Jun 2, 2020
James:
Hey, audience and listeners. This is James Kandasamy from Achieve
Wealth Through Value Add Real Estate Investing Podcast. Today I
have Raj Tekchandani from the Boston area. Raj is a co-sponsor/KPGP
in 650 units across Georgia, Florida, Kansas City, and Texas. Hey
Raj, welcome to the show
Raj:
Thanks, James. Thank you for having me
James:
Good. I'm happy to have you here because I want to talk about
technology. You are a technology guy turned into a multifamily
investor, right?
Raj:
Absolutely, I can speak technology all day long
James:
Yeah, absolutely. So I want to make sure I give you an opportunity
to explain some things that I missed out. So why don't you tell us
about your story? How did you get started and how did you end up
being a multifamily investor?
Raj:
Sure, I will do that. So hi guys, I've been in technology for most
of my career, I did Undergrad Computer Science, then I did an MBA
in high-tech so purely technology-based and wanted to become the
next big company founder. A lot of my jobs were mostly startups but
when I realized that I'm sitting on a lot of options and not going
anywhere, I said, I need to diversify and started looking into real
estate investing that was not until 2012, but that was just a side
gig. I still was fully devoted to my job, which was startups and it
was in data analytic space and we're building a platform to connect
all the data in the world together and put meaning into data, using
something called a Data Lake. A lot of formal companies were using
our software, financial services, but there was no real estate
company using it.
But anyway after I finished my five years with that company, my stocks options fully invested. I was like, okay, what is my next startup? And by this time I had started collecting my grants from the little investments I'd done. I had started investing in 2012 in one Condo in Orlando, Florida, and gradually went on to buy more because the prices were very attractive and I could see the prices going up and I said, let me just get in there, so I got in there, fortunately, had a good property manager that helped us take the worries or headache off our head and the cash flow was beautiful. So in about 2016, I said, okay, they need me to see this look and I bought actually a 15 unit multifamily near my house in Boston and I wanted to do more of that because I'd heard, you know, multifamily the whole economy is upscale. So I said, let's get into multifamily and that experience was interesting, to say the least. I had not too much knowledge about the underwritings and how to really look at expenses and that came in as a very expensive learning lesson for me in terms of multifamily. So from there on, I said, this is too much work, I can't do this. I found a good property manager and he quit and then found another one then he quit and it's like, this is too much. So I said, no passive investing is my way to do it, this whole active thing is not my thing and I'm still working full time on my job. So I started nesting passively with some investors.
The first time I looked at a passive deal I was like that's too much, there are too many zeros in here, I can't do this but gradually as I understood, I took learning and took all the courses and reading blogs and podcasts and I got comfortable with investing passively and then a couple of passive investments and I was like, this is great, I have my nine condos, I have my fifteen hundred, which has now started giving me cash flow and now has passive investments. Interestingly, it was almost matching up to my startup salary. And I was like the options are great, but what if the options don't mature or do much? So I took a bet and I quit after five years of my job to do real estate full time and that's how I dig more into multifamily.
But interestingly at that point, I had this idea of another startup, which didn't go too much far because I wanted to take these learning from data analytics into real estate and now that I'm doing multifamily and doing all this, I'm not seeing too many systems out there. It's still very, laborious jobs, the property management company is a lot of work on paper and even the underwriting was very painful. So I was like, what if there's an automated software machine learning data, whatever we have learned in technology to build that. So I met up with the person at MIT, Jennifer, she had done a Ph.D. in Real Estate Technologies, like Artificial Intelligence Machine Learning for Real Estate. I'm like wow this is a person that I
James:
Talk to right?
Raj:
Yeah, so I sat down with her and she went through her thesis with
me. In fact, she was nice enough to explain her thesis; there
are too many companies out there that are doing what I'm trying to
do.
James:
So what was the thesis about?
