Are you interested in real estate?

Sandhya Seshadri started as an engineer and also got her MBA. She left her corporate job running an $80 million+ business unit to become a full-time investor. She started with stocks and then allocated time and resources to multifamily real estate investing. She's invested in over 4,000 units with 4 deals as a general partner (GP). This girl knows how to sell her value to partners and knows how to ask good questions!

If you're looking for someone who can help you get your feet wet in the world of multifamily real estate investing, this is the right person for you! Don't miss out on this opportunity! Listen and learn!

Table of Contents:

• Where To Listen To The Podcast
• Real Estate vs Stocks and Where Sandhya Started
• Future Growth Trends of Real Estate vs Stocks
• Will It Start to Sunset in Real Estate vs Stocks?
• What People Don’t Understand in Real Estate vs Stocks Investing
• There Is a Pattern in Real Estate vs Stocks
• Morning Rituals to Help You Succeed
• Asking Very Important Questions About Real Estate vs Stocks
• How to Reach Sandhya Seshadri

Real Estate vs Stocks and Where Sandhya Started

Darin: Sandhya lives in the DFW area with her family. She did the corporate thing and then left to become a full-time investor and raise her kids. She started with stocks and then decided to get into real estate investing. Whatever she's involved in, she makes sure she gets educated and surrounds herself with best-in-class people. This girl knows how to network, how to sell her value, and how to ask great questions.

Sandhya: Thank you so much for having me, Darin, it's such an honor to be here. I've been fascinated by your podcast now for a year and a half. My first investment in multifamily was with you so I'm very excited to be here.

Darin: We're both part of the same multifamily mentorship group. Met through that group and she invested in my first indication deal. I loved her approach. She wasn't like, "I'm in." She was like, "Let's get together for lunch. Drive me down to the property, I want to see it." She was involved. And she has been learning and getting involved in building relationships. Sandhya, typically the first question I ask is how many properties and how many units you're currently invested in?

Sandhya: I am invested in over 4,000 doors and of that nearly 3,400 is on the passive side. About 620 or so is on the active side, so about four different deals that I'm an active sponsor on. Continuing to grow that two to three a year is my max capacity and that's the plan to be on the active side. I still continue to invest passively with retirement funds.

Darin: What was your experience? What’s your background prior to getting involved in real estate investing?

Going Full-Time in Real Estate vs Stocks Investing

Sandhya: I started out by, as far as my degree goes, like most Asian geeks with an engineering degree. I’ve worked here for a local Fortune 500 company, figured out quickly that too many decisions were made by these marketing types. I had to figure out how they did that so I got my MBA. Then I went full-time in the stock market. Once I had children I did not want the corporate rat race to dictate my schedule and I wanted to have flexibility. I would spend a couple of hours a day trading. Then the rest of the time I was free to spend with my little ones and that continued for many years.

I came into real estate because I wanted the tax benefits. And I also wanted to always have my hands in something real, a hard asset from which I could get rental income. But I was afraid of the four Ts – tenants, toilets, trash, and termites. I wanted to totally avoid that. And so I didn't get into single family for that reason. But when I attended a weekend event that talked about multifamily, I was completely hooked. That's where I met you after joining this program.

Darin: I knew that you were in stock investing but I didn't realize that you actually quit your job and went full-time. So how many years did you focus on stock investing?

Sandhya: With stocks, I was full-time for about 10 years. I was already doing it part-time from my days of my MBA and working for a high-tech company. I’ve started with a technology sector where I had all the knowledge.

The Approach to Longevity in Real Estate vs Stocks

Sandhya: But then having got that education, we were in many investment clubs and things as friends from my MBA group. We would initially start investing in options because we didn't have a whole lot of cash. Then we went on to trade with the real cash too. I love it, so I still do it.

Darin: I remember last year when COVID hit and then the market started coming back. You were like, "I'm investing in multifamily but this stock thing is really a good thing right now." But a lot of people that try to dabble and go full-time in the stock world get burned. The day traders, they do it for a while and then they peter out. They aren't disciplined or whatever the case may be. What was your approach to that longevity on the stock side? We'll get back to the real estate side, but on the stock side, how did you keep at it for 10 years?

Sandhya: It's very easy when you're a mom to have to go attend to your kids. That itself cut the amount of hours I had allowed myself to play with the stock market. I only stuck in a very conservative way because when you have two children, it's different than just double income with no kids. Then you may play with your money a little more. But once you have kids, I have to pay for these little beings. I've got into this world for the next two decades or more so you're more careful. That, itself, makes you more cautious and the hours are dictated basically around my children's schedule. I became a mom first and then second everything else, second. Those two things helped.

Playing Through a Set of Rules

Sandhya: But in terms of my discipline, it's just like when I play blackjack tables, for that matter. I have my set of rules and I stick to them, just like with multifamily. With stocks, one of my rules is, once I reach a certain gain, whether I want to make 20% or 30% or 40%, et cetera. Whatever my target is for that stock, I set my limit price to sell it right away at my brokerage. The minute I buy it and I get that notification that this transaction has happened, I turn around. I set my limit prices for selling it. And I don't care that it's short-term games, long-term gain, et cetera. I care whether I'm going to make money or lose money on this stock.

With that same discipline, I set my sale prices right away. Whether I'm busy with my kids or on vacation or attending to something else, they get automatically sold. I'm not waiting to be more greedy saying, "It's going to go up some more, I'm going to lose." No, I'm not going to lose. I'm taking advantage of this rise and this is plenty for me. It's like saying I have set a ceiling and that ceiling is plenty for me.

Darin: You said conservative. How are you conservative in the stock market?

