How to scale in multifamily real estate and where we are within the economic cycle? We will hear from Raj Gupta, a seasoned real estate professional. Hear how he transitioned from being an attorney for the US Navy to being a financial advisor to super high net worth individuals to large scale real estate. Raj is also a student of economic cycles and will share his view on where we are within the economic cycle.

Table of Contents:

• Introducing Our Guest, Raj Gupta
• The Biggest First Steps When Starting out on a Multifamily Real Estate Business
• A Glimpse of Raj’s Childhood
• Taking Part in Something That You Can Be Proud Of
• The Experiences That Shaped the Character of a Successful Wealth Advisor
• How the Multifamily Real Estate Business Is Holding up Against the Downturn
• The Search for Real Opportunities
• Understanding Multifamily Real Estate Investments
• The Multifamily Real Estate Business Is a Relationship Business
• Building a Safety Net
• Learning the Ropes of a Multifamily Real Estate Game
• Setting the Next Big Goal
• Taking Multifamily Real Estate to the Next Level
• How to Reach Raj Gupta

Getting to Know Darin Batchelder

Darin Batchelder's Real Estate Investing Show is a free weekly show that will be released every Tuesday morning. So what do I believe in? I believe in God. I believe in family and friends. I believe in the American way. I believe in the entrepreneurial spirit. I believe in relationships. I believe in hope. I believe in learning. I believe in hard work. I believe in the ability to create wealth no matter where you get started. I believe in taking action and going after your dreams. I believe we're stronger together.

So what motivates me? What drives me? What's my why? One, I'm looking for financial freedom like many of you. I believe that working together is the way to go. Secondly, I want to inspire others to go after their dreams. This show is focused on real estate. Having said that, I want to inspire others no matter what their dream is.

Now a little background on myself, I've been in the loan trading business for over 18 years. I've traded over $4 billion in residential, multifamily and commercial real estate loans. At the end of 2017, I decided to finally take action and get into the real estate business, and specifically the multifamily syndication business.

Today, I've invested in nine multifamily deals with over 4000 units. Seven of those deals, I've invested passively with other lead sponsors. One deal, I took the lead and acted as the lead sponsor. One deal, I partnered with two other well established general partners for a small minority stake in the deal.

Why Darin Started the Real Estate Investing Show

I started this podcast to get the word out and to let more people know that they can get involved in real estate investing. This is a way for me to give back and to serve others. I've had so many people help me along the way and I look forward to engaging with all of you. There's still so much to learn, and I look forward to learning from the guests on the show and from all of you listeners. My role is to bring people on the show that will share their wisdom and experience to help you grow your wealth.

Your role is to take action one step at a time. Please take the time to listen. And please let me know your feedback. We will learn and grow together.

Introducing Our Guest, Raj Gupta

A little background on Raj Gupta before we start the show. Raj practiced law as a Navy officer. Then he was an advisor to super high net worth individuals and then transitioned into large scale real estate. His most recent deal was a $42 million multifamily community. Now onto the show. Hey, Raj. Welcome to the show. I am so excited to have you on the show. This is our first episode and I am so honored to have you.

Darin: Raj practiced law as a Navy officer. He was an advisor to super high net worth individuals and then transitioned into large scale real estate. His most recent deal was a $42 million multifamily community.

Raj, I want to say thank you for your service. You were an officer in the Navy and there are so many people across this great country that are thankful for those that step up and make the decision to serve, and you are one of them.

So where Raj and I met, we're both members of a local, well, local for me. I live in the North Dallas area, and there's a multifamily mentorship group. Brad Sumrok runs it in Dallas. Raj and I met while being at a number of the marketing events within that group. And Raj is located in Chicago, in Naperville.

Raj, you're a rockstar investor. You've been investing since 2008, over 4000 units. You've done single family. You've done multifamily. You've done large scale multifamily. You've bought, you've sold. You've rehabbed.

Then you went and joined this multifamily mentorship group after you've done all that. So my big question to you is: After having all that experience, what value did you see in joining a group like this?

