property, is what I found. So how can you become a successful outta state investor? I mean, how have you done it and how would you suggest other people to do it?

Vessi:
This is a wonderful question. You, first of all, you really need to be comfortable with working with other people because you cannot be boots on the ground all the time. In my case, I live in la I invest for the most part in the southeast. So that’s a, that’s a pretty long flight, <laugh> to be making once or twice a week. So finding a boots on the ground team that you know, like, and trust, and that can be both your partners to the extent you’re doing larger multifamily deals, but also your team members specifically your property manager, contractor, people in that market that can give you feedback on the area. So putting the together the right team is imperative to get that done and really leaning in on others and partnering up with others in order to make this a success.

Vessi:
Of course then that naturally raises the question, well, how can you trust all these people? Well, there is a risk just like with any investment, that’s a risk that you take. So taking the time to vet either the operators or, or the strategic partners like property managers, contractors and, and so on asking the right question, asking for references possibly even seeing some of the properties they manage or, or the work that they do. And there are different things that one can, or, or, or steps, action steps one can take to do that extra diligence and, and vetting on the front end. Of course, it’s never perfect and there can always be surprises down the road. But these are some steps one can take to make a, to take effectively calculated risk and make that transition from investing in your backyard, which for me wasn’t really an option to investing out of state.

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:
So you being a commercial lender previously, I mean, how does, tell us how for people that have never done that and are coming just from the investor side, how do commercial lenders really evaluate qualified deal operators? And when I was writing this question out and I thought about for myself and I would deal with like banks and stuff like that, and was just me as the only person, and you kinda have an idea, but you didn’t really get a criteria from them of what they’re looking for. You kind of just provide what you have and hopefully it’s enough <laugh>,

Vessi:
Right? Yes. There, that always seems like a black box. And in, in reality, the criteria will differ from lender to lender because they each have their own risk appetite and criteria. But it really boils down to three, I would say, simple things that are very much in line with what we as investors typically look at. First is the people or the operator. As a former lender, I, I used to say it’s people that pay back loans, not properties. And of course, you take the property as collateral, as a lender, you always look to have collateral but it’s ultimately the people that will pay back that loan. So looking at their character their track record their expertise how they’ve operated similar properties in the past. So that’s where it starts first. I briefly mentioned collateral. So looking at the property in the market again, those criteria may vary by lender, but for the most part, lenders like to invest in stable markets, areas that are not crime ridden, properties that are not falling apart or dilapidated in nature. Yeah. And, and so forth. Because at the end of the day, if, if OL fails that’s how they and cashflow disappears, or the person is not able to fulfill their obligations, that’s how they recover the loan or, or part thereof. And, and last but not least is the deal and, and how it is structured, how it is underwritten. What are some of the assumptions that are going into evaluating the property and, and to figure out if that’s if that’s a viable cash flowing asset.

Charles:
When I coach investors new investors and they’re asking me, and it’s, it’s usually this, if they’re going to a bank, let’s just say commercial lender, and they don’t have that experience. Okay. It’s really, you know, you have to bring in someone or you have to property manager, right? Yes. that it’s gonna be used for it. How do you see that? I mean, how are you vetting that someone comes, they have the money, they have the deal’s fine, I mean, everything else checks, but there’s no experience. What, I mean, what are you looking at there and what do you want to verify before approving that?

Vessi:
Yeah, so typically and, and you’re right, oftentimes people will partner up with other operators who may have that experience or, or balance sheet strength that lenders are looking for. So understanding again, the track record of that partner, how well they’ve worked together in the past in the nature of the agreement really looking back at the history, do they manage assets of similar nature, right? If, if you’re buying an 11 unit property that’s not the same as buying 150 unit property, or vice versa. If you’ve always managed 11 units and now you’re going into the 150 unit space, or maybe you’ve, you’ve been in multifamily and now you’re making the jump to new development or self storage. And again, it really boils down to what lenders are looking for is how do I manage the risk? How do I protect my downside and, and what are the mitigates I can put in place to make me comfortable? Because there’s always risk, right? Lenders get paid to take calculated risk. But ultimately they’re looking for how do I mitigate that operational risk by virtue of the track record of the of that person or that team and, and the consistency in terms of historical record.

Charles:
Yeah, no, great answer. Thank you. The, one of the things is that over the last two years, and this is a question that I bet you’ve heard hundreds of times, so I’ll ask it one more time, is that we see interest rates going up starting in the beginning of 2022. We know that most rate caps in multifamily on floating debt were usually two. ’cause I know that we weren’t getting three years ’cause it was long as twice as much. And so we’re in other operators. So really it’s coming up to that time when this is the year. I think if anybody got debt in 2022 it is coming up and it has something has to be done with it. How are lenders from your perspective? ’cause I imagine before you left that job, this was a, a hot topic.