Sandhya: Conservative with anything starts with education. You don't just get educated on how to analyze a stock, you actually get to know the stock. Just like in real estate we say, "Get to know the sponsor." I had to meet you in person, I had to drive to the property for me to feel comfortable investing with you. It's the same thing with stock.

Don’t Just Invest in Real Estate vs Stocks

Sandhya: I don't just invest in a stock because somebody gave me a stock tip or looked at lines on a chart. I invested because I looked at the company, I researched what his products were. I also tried to see if it was a bargain. Then I look at a 52-week performance of that stock and say, "Is it a low price now compared to where it was in the last 52 weeks?" Why should I buy this stock? What is its growth trend?

If you look at COVID, or if you look at aging baby boomers, or if you look at millennials, whatever is the trend you are focusing on. Why is this stock or this company going to do any better with this trend? How are they capitalizing on that trend, how is the competition for that? I go into the analysis of actually knowing what I'm going to get into. That’s in addition to the numbers analysis that it tells you, whether it's a price to earnings ratio, whatever. I also look at, are there any major changes in terms of the heads of these companies. Like CEO changes and things like that, that's going to change the direction. It's all about education. The more education, the less the risk.

Darin: That's very smart. You mentioned a bargain. How do you know if a stock is a bargain?

Sandhya: 52-week lows. You look at a 52-week performance and you look at what is an undervalued stock there. It's hard to predict when you're betting on something like Tesla. But if you look at your Apple you can catch its waves, Apple goes in waves around Christmas season.

Future Growth Trends of Real Estate vs Stocks

Sandhya: Analysts are expecting a certain amount in earnings every quarter or every year. So you can look at that stock and say, "Are they going to meet that price?" That's more of a growth stock versus Walmart or a Target, solid companies. They're not going anywhere, they're going to be around in 2, 3, 5 years. You look at them and you look at a 52-week low of one of those stocks and you say, "Whenever it hits that low go buy it for me."

Darin: What about valuation versus just the stock price? Does that play into it?

Sandhya: I mainly look for the 52-week lows of the stock and then I look at the future growth trends. Is Amazon coming and taking over and obliterating all the competition? Or is my Walmart or Target or my little company able to compete because they have something to differentiate?

Darin: I don't want to spend all the time on stocks. But I did want to delve in there a little bit because it's part of where you started your investing world. In the group that we're in in the real estate space you hear a lot about getting out of the rat race. Quit your W-2 job and go full-time real estate professional. That could be a new concept for a lot of people. But you did that with investing already in stocks and then you came into the real estate world.

What were some of the reasons why you shifted over? You talked about some of them, one, it being a hard asset. Two being cash flow and three being tax benefits. What percentage would you say you've shifted from stock investing over into real estate investing?

Passively Investing Your Retirement Funds on Real Estate vs Stocks

Sandhya: For me, I started with the passive investing side with my retirement funds into real estate because it was a new venture. It was not something I knew much about, I had to get the knowledge. I used money that I wasn't counting on in my immediate future to get started in the real estate space. That's why I invested in your deal with my retirement money. That is a great way for people to get started.

My accountant also told me that, the first year I was starting with you. It was towards the end of the year, November, December timeframe. I wasn't going to qualify as a real estate professional for that year. It didn't make sense for me to worry about the tax savings for that calendar year. But then from the next year he said yes I would qualify, and so to start using more of what I call my real money to do that.

Darin: You're after tax funds.

Sandhya: That was also one of the decision-makers. In terms of, if you want to get tax advantages as a real estate professional you have to use after tax money for it. Otherwise, your retirement money doesn't really help you with it. But the retirement money ties in very well with real estate in the long term, so you're not counting on it right away.

Remember, real estate is a hard asset and it's illiquid. Unlike stocks that I could just cash tomorrow if I needed money urgently for something. I couldn't do that with real estate. Those were the things that made sense for passive investing using my retirement funds.

Keep Feeding the Real Estate vs Stocks Bucket

Sandhya: When I started signing other people's loan as a key principal or becoming a co-sponsor and then a general partner, you're required to use your own regular after-tax money for that. You cannot use your retirement money for that. That's the blend I took into place. But as far as my stock portfolio, I allocated, let's say about a little bit less than 2 million for my real estate ventures and I've set that aside and everything else is in stock.

So now if the real estate multiplies itself it can continue to keep feeding that real estate bucket. Same way, if the stock multiplies, it can keep feeding the stock bucket. But those two were allocated separately and it's, here, I give you a chance. Go real estate and go stocks and you get to stay there, you don't need to mingle. Don't mingle funds from one bucket into the other. That's where it is. It's now you got to go on multiplying, there's no more new money coming to you.

Darin: Some listeners totally understand how to invest with retirement funds. Some other listeners are like, "How do you do that?" Talk about how you do that and were you scared to do that at the time? It was your first investment.

Sandhya: My fearlessness comes from coming to this country as an immigrant with two suitcases in hand. Parents who made 60 U.S. dollars a month in salary, and then coming here from nothing and making it, so-called, the American dream. Which is a house in suburbia with a family and two kids and fairly new cars, kind of thing. I'm not afraid to go back to an apartment.

When You Lose That Fear

Sandhya: When you lose that fear of, all my money is going to be gone and I'm not going to have the status of being a suburban mom, it's fine. I'm pretty cool to start over. When you lose that fear you're not as concerned about, all this money I earned is going to be gone. Well, I didn't have much to start with. I can easily start from scratch and do it again.

Darin: You are you. It doesn't change you as a person, it's just a number in the bank account. It definitely helps do things in life, but you have built all that knowledge that you could go out and make more.