Raj: That's a good question. I have to be honest. When I first went to that group, this is back in March of 2018, it was purely out of curiosity. Most of my properties, as you know, is in the Dallas area.

The Power of Surrounding Yourself With Like-Minded People

Raj: And I had actually just sold my first multifamily property. It's 128 units in Duncanville, which is outside of Dallas, just about two weeks prior to that. And the sponsors that I sold it to, the buyers, were actually a part of this Sumrok group. I had actually received several offers from different sponsors within that group, and so I talked to the broker, Taylor Snoddy, who had the listing.

I said, "Hey, tell me about this Sumrok group. I keep hearing about them, and we got several offers from them." And he said, "Well, check out their website. You should check them out. They're a great group. And they're in Dallas, local. Check out their website and go to their event." So I did. There was a rat race to retirement event, which is what Sumrok calls it.

It was literally coming up in two weeks, and so I signed up purely out of curiosity. When I went there, there was 700 people there, like-minded. Great people. I was so impressed by just the enthusiasm and their backgrounds. And I met a lot of people that weekend. I honestly had no intention of signing up or joining the group. I've been doing this a long time.

It didn't feel like I needed mentorship or anything like that. But I ended up on an impulse sort of writing the check and joining. And the reason is because of the power of surrounding yourself with like-minded people. It's fun, first of all. And you and I met there. We ended up doing a deal together, and we have another partner, Anna Simpson, who I also met in that group.

The Biggest First Steps When Starting out on a Multifamily Real Estate Business

Raj: It's been such a phenomenal experience, and it's really allowed me to scale what I was doing as well. So my growth in this industry really is exponentially larger and faster than it would've been if I hadn't joined. When I learned the business, I didn't have the luxury of a mentor or being part of a mentorship group.

Primarily I was self-taught. That has its advantages, but it has its disadvantages too. I think there are so much power and synergy from networking and meeting like-minded people. And partnering and teaming up and sharing ideas that I think if I could do it over again, I would've joined a group like that years earlier.

Darin: I'm excited that you joined because that's where we met, and we actually did business together and did a deal together. But I have a lot of people that reach out to me on Instagram, and they're looking to get started. That's one of the biggest first steps in my mind, is surround yourself with other like-minded people.

Here you are, you are already a success story. You didn't necessarily need it. But by joining the group, what you've said is, one, you ended up partnering with two different people, myself and Anna Simpson. You did one deal with me, and you've done I think three deals Anna.

Raj: It's five properties.

Darin: Five deals, holy cow. So six deals through two partners? Total units of that is probably what?

Raj: Total is close to 1000.

Darin: Close to 1000 units since joining the group, so that's fantastic.

The Critical Factor to Consider Before Partnering With People

Darin: That's something I think is so critical for anybody that wants to get into this space, is to surround yourself with like-minded people because the other people that aren't in the space may tell you that it's too difficult.

But when you're surrounded with like-minded people that have done two, three, four, five deals, they're rooting you on. And they tell you how you can do it instead of all the challenges getting started, so that's fantastic.

So you partnered with two people that you met with the group, myself and Anna. Help our listeners understand. Why would somebody that already has experience want to partner with somebody? For me, it was my first sponsorship deal, and you decided to partner with me.

With Anna, she was a very experienced sponsor that already had a number of deals under her belt, so two different partners that you've partnered with. Why did you decide to partner with each of us? What was the value that the other side brought to the table?

Raj: It's a great question. Whether it's real estate, or business, or anything else, when you're deciding to potentially partner up with somebody, first of all, you've got to like them. I think that's really important. You have to hopefully see things in a similar way, have a similar work ethic and a similar vision. But I think for me, this business is almost impossible to scale if you're going to be on your own.

I mean, there is so much as a syndicator, as a multifamily syndicator, there's just so much to it. From underwriting deals daily to managing the assets once you've already acquired them.