Raj:
The thesis was the use of machine learning and artificial
intelligence in real estate
James:
But is it real estate underwriting, or is it real estate analysis
or--
Raj:
--Real estate analysis
James:
Is it for investment or is it--
Raj:
So she actually worked for MITs and Darwin program buying the
advisory real estate
James:
Oh, okay. So they're basically looking at investing
Raj:
So they're looking at investing so mostly commercial real estate,
eventually, from her thesis, she came into that, MITs fund. She was
working there at that time. But in her research, she had looked at
a lot of technology companies, right? From doing everything from
sensitivity analysis to underwriting to figuring out where the
locations thesis are, property management companies that are
looking to do automation based on the [inaudible06:24] so
a lot of machine learning in there.
Actually, one of the companies that struck me at that time was in [inaudible06:33], which is what I had been thinking about, sort of how to automate underwriting and how to take all the data that's been sitting in, all these Yardi Matrix and all the places that been collecting data. How can we leverage that to say, okay, well, this is a property that I'm looking at in multifamily, this is the address and boom, we'll go and run into algorithms and come back and say red light, green light, yellow light based on all these factors and in [inaudible 07:02] was doing that, some of that, I talked to the CEO there and start using the platform.
So I had some suggestions for them into building other plans and other features on the platform but at that point I said, you know what, I'm more of a user now, and they're not technologists, I want to use these technologies that are out there, I can talk about what features they need, like lease analysis. In one of the deals we went inside in the back and you're looking at 150 leases, one by one, what is matching up. There's no use of doing that, those leases should be fed into a system and outcomes, and these are the mismatches
James:
The lease [inaudible 07:38] should be automated
Raj:
This is a tenant profile and based on this tenant profile and this
property and this neighborhood, this tenant profile will be
surviving through any downturn, that’s what you need to
know on tenant profile
I'm sure somebody will build it in there; I think [inaudible 07:55] was already thinking about doing that. Anyway, from that I said, okay, I'm going to stay as a user, I started using these technologies but then I got stuck more into the whole underwriting piece and managing the properties, finding the properties, I was like talking to brokers, now I'm talking to this and that's how I met a couple of good people through coaching programs that I said, okay, it's time to take the next step, move from passive to active, and see how the big things are done. I wanted to be closer to the action. So that's how I got into active investments
James:
Got it. I mean, that's a lot of things there. So I want to go a bit
more in detail on that, but that's good. I mean, so right now
you're a full-time real estate investor, right?
Raj:
Full time real estate investor. Yes. I mean always thinking of the
next technology ideas
James:
Well, that's the problem with all these tech guys coming into real
estate? I also think the same, let's automate this, and let’s
create a system on this
Raj:
Yeah. But I mean, I keep in touch, keep a pulse on that. So I don't
know if you know about this organization called CRE tech-
Commercial Real Estate Tech, middle of New York and they are
looking at all these things, all kinds of who's doing what, which
company is being funded. So I keep in touch with them. I'm a member
of them, but just looking at ideas, someday somebody has come with
a great idea that we are still a little behind than other
industries in terms of use of technology
James:
Oh yeah. Real estate is so manual. I mean, there's not many people
investing in technology and it's a bit tricky too because a lot of
people component
Raj:
And I was told one day that, (AI) Artificial Intelligence, the
biggest tool, billions of dollars are being traded in real estate
based on excel spreadsheets. That is the technology of choice of
all these big reads and fund managers and they're just doing Excel
spreadsheets
James:
Yeah. I don't know why the real estate is just so hard to automate
in terms of location because even like, if you look at a street,
one side of the street can be completely different valuation from
the other side. And how do you tell that to the software? You can't
tell them that people have different preferences going in
Raj:
Well, if you feel that, you can tell that by how many murders were
on the left side of the street and how many murders on the right
side [inaudible 10:16] I mean, I just think the crime rate, our
school districts and there are so many factors you can pinpoint it.
Now there's so much data being collected on all of this, right? You
just have to leverage the data and every time a property gets sold,
a property gets bought that data is entered into a system, right?
The analysis entered into the system, even for an upgrade, all the
data has been entered so you should be able to tell that if I put
granite flooring in this, or I put up vinyl flooring in this, or
whatever, this is the gorgeous fettuccine down the road, right?
Because that's [inaudible 10:50]
James:
I think that's what [inaudible 10:52] does, right?