Sandhya: If you'll just step out of your front door, at least in Texas where I am, you see these beautiful parks and trees and streets. That's all free amenities to everyone and things that I didn't grow up seeing as much in India. The best things in life are truly free. When you don't have that fear, it allows you to go in there, and it's retirement money. Technically you're not supposed to withdraw your retirement money till you're 65 plus.

That's so far away, I'm not worried about it. Darin's going to buy this property, he's going to sell it in five years. Maybe it takes him a year longer. He's going to sell it in six years. I know the property is going to hold its value. It's a great location. I did not have the fear that, oh my gosh, here I am handing $50,000 to Darin. No, I have a lot of confidence. He's been through the same program, he's got the education.

The Confidence in Real Estate vs Stocks Investing

Sandhya: This is a real property, I have confidence in the Texas market. Real estate isn't going anywhere, the problem is it's going to stay put. It's going to be fine.

Darin: At procedural standpoint, I think that I didn't know this before getting into the group, and I've done the same thing. I've invested passively with after-tax money and also with retirement money. But some people don't know that it's basically just a transfer from whether you use Vanguard or Fidelity or whoever you use for your IRA. Just transfer money from there to another custodian that is focuses on self-directed IRAs or solo 401(k)s. What did you get?

Sandhya: eQRP. Some kind of a branded solo 401k. Main point of that is that you can basically take retirement money out of a previous employer's retirement plan account. Roll it over into another qualified retirement plan, whether that's a self-directed IRA, or solo 401(k)s. Then use that money to invest in real estate instead of saying the only allowance you have is these four or five plans that your employer restricts you to. Because now if you're no longer with that employer you can take that money out and put it into real estate, such as the multifamily syndication that I did with you.

Darin: A lot of people don't realize they can do it and when somebody may tell them, "It just sounds complex." It's really not. If you leave a company and you have a 401(k), you have to roll that in typically. Some companies will let you keep it. But most times, the employee when they leave, they'll roll it into an IRA. This is no different.

Why Invest in Real Estate vs Stocks

Darin: You just roll it from one IRA into another retirement vehicle and then you can invest in real estate. So from my standpoint, I pulled money out of the stock market also. What I think is crazy, and I wish I had this much sooner, is that you realize that on these multifamily properties, you're getting leverage of 70 to 80%. But all of the appreciation goes to the equity owners.

The property doesn't have to double in price. If you buy a stock, you buy Amazon stock at 3000, it has to go to 6,000 for you to double your money. But in real estate it's not like that because you pay the loan back. Then all the gains go back to the equity owners, so that's huge. Talk about the tax benefits you've seen since the next year when you went full-time real estate professional. How did that impact you having the additional tax benefits?

Sandhya: That's a huge benefit of investing in multifamily when you're a qualified real estate professional. Of course, you can look at the rules on the IRS. But in my case, without another full-time job, all I had to do was show 750 hours of activity doing active management of properties. With that, all your passive losses can offset the passive gains, anyway. But in this case, I could even use it to offset my husband's W-2 income if I managed to cross the threshold of all my passive gains being offset. This is huge in being able to defer the taxes for a few more years.

Actively Involved in Real Estate vs Stocks

Darin: I've seen some people in the group that one spouse is getting all this depreciation. They're actively involved in these real estate deals and the other spouse is a W-2 employee, a C-level person, or a business owner. They have massive tax consequences. But now that they're getting the depreciation, you combine both the husband and the wife. Now you have all this loss from the depreciation to offset that income. Yes, you get to defer it. Possibly, if you keep on buying investments you could just keep kicking that can down the road.

And taxes, my grandfather told me this a long time ago and I didn't listen to him. I guess that was the youth. He's like, "Look, taxes are going to be your biggest expense." When I look back at some of the tax returns and some of the checks I wrote to the government, part of me was thankful that I had the capability to write that check. But now when I look back on it, I'm like, "If I could have had some losses to offset that and then continued to use that capital to grow, it would've been a completely different picture."

Sandhya: One thing I want to point out in that whole tax and cost segregation study is, there is this Trump tax law that gives us all the bonus depreciation to be able to take 100% of it in year one itself. That's active here in 2021 as well as 2022, it starts phasing out in 2023. If anyone is on the fence about real estate, these are the two years to actually take some action and start investing. Those benefits are too big to ignore at this time.

Will It Start to Sunset in Real Estate vs Stocks?

Darin: I'm glad you brought that up because it will start to sunset. The reduction will happen year over year, in this year and next year are 100%. And so if somebody invests $100,000 into a deal, they may get anywhere from 50,000 to $100,000 loss in year one, based on having that. I just had lunch with somebody at a golf club last week. He's in the real estate world, residential, but he's been in real estate for a long time. He is like, "I didn't know that this cost segregation thing was even around and I could take advantage of it until this past year."

This is somebody that's in the industry. Just not in multifamily. Now he's actively out there looking for a multifamily deal so he can get the depreciation to offset his income, so it's massive. It comes back to what you said earlier, education. When you were doing stocks, what was your philosophy on getting educated in real estate? Why did you join a mentorship group?

Sandhya: I wanted to accelerate my path because if I try something and I don't see results quickly enough I might get dejected and not continue. By joining a mentoring group, it's like a membership to a country club. You have this clustered pool of people with the same mindset and goals as you already speaking the same language. And so you can get there faster, like my connection to Darin. If I ever wanted to buy a property in his area or maybe he's going to sell his deal one day. I'm going to be ready for it because I have its history, that network is priceless.

One 30-Minute Conversation Helps You Climb Faster in Real Estate vs Stocks

Sandhya: It's going to save you thousands of dollars. Even one 30-minute conversation with someone with knowledge like that is going to help you climb so much faster. I know that every deal I got awarded so far that I've been doing so well is strictly from my connections within this group.