The Qualities You Need to Secure in a Partner

Raj: Raising capital, dealing with brokers and insurance and tax protests. I could just go on and on and on. And you're aware of this. But there are so many different aspects to it. If you have one property, maybe you can do it. If you have multiple, or if you have the ambition to grow your portfolio, it's basically impossible unless you bring on partners. It should be people that you trust.

For me, it was people that I trust, people that I liked, people that brought something to the table. That's the other thing. If you're going to partner, every partner has to bring something to the table. Whether it's experience, or know-how, or a balance sheet to help get approved for loans, or just asset management. Having the time to spend to deal with the property management companies.

It helps if there's a network of potential investors as well when you are trying to raise capital for a deal. All of those are different considerations. Different people have different strengths, and you also want to take a look at where your strengths lie. And maybe if there are some gaps there, you want to see if you can find that in a partner as well.

But I'd say, if I'm honest, a lot of it is gut feeling. Just if I get a good sense about it. I don't think there's a formula to it. You were one of the first people that I met in the group. You asked me, this is before you had done a deal, "Hey, if I find one, would you be interested in potentially partnering with me?"

The Power That Lies in Partnerships

Raj: And I told you yes. Then you did, you followed up, and so that's great. Here we are. We're good friends. We've done a deal together and it's going really well.

I think there's a lot of power in partnerships.

Darin: I think that's great perspective for our listeners. It's two different partners, myself, I was a first-time guy. Again, I talked to a number of people that reach out to me. And some of them, it's a mindset thing. Some people think to themselves, "I'm a first-time investor. What do I have to offer somebody that's senior, that has already done?"

What I've found from being part of the group, and I think what helps it work for me and you was I'd asked around to the senior syndicators that already had a number of deals under their belt. And they're like, "Look. I can't look at every deal." I'm looking at 200 plus unit deals. And you're probably looking at smaller deals, so that's what I chose to focus on, 60 to 100 units.

I found a 76 unit deal, and then you weren't even looking at that deal. If I did some of the groundwork and laid the groundwork, and then partnered with you, but I bring it up because there's a lot of people that think to themselves, they almost talk themselves out of the fact that they can provide value to a senior guy.

I'm here to tell you that that's not the case, to the listeners, that there is value to the hustler. To the person that is going to go out and find the deal that the senior guys are not focused on.

A Glimpse of Raj’s Childhood

Darin: Build relationships and then focus on deals that they're not looking at. That's how you add value to them.

I'm going to take a little bit of a turn here. I don't even know the answers. We've spent quite a bit of time together, and I don't even know all the answers to this. Let's go back to your childhood. So where did you grow up? Did you grow up rich, poor, middle class? What was kind of your upbringing?

Raj: I was born in Evanston, Illinois back in 1970. A lot of people know Evanston because that's where Northwestern University is located. It's a suburb of Chicago. For the first seven years of my life, I grew up in Rogers Park, which is on the North Side of the city. Then in 1978, my family moved out to Naperville, and I've been in Naperville ever since. Naperville's been home for what is that? 42 years now.

I think when I was young, and I have two older brothers, and I'm the baby in the family, I think growing up we were middle class. My parents were immigrants from India. It's that age-old immigrant story. You come to the United States for the opportunity and you work hard and you save. You try to do what's right for the family, and that's what happened with my parents.

My dad was the first one in his family to come to the United States. Same with my mom. It's just one of those stories. We kind of grew up with that mentality, just work hard. We didn't have a lot of luxuries growing up, pretty humble, I would say, upbringing, and kind of went from there.

What Does Success Looks Like

Darin: Have you read the book by Sam Zell? I forget the name of the book. But he came out with a book recently. His parents, also immigrants, and grew up with that in that mentality, and has stayed. He's a billionaire, and he still has a lot of values that were instilled by his parents, and so that's strong.

Let me ask you this because I think that mindset again is so important. Was there a time when you were a child at some point, where you said to yourself, "I'm going to be successful"? And if so, what did that look like? Where were you? What did that look like? Kind of paint that picture for us.