Sometimes they do a lot of underwriting, they try to predict what
is the rent going to be, but I'm not sure how big they are. I know
there were some people really excited about it, but some people
really didn't like it. I saw it once; the tool looks good for a
tacky, right? If you're a second, it looks like everything's done
for you. But I don't know for me, I don't feel comfortable yet.
Raj:
I think there's nothing. So all that said, James, there is no equal
end to be having boots on the ground. So this is what I've
learned
James:
Well, for real estate, you have to go to the property, you have to
do the cost yourself
Raj:
Exactly. So you'll do all, that saves you a lot of time, right,
because you can do the cost, the real analysis is done when you're
there and you're looking at the property because we walked away
from a deal that had everything looked good on paper and technology
tools and everything, because this one building down the slope, had
some structural issues that we didn't know, I mean, no technology
tool will tell you that turning on some like pillars that are like
fake
James:
Correct. There's no way to know. I mean, as I say, I love all these
tools, but I don't know for me, I don't want to pay so much money
for this tool unless it giving me an automated thing.
Raj:
That's where the progression has to happen. The more they have to
get better and they have to get cheaper for that option. Otherwise,
excel spreadsheets help people doing their report
James:
One day will, right? I mean, if you look at it right now, we need a
buyer agent, we need a seller agent to do a house transaction and
the reason for that is so much people touch, right? I mean, a
seller needs to know that he's getting the best value for his
product. Only people can see the house and decide whether it's a
good house or not, right? It's a bit hard for computer AI to really
say that this is a good house for this person, right? Maybe one day
it will.
Raj:
It will. They'll cut short the time or for your needs maybe
James:
Correct. And I know a lot of startups were trying to do all this
right there. I mean, every tech guy who was introduced into real
estate in the behind them is [inaudible 12:53], oh, I can do a
startup, even syndication people are trying to automate right?
They're trying to rank the sponsors, they tried to give stars to
sponsors and everybody is trying to do all this but as I said, it's
very hard to give a star ranking to sponsor there are so many other
things that are involved. I mean, one day probably, yes. But we are
not there yet with the technology, the information we have so how
do you feel? I mean, you and I are almost the same, right? I mean,
we're always in the technology space and suddenly become real
estate. Do you think you've wasted all that lifetime in tech
space?
Raj:
No, not wasted. It's a game, it's life as it plays out, now where I
am my biggest strength is my value for my time. I mean, I control
my time in what I'm doing, when I was working tech job, I mean, you
had management meetings on Friday afternoon. I was like an owl, now
if you go look at my calendar, you'll never find a Friday afternoon
open because I dropped it
James:
Okay. That's good. Yeah. I mean sometimes people who have studied
so much in certain fields, I don't know. I do see some doctors
moving from being a doctor to becoming a real estate investor. I
mean, at the end of the day it's all about time, right. Time and
how much [inaudible 14:13]
Raj:
I mean it’s time and it's what you enjoy. I mean, I also realized
that a lot of what I do in real estate is marketing and I love
marketing
James:
Nobody cares in the tech company
Raj:
Yeah. So when I'm even in my tech job, my last job was in
marketing. So I was basically a demand generation for this data
analytics back on rebuilding. So basically evangelizing technology
for people that don't understand it, it's sort of marketing. So
writing blogs, writing white papers, writing all this stuff,
simplifying things for them. That's what I had become in my
technology job also because nobody wants to hear the mumble-jumble
of data lakes and medication and all that stuff. It's like, bring
it down. What does it do for me? And now he's the same thing,
syndication and all what does it do for me? I mean, so marketing is
basically attracting the right people and getting rid of people
that you don't want in your system.
So that's why even in capital raise or even the deals that we do it's very important to figure out who your customers are which in our case is investors and it took me a little while, my first four deals, I was like talking to everybody and anybody like, okay, this is what we have and I was like, no, that's not me finally figured out the people who are attracted to my deals, especially are tech executives, like me that have collected a decent paycheck, they have a decent amount of wealth, they want to diversify, they're paying a lot of taxes and they are paying [inaudible 15:50] that. So they want to learn about how real estate can help them with taxes, how real estate can help them diversify, a lot of them have invested completely in the stock market, which we have done that in the past and I've lost a lot of money in stock and that's why I never want to go back to stocks anymore and I'm trying to teach the same thing through my formal education.