Darin: You said so many good things there. One, accelerate your path. I have people reach out to me on Instagram and have sidebar conversations all day long. Some are reluctant to pay to join a group. I'm like, "You can absolutely do it without it." When I look back I think to myself, I'm like, "What would my path have been, had I done it on my own?" If I had the same persistence and determination, I could have done it but it would've taken me a lot longer.

Secondly, I probably would've bought a smaller deal because I wouldn't have had access to as much capital. I wouldn't have had the confidence. There's a big confidence booster when you start seeing all these other people. You get to know them and they're buying 100-unit, 200-unit, 300-unit deals. You're like, these are just normal people and you get to have access to them, proximity to them. That helps you to have that little shift in mindset to be able to go bigger. You have the confidence to do that because you surround yourself with that network.

Sandhya: The access to coaches was priceless. Every deal that I decided to underwrite was reviewed by multiple people with experience in my local market. Who could get down to all the details and say, "No, you can't get that rent bump with that kind of a product."

Coming From Zero in Real Estate vs Stocks Knowledge

Sandhya: Or, "How much are you going to spend per door? What about your deferred maintenance?" They asked me all the questions that I needed to be ready with answers. That itself made me a better underwriter. So that when I went into deals a lot of times like the four deals that I'm involved in, the underwriting numbers to the reality isn't too far off.

The coaches who helped me and the mentors who guided me, they had actual hands-on practical knowledge there. The reality didn't quite bite as much as it could have, had I gone into it blind. I came from zero real estate background so I needed this program to help me figure things out quickly and show results.

Darin: You talk about four deals that you're in as a general partner. Let's just go through the first one? How did you get into that deal and what was your role in the deal?

Sandhya: My first deal was with two other experienced partners that I wouldn't have met had I not been in this group. That was a big one. The first deal was 86 doors and it's actually not far from your first deal, Darin. My first deal, 86 doors, is in Cleveland.

Darin: Right, it resold. Has it closed yet or is it in contract?

Sandhya: It's on a contract to be sold, it's going to sell next month for sure. It's bought by another team of people from within the same network. The connections and the network really helps. But this deal was listed by a popular broker Marcus & Millichap. Everyone saw it, everyone underwrote it. My partners, or my future partners actually also underwrote it.

Boots on the Ground

Sandhya: I went after them and I said, "Here, you need to take me on. I've also done my own independent underwriting research, this market, et cetera, and guess what? Both of you are out of state. I can be available to you to go and help in any way that you need without you having to make these trips. And I can go there when a vendor shows up, I can go inside every room. I can check with the new management company, that this was their first deal in the Dallas area, too.

They had experience with deals in their neighborhoods in Minnesota, et cetera, but this is the first time they were getting into Texas. So I, being boots on the ground, was able to help them in the sense of an extra pair of eyes and ears, and I was eager to learn the business. I want to learn about asset management, KPIs, weekly property management calls, investor relations, monthly newsletters. All of that stuff for which I'd had no practical knowledge I was able to learn from my partners who had the experience. To me, it was the best thing ever.

Darin: Hats off to you because, look, in that role you're a co-sponsor. You probably don't get as big a share as if you got the deal under contract yourself. But, I was going to ask you how you even convinced them to take you on but you already went into it? Look, they're from out of state, they're buying their first deal in-state, your boots on the ground. Then in exchange, you get all that learning knowledge, so it's a win-win.

What People Don’t Understand in Real Estate vs Stocks Investing

Darin: That's what some people don't understand. Why would people want to partner with me? You have to be creative sometimes to think about what value you bring versus the other side of the equation. And if you can make it a win-win, which you did, then it benefits everybody.

Sandhya: You have to consider this as your internship phase when you do your first deal. The reason I wanted to partner with experienced people on my first round instead of on my own is because I had never done real estate before this. When you consider other people's money, this is the money that people have saved up for years from their W-2 jobs. They're hoping to pay for their kids' college and their retirement, et cetera, with it. You have to take that seriously, you can't be flippant about it.

People are investing 40, 50, $100,000 with you, that takes them a while to earn that money. You got to treat it with the same respect that you would treat your own money, that amount of money. My first job, my salary was $36,000 so I probably saved barely 3000 in my retirement account the first year. It takes a while to build that up to $50,000, so treat it with respect.

I see so many people of all ages going into their first deal saying, "I'm going to work hard, I'm going to get this done." I'm like, "You don't know what you don't know." It is not a fear, it's a respect for other people's money. It’s being responsible for your passive investors' money, doing your due diligence.

Applying the Same Concept

Sandhya: So even if you have the book knowledge, which is what I had from the mentoring program, where is your practical knowledge? If you're going to do your first brain surgery, would you not want the experienced surgeon in the room at that time? Same concept. My first deal I wanted to learn every step of the way.

The money isn't as important as doing it right, learning it right, and establishing that credibility with investors so they keep coming back to you. That's way more important.

Darin: So then your name gets attached to that deal and people are like, "Oh, you're part of that deal." Now talk about how'd you get into the second deal.

Sandhya: The second deal was actually brought to me by some folks within the group. First, they were only looking for someone to sign a loan as a KP and I said, "Well, I've already sponsored my first deal. I want to do a deal where I'm also a general partner. I'm not looking to just sign loans and have no say in how the deal is run because I know what risk that carries with it." Then I was able to talk to them and I said, "This is how I can add value."

Two of the sponsors who brought it to me were both out of state. One was in Northeastern Boston and the other was in Carolina. I'm like, "You need a Dallas person who totally knows how to handle a 60s property. This property's just like this other property I have done." Again, that was an easy match. We're now about eight months into owning that property and we're already within $2,000 of our target NOI.