Charles:
How, like, how are you guys managing it? Because from the, I was interviewed on a podcast a few days ago and before the podcast, this operator was telling me that they’ve had capital calls. But what they’ve heard with people they’ve worked with was that a lot of workouts. And so I, that’s what I was expecting because this is what happened with some properties in the GFC because they had they worked out property deals with them and kind of kicking that can down the road because I mean, every lender knows that these people don’t wanna keep these properties forever, right? They’re just looking to get out of it, right. And get money back to investors, whatever that might be, and move on. So how are you seeing it on your end? I mean, do you see that lenders will make, create workouts with depending on the property type, I mean, please let us know.

Vessi:
Yeah, yeah. As usual the answer is, it depends, and it really goes back to the three criteria that I mentioned, the operator the property and the, and the structure. And so if, if we’re talking about an operator who has a strong balance sheet, can bring additional liquidity to the table if needed or as needed has been in good standing with the bank has a good relationship they will be more motivated to work with, with you. Similarly, depends on the condition of the property, right? If it’s, if it’s completely underwater, right, it, if it’s unsalvageable, right then that may be more challenging. And at that point they may be thinking, well, I may just as well cut my losses and, and move on. But if, but if there is enough equity, if there is opportunity to, like I said, kick the can down the road, they would consider that again assuming and they had a, a satisfactory working relationship with that borrower.

Vessi:
Because at the end of the day the lenders are not in the business of running a property and they’re, if anything goes wrong, they’re looking, how do I minimize my losses? So if extending that loan by a year of course typically with some other strings attached, it’s not just a free extension. There may be changes in the covenant structure, liquidity requirements, reimagining the loan niche may require bringing in additional equity. But assuming that can be done successfully push through another year, and then able to either exit or refinance on a more stabilized basis than, than everyone is a winner. In some cases, lenders will be able to do that depending on how strong their own balance sheet is. In other cases they may or may not be able to do that. And, and there’s some pretty significant regulations that are coming in place over the next 12 months with Basel three, which will further increase the capital requirements that lenders are required to maintain. It’s starting a lot of hot debate in the industry right now. But all of that are factors that will drive the lenders decision. Do I keep it or not? And if I, if I work out the deal do I work it out with an extent with intent to keep it in my portfolio eventually and, and, and bring it back from that workout department or do I exit because I’m, I may be looking at minimizing my losses that are inevitable.

Charles:
Yeah. And what I’ve seen when properties, the, the properties that I’ve seen for the most part have been properties that maybe were, let’s say less ideal properties. Okay. So maybe you had lower C class properties and c class areas, which isn’t a problem. But the problem is that if it’s been over leveraged and you’re not gonna be able to get those rent increases, I mean c class tenant base has been has been really hit over the last three years, you know what I mean? Since covid with inflation everything that goes with it, it’s much different getting rent increases onto those properties versus b class properties. So that’s something I see, I mean, is that really, you might see those banks, those might just get foreclosed right away because there’s not really too much of an upside or it’s many years down the road versus maybe if you had B class properties where better areas, the ability to really execute a business plan in years to come. What do you think?

Vessi:
Yeah, no, no, for sure. And, and that’s why I like to say not, not all lenders are created equal, right? And, and we saw that in oh 8, 0 9, where I was scratching my head in terms of how are these deals getting done? And, and naturally there are some people who have maybe higher risk tolerance and were getting more aggressive in terms of the term sheets that were floating around and, and the deals that they were doing. Then we saw what happened, right? And I think we’re going through a similar cycle right now where there were maybe a certain lender who hungry for risk, willing to overlook certain underwriting criteria, and now their portfolios are in trouble how long they will be able to sustain it, who knows? But, but that will also be a driving factor in terms of how motivated they are.

Vessi:
If you’re just one borrower with one deal, maybe the incentive to work out is not as great, especially again, if you’re salvageable, right? But if you’re a sizable borrower with 10, 15 different properties, well that would be a pretty big write off. So there may be some incentives to work there. But a lot of that, again, will be predicated on the operator, their behavior. Are they good standing, bad standing with the bank, how deep are their pockets? Because the likelihood is they’re gonna have to bring some liquidity to the table. And, and last but not least based on those two criteria, coupled with the financial condition and the overall risk of the lender’s portfolio, and they’ll have, they’ll make a determination. Do we pause or do we kick the can down the road? Do we, or do we just cut the losses and move on?

Charles:
Right. Right. So when you’re underwriting deals and you’re coming with your lender hat and also your real estate investing hat, I mean, how has, you know, we’ve had rent increases that are, as we read nationally stagnant, okay, every market’s different, and obviously we’re doing value add to these properties, so we might be able to still capture rent increases, but how has your underwriting changed over the last 24 months, let’s say? Mm-Hmm,

Vessi:
<Affirmative>, that’s, that’s a great question because I would like to also say underwriting is an art and a science, and it’s always, always evolving, right? It’s never, it’s not a static formula that you follow. Sure, there are some fundamental principles you adhere to, but it changes with the market mark, global economic conditions and so forth. If you had asked me a year ago what are some of the, the changes? I, I definitely, it really boils down to five key areas. That’s the top line or, or the rent assumptions, the expense adjustments the cap rate entry and exit the reserves, and then the debt structure. So definitely over the last co 12 to 24 months have really moderated my rent expectations and really aligning those more closer with historical trends. And in some markets maybe even keep keeping rents flat or, or declining, depending again, on the sub-market, because that’s a big driver.