James:
Yeah. Surprisingly not many people know about real estate. I know
probably all the listeners here, they will. I mean, you are already
learning and listening to podcasts about real estate, you already
know, but it's very surprising to know how many people don't know
about real estate and don't know what passive investing. I mean,
people know that you can go buy a house and give it for rental, but
nobody knows that I can put the money with a sponsor who will do
the work every time
Raj:
They know real estate investing, they don't know realistic passive
investing
James:
Correct
Raj:
Yeah, passive investors have become my passion
James:
Yeah. I mean, that's why I wrote my book too because not to
introduce real estate to passive investors, I want them to be a bit
smarter. I mean, sometimes when they got introduced to real estate,
they think, wow, my God this is the best thing they just follow one
way of thinking, right? So
Raj:
You just stole my line that's what I say, because, at smart
capital, we make you smarter
James:
Okay, good. Because I mean, first, you get introduced to passive
investing, second is how you become smarter, right? So let's talk
about that. I mean, you said you have done some really cool stuff
for passive investors and incorporating some technologies and all
that
Raj:
Absolutely. I mean, again, nothing was planned. It just happened
over time, my first deal, when I presented to some of my friends,
they said, Raj take my $50,000. I'm not going to take your $50,000.
You need to sit down with me, understand what it is
James:
Well, that's the problem with me. I don't like just taking money. I
want you to understand the deal. Cause I believe it's a good
deal
Raj:
I actually know the four friends that I had, I bought them tandoori
chicken. I said, come sit with me and I'll explain to you what it
means. So I bought wine and food. I said, look at this, I'm going
to tell you what it is if you understand it and if you still want
to invest, that's great. I want you to understand it because I can
take the money and invest it, I mean, that's not a problem, that's
the easiest thing for me, but I really want you to get smarter in
my sense, you know, that's why smart capital and so that small
group grew into a little bigger group and I created a meet up in
the Boston area on just apartment investing and teaching what it is
and growly slowly
And I kept it small for a number of my first year I did it in my office in a conference room. They were like 35 chairs and who can come but we kept it very educational. That was the thing. We'll take a topic, we'll discuss the topic or make sure that anybody in the room is understanding and if there is somebody else experienced in the room, they're absolutely allowed to speak up and do so, kept it very educational, very different meet ups. A lot of people said, okay, Raj's meet up is educational so we're going to go there, and then I didn't have enough space so I took a bigger space now the membership in that whole meet up has grown to 600 plus people but we now get about 60, 70, 200 people monthly and I've kept it monthly and still, we talk about educational purposes
There's no come have beer, learn about network and go back. That's not it. So to answer your point in doing so right, I've internally built some systems to make sure this is a smoother process for me. So in terms of the thought leadership platform, I have my meet up, I started doing blogs consistently. Obviously I'm active on Face book, LinkedIn, and really wherever else I can post my blogs. I also to become a member of the Forbes relisted council so I can do some technology related articles there and talk about what I'm thinking. So yeah, I've done all these things and now I have in a way that I've created this CRM and systems and attracting investors who, whatever platforms that they can get onto podcasts like this and talk more about what I've done in my past and just share my experiences, that's basically it.
James:
So how do you decide on doing a deal? Let's say someone brings you
a deal, right? How do you decide this is a good deal, I really like
it. What are the things that you look for?
Raj:
So the first thing I like, ideal deals only very few people. I
mean, as partners, right? I mean, I'm not into numbers of deals and
I don't count the number of doors. I don't do that. I like to enjoy
myself, I mean, to [inaudible 20:30] my life, you're
going to be just chasing money and [inaudible 20:33]
James:
You want to be peaceful too, right. Reinvesting the right sponsor
because you can make an investment any--
Raj:
--People that I enjoy, I mean, the deals will have good and bad
times. One of our deals is we haven't done distribution, but I will
say that I'll invest that deal again. I believe so much in the team
that even because I'm so close to the deal and my investor is
saying, Hey Raj, we haven't distributed work. I said it'll be fine.