A Quick Spin

Sandhya: We're going to do a quick spin on it. It's going to go for sale in 2022. If anyone's listening, yes, we're going to do it in less than a 24-month cycle on that too.

Darin: All right, I'm skipping the third one. I'm going to go to the fourth one, because the fourth one is one, I was invested within Tom's deal in Oasis. You guys ended up buying us out. Talk about a few things. One, that's a deal where you and your partners underwrote the deal and got the deal awarded to you. It wasn't, I'll be boots on the ground and I'll learn, so talk about that. But also one of the things that I know I had an issue with when I first came into the group.

I think that people outside the group don't really understand it. How can somebody, a new group in the same multifamily mentorship group, be buying out another group and still think they're going to make money? It took me a little while before I understood that, so talk through that process.

Sandhya: It's now a different market than what they bought it for three years ago. 2021 is a different year and a new year compared to 2018. Cap rates have compressed, people see value in different things. I purchased this property in July 2020. Now we're in September, but I actually made the offer, back in May. So May through September, I can tell you in four months how much the Dallas market has changed again. What I paid for, this price for this property in the range of 120s per door for a Class B in such a great submarket called Hurst is now considered a bargain.

So Much Value Left in Real Estate vs Stocks

Sandhya: People are paying way more per door for a Class C even in a secondary market. So there is still so much value left. The process started for me actually over a year prior to that. I had looked at properties within a one-mile radius. At least half a dozen other properties within a one-mile radius of this property Oasis in the past 12 months. I can tell you, the interiors of every one of these six properties I had personally toured and comped. The other thing I do is a very in-depth comp study.

When I like a property and I go after it all guns blazing, if you will, I take a day and all I do is I go visit every comp personally. I sit in the leasing offices of these comps, I give them Starbucks gift cards. And I find out everything I can and I ask them to show me the interiors. Right there I know what my competition is, so to speak, in terms of what's a new resident looking to stay in. In my subject property versus all these other properties, where is the competitive advantage?

We could find several million dollars worth of value still left in Oasis Springs when we underwrote it. The brokers give you a whisper price. But we know that this particular brokerage lists their whisper price quite a bit below what it could really go for. I already knew my target price has to be at least a million above that to even be competitive. I already had a lot of advantages over others, bidding on this property with a very thorough knowledge of that submarket.

A Phenomenal Job

Sandhya: Also my property management team has done a phenomenal job on my other properties. My vice president lives within a mile of this property. In this city, it's something they know in and out. They could tell me every little thing, how many times the name has changed on these properties, that level of detail. We already had this zip code in our mind saying, "If a property comes up here and fits this little box we're going to go after it, all guns blazing." That was the biggest thing, I knew so much about it. The more knowledge you have, the more educated you get. I could tell you probably even more than some of the other brokers listing the property in some cases.

Darin: You brought up so many great things there. One, some brokers, they come out with whisper prices that are really low and it always trades above. So knowing their past history and where you need to be before you dedicate a ton of time going after that deal, that's very important. Other brokers, they shoot for the stars, man, they set the whisper price so high and nobody could ever get there. Knowing that was a big advantage to you.

Secondly, comps. Knowing what other properties in the area trade for gives you confidence to go there. You have information that other buyers may not know and definitely a lot of passives don't know. Visiting the properties and seeing what your competition is, the comps, actually going and looking at the grounds. If I'm a renter, I have a choice. I could either rent here or I could rent down the street. When you go and you visit enough of those properties, it gives you confidence.

If We Own This Thing Called Real Estate vs Stocks

Darin: If we own this thing we could take the rents up to this level, and that's huge. On comps, I'll share my experience, I want to hear yours. When I first started to walk into comps I was like, "Oh, what am I going to say? What are leasing managers going to tell me, and is it going to be tough?" I found out that 99.9% I walk in, I just say I'm part of an investor group looking in the area. I know some people that go in and pretend that they're a renter. But 99 times out of 100, the leasing manager is like, "Sit down, what do you want to know?" They're just an open book.

Sandhya: Yes, they are. They love to do that.

Darin: So you found the same thing?

Sandhya: That's what I do. That's why I said I give Starbucks gift cards. I thank them at the end and I give them a nice $10 gift card. But when I walk in they love to brag about what they've done with the property. One of the biggest pieces of the conversation is, what is so cool about this property? I want to copy some of your great ideas, and they're very happy to tell you all about it.

Then you say, "Okay, what are tenants really complaining about? What's your biggest problem? If I give you $100,000, what could you fix in this property? What would tenants really appreciate?"  Then some of them will say, "Oh, put some washer-dryer connections in the units, they really want that. All these young families don't want to go to a common laundry."

There Is a Pattern in Real Estate vs Stocks

Sandhya: Or they'll specifically say, "I really think this barbecue area, all this grill, everything is broken. But improve the landscape here, make it a nice picnic area." They'll give you specific suggestions. The other thing I do is beforehand I look up and Yelp what are the biggest complaints from people? Because they go online, you read reviews of these apartments.

You already know there is a pattern here. Everyone is complaining of AC leaks or everyone is complaining of plumbing issues or whatever it is. Or they're just complaining about the rude staff. So I look at all of that, I already have that information before I go visit a comp. I just look through that and so in my conversations I try to bring that up gently. See if they acknowledge the problem and then they start talking about it. That's another great way for you to know what are things to address and what can be your competitive advantage. Or a good idea, you can bring into your subject property when you take over.