Raj: I think depending on what phase or stage in my life I was, I'd answer that differently. Probably in high school at some point, I had just an intuition that I wanted to live an exceptional life. I don't know at that time, at that young age, what exactly that meant. I think by the time I got to college, for me, success had nothing to do with monetary success. I just wasn't wired that way at that time.

It was more like a life experience. I wanted to be the most well-rounded guy out of everyone, out of my social circle. I wanted to be able to talk intelligently about any number of things. Whether it was religion, or history, or art, or sports, or anything. I just wanted to be that guy that had different interests and different hobbies and could speak intelligently about different things and be well rounded.

The Importance of Thinking Outside Yourself

Raj: The people that I knew that were like those are the people that I respected the most. And traveling, back then, and we didn't have a lot of money back then, and I would find ways to travel on the cheap with my buddies.

Those are the things that I really admired. I didn't really admire people just for being wealthy or being successful in their businesses at that age. Now I do at this stage in my life. I do respect because I know how hard it is to be successful as an entrepreneur and things, and I respect that.

I would say the way I'm wired and the way I grew up for years, I really focused more on being well rounded and having a lot of different interests. And also not it all being about making money. I'm sure you're going to ask me about the Navy later.

I think service is really important, not just military service, but just thinking outside of yourself. There's so much that life has to offer that's so rich and there's so much to experience. I was really motivated by that. That led to me trying to travel as much as I can and read as much as I can. Meet as many different people from different walks of life and learn from them.

Darin: That's a fantastic perspective. And you hear all the time, financial freedom, or freedom, I'm searching for financial freedom. Part of that is the finances that you could do whatever you want to do. You're not beholden to a job. Part of that is the freedom of your time also.

Advice for People Who Want to Succeed in Multifamily Real Estate

Darin: It sounded like your first experience or first vision of success was a kind of freedom to do what you wanted to do.

Raj: I believe if somebody wants to get involved in real estate, they have to at some point see themselves doing it. It doesn't have to be just real estate. It could be starting a business, whatever it is, but you have to see yourself there. You have to actually make the decision that you're going to do what it takes to get there.

If you don't do that, I would give anybody the advice, just keep doing what you're doing because in order to achieve something different. You're going to have to make a conscious decision that you're going to sacrifice to get there, sacrifice something.

Darin: Let's move onto your service in the Navy. Why did you decide to one, go into the armed forces? And then why'd you picked the Navy?

Raj: Because it's the best, obviously.

Darin: It's good to hear you say that for all those Navy guys out there. I'm sure that they're loving to hear that.

Raj: When I was in college at the University of Illinois in Chicago, one of my closest, Neil Wilman, had been in the Navy for at that time. Maybe I think seven years. He had gotten selected to this officer program, which included the Navy sending him to school, to college.

So I met him there, and he was just chock full of all kinds of Navy stories about traveling the world. I had this interest going back to even before I met Neil.

The Unquenchable Thirst for Military Service

Raj: I had joined the Army ROTC my freshman year of college, which I don't think you're aware of. I was just always intrigued by military service. And I always just thought it was such a noble thing to do to serve your country. Again to just be part of something larger than yourself. Then I had switched schools after my freshman year, and then I met Neil.

He told me all these stories about the Navy and just about all his travels.

And just kind of going back to what I was saying before, at that stage in my life. I was just all about life experience and challenging myself. And seeing the world and things like that in addition to I wasn't really motivated by money at that time.

I was just really interested in the Navy. One way or another, I didn't know what I wanted to do for a living yet. But one way or another, I was going to find a way if I could join the Navy. Eventually, I ended up deciding that I wanted to go to law school and be a lawyer.

Literally within a week of starting law school, I met with the Navy recruiter. I said, "Hey, I want to apply for the Navy JAG Corps." And I applied and I got accepted by the end of that first year of law school.

Darin: That's fantastic. Once again, thank you for your service. There are not that many people that step up and have that service attitude, so that's fantastic. Now you spent how many years in the Navy?

Taking Part in Something That You Can Be Proud Of

Raj: I did active duty for about four years. Most of that was spent in Naples, Italy. I was there from 2001 to 2004, which was a pretty incredible time period to be there.