It's just because I trust the people that I work with and I could
do another deal with them. So I’m very selective about who I work
with, these are people from my coaching backgrounds, I've heard
them say I hear them strength and they have to be complemented with
my strength. So if I'm good at finding markets and I say, what, I'm
going to invest in Orlando or Kansas City or whatever markets that
I have in my head because I've done some research on data on that
and obviously then underwriting should make sense but my number one
criteria is the people that I work with and do I add value to them
and they add value to me. So I will claim I'm not a good asset
manager, I've never intended to be so I will always look for a very
strong asset management on the team
James:
Got it. So you basically look for the sponsorship and how the team
complements with you as well
Raj:
The dealership and the numbers should make sense, but that's true
for everybody. You will not invest or be participating in the deal,
that doesn't make sense
James:
Yeah. What do you look for in a very strong sponsorship
team? That you really like? I mean, what personality,
integrity or--?
Raj:
--Integrity, number one is integrity, right? I mean, the track
record is okay, but I think track record, I've seen these guys
done. I mean, it was not done like 15, 20 syndications, some of
them have, but some of them are still early in the stage, they have
done maybe two syndications before this one, but I've seen them
through the coaching classes and going through with them to on due
diligence trips. So I always go and make sure that I'm on part of,
once we go sign up, form a structure, I'm going to get involved
with all the due diligence and all everything. So I'd sit down with
them and see what their work ethic is, how passionate they are
about it, and will they stay committed with me?
James:
Got it. Very interesting. What about, on other things, in terms of
the underwriting or in terms of market analysis, have you done any;
have you incorporated any technology things into analyzing
that?
Raj:
Yeah. I mean, I do my own technology things. I mean, I haven't
written software for that, but I do look at a lot of data
James:
What kind of data do you look for?
Raj:
So, I mean, a standard feature, like population growth, job growth,
and median income. We will also look at STEM jobs, right? I mean, I
look at if it's a technology oriented job, are there or not because
I mean, in these times the properties that are doing well, are
people technology, company, people working from home, right? So all
of that is important as well [inaudible 23:34]
James:
Got it. Very interesting. So is there any proud moment throughout
this real estate career that you think oh, I did that and I feel
really proud about it and you can never forget about it until the
end?
Raj:
Well, the proud moment was I'm into partner with you on my first
deal. I mean, that was a very proud moment. I told you right when
the first time I looked at syndication when a friend of mine
presented to me, he was on the GP side, I was on the limited
partner side. He says "Raj I got the deal."
And I said, "What is this? This is like 300 units. I mean, there
are too many zeros. There was no freaking way."
So now when I did my first deal with that number of zeros, I mean, it was not 300, it was 152 units that deal was a very proud moment for me having gone through understanding what it means and then the other proud moment was to convince some of my investors to partner alongside with me right now that I learned this and I'm sort of sharing my education.
I don't even call it capital raising. I'm giving them an opportunity to participate with us. I'm doing them a favor, sometimes I feel that way and that's one way to look at it and I'm saying no, every deal of mine for my side has the same investor. The first investor is always the same, that's me. So I'm going to invest in these deals, I've done the research; I've been to the property. Now I'm presenting it to you this deal, why I like it, and you're welcome to join along, so the proud moment was to getting that achievement, right? The first one and the second one becomes easy. And then the first one was the problem
James:
Got it. Awesome. Can you tell our audience how to get hold of
you?
Raj:
Absolutely. I mean, I have a website, I'm very active on Facebook,
but my website is smartcapitalmgmt.com. My email
is raj@smartcapitalmgmt.com. Easy to use to get to me or
LinkedIn. Facebook also is there
James:
Awesome. Thanks so much for coming. It's so refreshing to see how
someone from the tech industry moved directly into a multifamily
investor. I think a lot of people do, right? But there are still
tons of people who don't, right? So it's just the thought process
and sometimes the desire to technologize everything, sometimes it's
hard, right? Real estate--
Raj:
-- Why do you want to do that? I mean, you want to enjoy what
you're doing, right? If building a technology company is your
passion then real estate will not be the thing, but leveraging
technology to get smarter is another issue
James:
Got it. Awesome. Well, thanks for coming. I'm sure everybody got
tons of value
Raj:
Thank you, James. Thanks for having me
James:
All right. Good