Darin: That is smart. You do a lot of homework before you go out there, which is fantastic. It helped you win the deal and that plays into how you are able to get into some of these partnerships. People know your work ethic and that you're buttoned down. That you turn up the stones and try to figure out all the avenues and do a lot of the homework that can help the group going forward.

One Little Box to Focus On

Sandhya: One little box I focus on, you might see 20 listings in Dallas today. I can screen them and I can say maybe one would fit my criteria. So I spend this level of detail only on one property, not on all properties. Literally, comp shopping might take you half a day, maybe a day, max. If you comp up you look at about eight to 10 properties, that's it. That's not a lot of time when you think about the size of this investment.

How much that one comp shopping knowledge can help you in your business plan for this property, for your subject property you're going after. So that when you finally do the tour with a broker in those brief 20 minutes, you already have a very specific list of questions and what you want to see so that you know what's going to work and not work. So you make the most of that brief 20 minutes you get with a broker.

Darin: It also gives you a lot of confidence to underwrite numbers from looking at OMs and looking at apartments.com, and looking at different documents. But actually going in and hearing stories from other properties around, they just talk. It seems like we're raising rents every three months. Or we have so many people coming in and applying, we just don't have enough units. You hear all these comments and you're like, "That gives me so much more confidence to put a number on this deal." Another thing you didn't mention but is very important is that when one group comes in, say a same multifamily mentorship group is buying out another group.

A Business Plan and a Budget

Darin: The original group, Tom's group and I were passive in that. I was a KP in that deal. We had a certain business plan and we had a certain CapEx budget. But once we spend that CapEx, we can't really take it to the next level. We don't have several million dollars sitting in the bank ready, where a new group comes in. They're like, "Holy cow." Like you said, it's a different market in 2021 and maybe tenants are looking for certain upgrades.

You guys can go and do that because you bring in fresh capital, so you can take it to the next level. It took me a little while to figure out and understand and get comfortable with. Because I always look at it as a valuation almost when we're going back to the stocks. If they bought it here and now it's valued north of that, then am I the sucker for buying it? Well, no, because they can't do any additional upgrades.

Sandhya: It's like in their case, they implemented the business plan. They got the revenue and NOI up to what they needed. So now, they're ready to sell just like with Northridge Court in Cleburne that we listed for sale. It's like we implemented our business plan fully. Right now the returns far exceed what we initially projected to investors. We told them in five years you'll get maybe 70, 75% return, instead it's two years and they'll get 100% return. It's like, how much more do you want to wait and be greedy for? Versus now you return this, your investors are going to love you and want to come back to you.

Exceeding the Initial Projection in Real Estate vs Stocks Investments

Sandhya: You're returning the money to them within the time window that you committed and exceeding the initial projection. That's what you want to do, each time. Once your business plan is implemented, you've reached your target numbers, it's time to sell. Just like with stocks you got to know when to sell. You can't be holding onto it saying, "I made this much money." Well, you don't make money on a stock until you sell it, remember that. Same with a house. "Yes, my house value went up." Great, but you're living in it. Unless you sell it you're not getting the cash for it. So, a new influx of cash.

The other thing is if I have an older 60's property and I've used up all my CapEx, there could be a new SNOVID which is like the snowstorm we had in Texas earlier this year. Other things could crop up that lead to deferred maintenance expenses. If you don't have much cash left, that's not a good problem to have. That's why I always say, when you run out of large amounts of cash it's time to turn over this property to a new group who's going to bring in the cash to take care of it and take it to the next level.

Darin: We didn't delve into this that much earlier but I want to just ask you a few questions. You came from India. Did you come here to study?

Sandhya: Yes. A long time ago.

Darin: Undergrad university?

Sandhya: I went to SMU for my electrical engineering and then I got a job right away from there. Graduated from there, went into Texas Instruments, and then realized I needed a business degree.

Either Way Is Okay When It Comes to Real Estate vs Stocks

Sandhya: I needed to have that background or knowledge. So while working full-time, I went to evening and weekend classes to get my MBA. Then went on from a very technical role of failure analysis and test engineering. I moved to a marketing and business development role which tied well with my MBA. That's when I did trade shows and all of those fun things of the marketing and business side at TI. Then eventually I took over a business unit and did programs of 80 million and up.

The combination of that technical knowledge and the business knowledge made it a very nice use of all of my knowledge and skills to run businesses. Until children came, they became a bigger priority, and there were more demands on international travel. Taiwan, Israel, the Island of Kyushu in Japan, and Germany, and places like that. Well, it's not as conducive to raising kids. If you want to spend a lot of time with your kids, I'm saying that either way is okay. But, at that, I felt like I was missing out on those early years with my kiddos.

That's when I made the transition to the full-time stock market because the cost of living in Dallas is not that expensive. I already worked there for a few years. My husband had a job. It's a matter of, do I really need to be driving a fancy Mercedes every two years? No. An old, 6 year-old Toyota is plenty for me. The best things in life are free, again I say parks, rec centers, and places are beautiful here.

Morning Rituals to Help You Succeed

Darin: I didn't realize you got both the engineering and the marketing. You've got a very well-rounded business background and you've applied that to your real estate investing. Talk about habits that you think helped you. Do you have any morning rituals or books that you read or podcasts you listen to? Things you do on a normal basis that helps you become successful.

Sandhya: I've been trying to adopt my own version of The Miracle Morning. I make sure I read every day but it's not necessarily at 5:00 AM. Some days it's 4:00 AM and some days it's 8:00 AM. Whenever it is, once the kids are sent to school, which now we're in school again, then I read, I try to take a walk. I committed myself to doing 10,000 steps a day. I haven't done it seven days a week but I'm certainly trying and making improvements by putting a time block on that.