Darin: From what perspective?

Raj: For all of us, for that matter. I went there. I got to Naples in February of 2001. And September of 2001, 9/11 happened.

To be in an overseas base at that time was just such an intense and surreal experience. Then we started the Afghanistan war later that year. In 2003, we started the Iraq war, or the war started. So that four year period was really, really intense, and it was a very special time, for me.

Darin: Special in what way?

Raj: it's one of the times in my life where I was just really proud and grateful for what I was doing. Be proud and grateful for what I was doing and what I was part of. It's all about service. When you're in the military and especially when your country's been attacked like that. We're fighting these wars, and to be abroad during that time, it was just a very moving experience.

It's just one of those things that I could hold up my head up high and just be proud that I was serving. Taking it back to my earlier comment, the life experience was incredible.

Serving, being involved in that environment, but just living overseas for four years. And developing just extremely close relationships with the Italians, who I'm close to this day. They were very supportive. I remember clearly when 9/11 happened and we were watching it live.

The Character Attributes That Thrive in the Multifamily Real Estate Business

They were feeling it as intensely and as strongly as we were, I think Americans were. It was a very moving experience. It was before I had kids, so it was a special time in our nation's history, but also just for me personally.

Darin: Thank you for sharing that. It definitely gives us a different perspective. I was getting goosebumps thinking about you being overseas at that time. The armed forces also are very disciplined. It's a very disciplined approach. What kind of character attributes did you walk away with that you still hold near and dear to your heart as you run your business today?

Raj: That's a good question. I think it's had a big impact on my life and my values. First of all, I think again service, I've mentioned it before, but-

Darin: You're still involved, right?

Raj: I'm still in the reserves. I'm actually going to hit 20 years in July.

A combination of active duty and reserve time. I think it's very easy in our profession to just be entirely focused on growth and on money and things like that, accumulating wealth. I'm not trying to minimize that.

It's all really important. But when you're in the military, that's not really what it's about. It's really about serving something, a greater mission, beyond your own personal growth or financial growth.

Then the experience of living overseas was really something else. Also what I did in the Navy was I was a JAG, judge advocate general. An attorney for the Navy. During that four-year period, I probably had 1,000 different clients. Including, for probably about two years of that, I litigated in the courtroom.

Setting Strategies and Execution

Raj: That experience, I kind of developed the abilities to work with clients. To understand what it means to be a zealous advocate for somebody else and looking out for them. Then I also learned how to communicate better being in the courtroom.

Darin: You are a smooth talker.

Raj: But it's really, they don't call it sales, but it is. You're persuading people, you're persuading juries, you're persuading judges. You have to come up with, what they call a theory of the case. A strategy. What's going to be in your client's best interest. You have to have a strategy and then execute on it.

I see a lot of similarities between that and what I do in real estate. Dealing with investors is not that much different than dealing with clients as a lawyer. You're looking out for their best interests, but also, what's the best strategy to implement? Then you have to execute on that strategy.

A lot of that has to do with good partners and knowing who to delegate to and who to rely on and doing research. Then also just communication skills. I think that experience in the Navy has had a lasting impact on me professionally.

Darin: That's awesome. Thank you for sharing. I share a parallel thought. I don't have the armed services background, but I have a two-prong approach where I'm looking to grow my wealth and financial freedom. But also really charges me up is if I can help somebody else either get inspired to go after something that they're afraid to go after, or they didn't think they could achieve.

The Decision to Shift From Military to Multifamily Real Estate

Darin: That could be in real estate or that could be in a different avenue altogether, starting a business or whatever. I don't care about getting paid for that. It just is part of life service giving back that it pays you dividends just to your wellbeing. It's part of my core. It sounds like serving your country was, and is, part of your core. That's awesome, so thank you for sharing that.

Now come back and then you, at some point, the transition from being in the service to being a wealth advisor to high net worth and super high net worth individuals. Why the change into that industry, and kind of the same question, during that time period. What kind of helped build your character and what have you taken from that experience?