Vessi:
Definitely making sure I allow ample cushion for adjustments when it pertains to taxes and insurance. And we’ve been, I don’t think anyone could have forecasted the insurance crisis that we’re now facing and in, in some states and in cities, it’s more adverse than others. But making sure you adjust for those cost increases upfront. And I still haven’t quite figured out more as a side comment, how to manage that insurance risk because like in Florida, right it’s even worse. So in some states, I even have even paused looking into those locations because I, maybe I manage the risk premium to some extent, but I cannot manage the risk of being dropped and being without coverage. But then going back to the five steps as far as cap rates, I, I personally do believe that we have reached the peak of the rate hikes.

Vessi:
And so a year ago I was accelerating on the cap rate, reversion rate from the traditional 10 15 basis points to maybe 20, 25 basis points. Now I’m moderating that back to the 10 basis points a year. And really looking at a more of a five year exit cap rate of, call it 6% more or less again, depending on the market reserves have proven to me historically that having that rainy day fund has been invaluable with all of my properties. So personally I’d like to look at six months of operating expenses and debt service, and some may call that excessive, but it, it’s, it’s proven right over the years. And last but not least, the debt structure, making sure that aligns with the business plan. I’ve always done fixed rate debt both on my personal side as well as in investor side. So if my, I guess my approach would be, even if that’s not available, finding some other mechanism via which to manage the interest rate fluctuation. So if it’s not fixed rate, maybe looking at colors, caps that are maybe other alternatives that, that mortgage broker or lender can provide. Because again, I’m, I would like to focus on running and operating the properties, not guessing where the markets will be two, three or four years from now.

Charles:
No, that’s great. So you, you left the beginning of this year, you left your W2 job and became a full-time real estate investor. I imagine you have people ask you how they would do it or how you would do it again, or how you suggest them to do it, and what would be that advice?

Vessi:
Yeah, so just to be clear, this didn’t happen overnight. So I had been investing for the past several years seven or eight years by now. So my advice would be first of all, determine what your investment criteria are. And, and people like to take advantage of all cashflow, appreciation, tax benefits, but maybe prioritize what is the most important one to you and then determine how, what your risk appetite is of course the more risk you’re willing to take, the higher their returns. But again, there’s no free lunch there. Then select an asset class. In my case, I focus solely on the residential space and eventually multi-family, but that’s still within the larger residential family. Select one asset class and educate yourself about it because you have fiduciary responsibility towards yourself and your loved ones and potentially partners to make educated investment decisions.

Vessi:
Find an operator that, you know, like and trust or, or partners that you know, like, and trust. And really the last step is take action. Because without action all these goals just remain dreams, unrealized dreams and the first deal is always the scariest. But you get more and more comfortable over time. So for me, I was doing that on the side for many years and, and sure it involved extra hours after before and after my W2 job, but I, I view that as investment in my time and setting up my, my future and creating more optionality versus seeing that as a, as a burden or, or, or a hassle. But, but it does take time. So I will, I advise people start today don’t delay and take a small step forward. It doesn’t have to, you don’t have to go from zero to hero, make that first investment, whether it’s active or passive, and over time you’ll get more and more comfortable.

Charles:
Well, great. That’s a lot of great information. So how can people learn about you and your business?

Vessi:
The easiest way to connect with me is through my side, DBA capital group D as in dream, B as in believe, a as in achieve my contact information, is there a link to my calendar? As well as for the listeners of the show, I have a free gift, which is a complimentary copy of to my digital book, the Busy Professionals Quick Guide to Investing in Multifamily which is designed to empower and educate investors.

Charles:
Fantastic. Well, thank you so much for coming on today and looking forward to connecting with you here in the near future. Thank

Vessi:
You so much, Charles. I really enjoyed it.

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 Vessi Kapoulian

Vessi helps busy professionals who are tired of working 60+ hours a week create passive income streams to reach their goal of leaving a legacy for their families, diversifying their investments from the stock market, and achieving tax efficiencies.

Vessi’s professional background includes 15 years of commercial lending and 4 years of business management experience. Vessi started her real estate journey in 2017. Today Vessi controls a portfolio of investor real estate properties in Florida, Tennessee, and Georgia (319 doors, 7 properties, $35.5MM AUM).

Her commercial lending experience has served her well in developing a conservative and analytical approach in assessing risk and investing prudently in real estate in order to maximize returns. Her business experience has helped develop a solutions-oriented and execution-focused approach, which has served well in asset managing her real estate portfolio.

Vessi is active in various real estate professional networks and a frequent speaker at meet ups and podcasts.

Vessi’s mission is to help others attain their own financial freedom while at the same time providing a clean, safe, and pleasant home environment for residents and improving the local communities she invests in.

Vessi has earned a Bachelor degree from the University of Arkansas and an MBA from Northwestern University.

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