Focusing on my health is probably my biggest weakness that I'm trying to improve on. Now instead of signing up with people to go to happy hours or lunches, I'm saying, "Can we take a walk instead?" I'm staying in touch more with my healthy friends to get their healthy habits into me. Trying to have fewer meal and drink-based dates rather than their more healthy walks and talk kind of thing. On my walks I listen to podcasts. The phone is another weakness. I'm pretty addicted to my phone. So I don't get to touch my phone until I do at least 15 minutes of stretching in the morning and 15 minutes of reading. That's a discipline I've tried to get into.

You Can Always Find Books to Learn

Darin: Reading is something that is huge for anybody. I've got kids that are older, like 20. My son's turning 21 tomorrow, he is a junior in college. Daughter just graduated high school, 19. All their life going through school they're told what they have to read, they're told what they have to learn. But as adults, we have the ability to say, "We're interested in this area." Whether it be health, multifamily, or stock investing, you can actually go out and find books to learn more about that subject area. That's why I try to tell my kids, "Reading is actually fantastic when you get to choose what you want to read or what you want to learn."

Sandhya: One of my favorite books is Atomic Habits. I've been practicing that. But making a positive incremental change each day amounts to something huge if you keep adding that up to six months to a year. When I started out in real estate with you and I met you for the first time years ago, I knew nothing. I was such a blank page when it came to multifamily. I'd barely started studying the modules. But today I could talk about so many different topics. That's just from making it a habit, I have to learn something each day. That persistence, that sticking to that goal of saying, "Now that I know something, I actually know how little I know. So, I have so much left to learn."

Darin: So much left to learn but you know a lot, you're a go-getter. I see you network, I see you out there, and you are always learning.

The Weird Part About Real Estate vs Stocks Investing

Darin: Engineering, MBA, you have that learning background. You're very focused on providing and being a fiduciary for your investors. They're very important to you. I see that in all your communication. The weird part about these multifamily deals, I've talked to people that have 30, 40, 50 deals. I'm like, "Have you lost on any of them?" I get back, "No." They've had deals where they said they were going to get certain cash flow, they didn't get that cash flow.

They had deals that we're supposed to sell in five years and they had to hold it for seven years. Then they had deals that projected a 70 or 80% return and they barely got their money back. But in terms of actually losing their capital, I had one guest that came on that said that he lost on his first deal. Other than that I have not heard of anybody losing their original capital. Maybe not meet their projections, but losing the original capital. What's your experience?

Sandhya: I have two deals in which I'm invested passively that are going to complete a full cycle and are listed for sale. I could see that in 2020 through COVID, they were doing poorly. And I was one of the few who actually contacted the sponsors and told them what they're doing about it. Forced them, twisted their arm gently to list it for sale because I said, "The economy is great. You need to get rid of these properties because you're losing money every month with these properties." I don't know if I'm going to get 100% of my principal back, but I'll definitely answer that question in a month’s time.

Two Different Deals

Darin: You don't know if you're going to.

Sandhya: I don't know and neither of the sponsors are able to tell me on these two different deals. One is in Dallas and one is in Houston. Both the sponsors are the most impressive sponsors you'll ever see on a social media level of sponsors. They're not nobody's that I took pity on and invested with them. These are people with whom I wanted to forge a connection and relationship. To say, "This is a person I can go to when I'm doing my deal because they know so much and they have so much experience." I'm going to wait and see how those two deals turn out as of right now. I want both my retirement money and I really need my principal back.

Darin: Plus that real estate bucket wants to keep chugging along.

Sandhya: If it's not getting any extra.

Darin: It's not getting anymore. Talk about mindset. I came into the group and I was thinking duplex, fourplex, eight plex. Then all of a sudden you start meeting all these people that are doing these big deals. What would you say to listeners in terms of mindset and how that has impacted how you invest in the real estate world?

Sandhya: Mindset is everything. It's what you tell yourself inside your head. When you're alone, what you believe in it's going to manifest. It's going to show itself when you speak to the Darins of the world. When you walk up to a Darin and you say, "I want you to partner with me." What do you have to offer to Darin? Think about that.

Along the Same Lines

Sandhya: Along the same lines you say, "You just won this great deal in Dallas. How did you do it? Every time I underwrite a deal I'm off by a million dollars. How do you get over that gap?" Then maybe Darin's going to give you a few tips.

Go in there not with, "I can't do it." Rather they say, "How did they do it? Let me go spend more time with people who are doing what I want to be doing. Ask them these questions because success leaves clues, so let's go follow them.

My most recent deal was $19 million. If I want to do a 30 million, $40 million deal, what does it take? I need to go speak to people who are doing that and ask them. Then write down all the gaps that I have to fill to get to that level and say, "How can I fill those gaps? Do I need somebody with a very high network to sign my loan? Do I need someone who can raise a lot of capital, has a fabulous podcast to come and join me in a deal so that we can raise that capital? What are the gaps for me to go from 19-million deals to 40-million deals?"

Very honestly, look yourself in the mirror and write down what do I have and what do I need? Who's going to help me get there and then go after it.

Darin: Listen to her. You know what I love about a lot of the answers you've presented in this conversation is that you focus on asking questions. That's so important. When you're doing comps, these are leasing managers that some of them may not be making that much money.

Asking Very Important Questions About Real Estate vs Stocks

Darin: You're asking very important questions but you ask it in a way that it makes it such that they're willing to help you. Then when you're dealing with a syndicator who has a lot of experience maybe you ask different questions. How do I get from $18 million deal to a $40 million deal? That's something that no matter what you want to do in life, finding people that have already done it and asking good questions. Those are two key things and it looks like you focus a lot on asking good questions.

Sandhya: One other thing I want to tell listeners is don't start chasing every shiny object. I'm in the stock market, I know it well, done it for decades. I started with the education, took small risks and now I know my little box. Same with real estate, start slow and steady, do what is comfortable to you. I don't care if the person next door is doing a dozen deals a year. That's too much for me to handle. I want three deals a year total that I'm actively asset-managing so as I sell one, I'm going to buy another one. That's my comfort zone.

Same way don't chase every shiny object because that's going to distract you from your focus. Become an expert at one thing, or at least that's my philosophy. That's what you will have to offer to other people when you want their expertise on something.

Like if I ever wanted to start a podcast I'm going to be calling Darin. I'm going to be taking him to a nice steak dinner and saying, "Tell me all about starting a podcast."

Stick To One Thing, Real Estate vs Stock, and Be an Expert

Sandhya: I know nothing about it and Darin's done such a great job on it. If I ever thought of doing that he's the first person I'm going to call. Just stick to one thing and be an expert instead of saying, "Oh, I'm going to go after mobile home parks. I'm going to go after an RV park, I'm going to do self-storage, I'm going to do ATM machines." Okay, "I'm going to do multifamily. It's going to be in Dallas, in a neighborhood that I know, in a market that I know, and it's going to be about this size." That's it, and then become an expert at it.

Darin: Some people just think of real estate as this big bucket. But really, there's different asset classes within real estate and focusing on one area. We're talking about multifamily but it could be self-storage, it could be mobile home parks. It could be flipping single family, it could be build-to-rent development, new development. Or it could be buying land. Whatever it is, get good at it and surround yourself with other people that are knowledgeable in that area. That's great advice.

For the first time passive investor, this is interesting. I've got a bunch of money in the stock market. I've been wanting to get into real estate. I didn't realize I could just invest passively in one deal and see how it goes. How does somebody get involved and what are some of the things that they should pay attention to?

Three Things You Need to Pay Attention To

Sandhya: There are top three things I would pay attention to as a passive investor. Number one, get to know the deal sponsor like Darin who's also going to manage the asset. It's very important that your risk tolerance matches with how they operate their properties, how they underwrite. Therefore, the projections, that's very important. The second thing is the market itself. Real estate is still about location. You cannot go in there and change the crime data there very quickly. And you cannot go in and change the median household income quickly, et cetera, so that location is going to make all the difference.

The very best of operators may not do so great if the location sucks so the operator and the location are very important. The third thing is the deal structure itself. Are the returns and cash flow, et cetera, going to fit within your financial budget and goals? And are you okay with not having access to that capital? Maybe not getting much cash flow for a while, because real estate is not liquid like your stock market.

Darin: You have to be okay with that. There's some deals that come across my computer that have very strong cash flow projections. Then there's somebody, I'm invested with one operator who's not in our group. This individual is very upfront that, "You're probably going to see one or 2% distributions while you own the interest." But they have an extremely strong track record of doubling investors' capital in three, four years. That's something that you have to pay attention to and have to align. I love the three that you brought up, sponsor, market, and deal structure. What's your next big stretch goal?

Giving Up Control in Real Estate vs Stocks

Sandhya: My next big stretch goal is to actually give up control. Hire some VAs and people to outsource some of my repetitive tasks so that I can grow and spend my time on the most income-generating tasks. Because I see myself doing things that could be either automated or handed off to a VA. Only when I do that can I free myself up to even consider scaling.

Then, even five years down the road to some people it could mean a dollar amount saying, "I need to have a $100 million portfolio or whatever that number is or a certain number of doors. For me, it's still three to four properties, except each of those properties are much larger. So that my Mondays are this property, Tuesday is this property, and Wednesday is this property, and then I have a couple of bonus days. That's how I like to do it. It's still three to four properties max, but they're just larger deals.

Darin: The first thing that you brought up, give up control. I had Erin Hudson on the show at one point and she said that she was a prior dentist or a doctor, now a full-time real estate professional. She focused on this book Who Not How. She's like, "The minute you start thinking about not how you're going to do it but who you can get to do that for you." The amount of money that you pay that person is most likely significantly less than the value of your time, so that is huge.

Exotic Destinations

Darin: It’s a process. I’m offloading some stuff off to VAs. With the podcast, I've offloaded a lot of the technical stuff to a consultant group. But you still have to spend time upfront to coach them and develop. Once they get the hang of it, then boom, all of a sudden it frees you up to move on to something else. What do you like to do outside of work?

Sandhya: I love to travel. The more exotic the destination, the better. I have this feeling that I'm going to be really old and in this RV driving around the United States. I'm going to be living in an RV, that's what I see myself doing. I want to visit Iceland, Kangaroo Island, and Dubai, all the exotic destinations around the world first. Then I'll be sitting in cruise ships finding my wheelchair.

Darin: I spent three nights in Arkansas at an RV. We rented an Airstream and it was our first time doing it. I'm considering wanting to travel around the U.S. and bop around. I have to get my wife comfortable with the small accommodations.

My Bucket List

Sandhya: My husband rented one and we shipped my son with him. My daughter and I spent a day at the Galleria instead. The RV has to be pretty big for me to feel comfortable staying there every day. I'm in love with road trips within the U.S., Mount Rushmore, kind of places. They're on my bucket list but they're for my 60s travel.

Darin: Sandhya, I really appreciate you coming on the show. I got some insight based on this conversation on how you did it. I'm like, "She's partnering with this person and that person, is getting this deal. How did she do it?" You were confident in yourself and you sold the value that you could bring to others. That's so important. Listeners, I hope that you enjoyed that one. Until next week, we're signing off.

How to Reach Sandhya Seshadri

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