Raj: My father was an engineer for over 20 years. Then in 1989, he followed his passions, which was investments, and became a financial advisor. I was just starting college. 1989 is a year that I graduated high school.

Darin: That's a little surprising because our generation is doing that, but our parents' generations typically we're afraid to take that risk. So that was a big jump for your dad to do after being 20 years engineer. So you saw that-

Raj: It's huge. I'm the youngest, as I mentioned. My dad wanted to make that change years earlier, but didn't feel like it was the prudent thing to do to make a career change until my older brothers were more established in their careers and as I was entering college. I think he felt like at that time the timing was right.

The Experiences That Shaped the Character of a Successful Wealth Advisor

Raj: My dad growing up, as I mentioned, as an immigrant, pretty conservative, very hardworking. Didn't try to live lavishly. He tried to save as much as he can. I remember he was constantly working and being conservative. At the time, when it made sense, he took a risk. I think some of that has definitely shaped who I am. I've made-

I feel like I have some of those characteristics that I learned from him. I also have made a couple of different career changes, as you alluded to. Those were some of the biggest decisions I've ever made in my life.

Looking back, I'm very grateful for where I am and I think the decisions that I've made have worked out well. I'm very happy. I put a lot of thought into them. I don't do things impulsively that much but, really happy that I've made some of those changes.

Darin: That's fantastic. Being a wealth advisor to high net worth individuals. I would think there's a lot of things that you can bring across to syndicating large-scale multifamily. Would you agree? If so, what kind of carried forward?

Raj: For sure. I think you are asking me about what attributes I gained from that experience. I'd say, at least a couple in particular. One is, similar to when I was a lawyer. It’s just having clients and being a fiduciary and really being a steward of their investment capital and really taking that responsibility seriously.

Having lived through the 2008 great recession and just seeing people's nest egg really taking a hit and things like that. I think taking that responsibility very, very seriously about managing people's assets and their hard-earned money.

A Student of the Economy and Economic Cycles

Raj: That's definitely part of it. The second thing is that, at least when I was in that field, I just became a student of the economy and economic cycles. The things that impact interest rates and the stock market, and what the Fed's doing with monetary policy, and what's going on with inflation. What are the best investments to mitigate some of that risk? I became obsessed with risk, I would say, and-

Darin: We've had many discussions where you are definitely a student of economic cycles and how to manage risk. Which is critical in being a wealth advisor and also being a steward of investors' money for large-scale multifamily. So that's amazing. Having said that, we're in the middle of right now, the largest crisis we'll probably ever live through in our lifetime with COVID-19.

Help us and the listeners understand, what's your perspective? How bad do you think this is going to be. And how long do you think it's going to take to come out of this? How do that impact real estate and what parts of real estate do you think it's going to hit worse than others?

I don't want to spend 20 minutes on this, but look, Raj, you are a student of this. And I've spent a lot of time over dinner and having a few beers talking about this stuff. So I want you to share your perspective because you have a lot of knowledge in this area.

Raj: A lot of fertile ground there for discussion. My clients, when I was in that space were ultra-high net worth families. These are people that had already made a lot of money.

The Responsibilities of a Wealth Advisor

Raj: My number one job as I took it was to preserve their savings and their money. Then secondarily, to try to grow it responsibly. What that meant was managing risk, and there's a lot of different types of risk.

What that meant is, really being a student of the economy and making sure, because the economy is always changing. It's a dynamic thing. I'm a firm believer that when you're investing, it has to be dynamic because the economy's always changing.

Your investment decisions should be informed by where we are in the economic cycle. That was just drilled into me as an advisor. I have definitely taken that approach in real estate as well.

I'll talk about the COVID 19 situation in a minute. I think all investments, whether it's multifamily, whether it's stocks, bonds, commodities, options, everything should be looked at from a risk-versus-reward standpoint.

It's not enough to assess the upside on an investment. You got to look at the downside. You got to look at what's the probabilities of success or failure and weigh it all out.

As you're doing so, only invest in the investments that are the most attractive and compelling from a risk-versus-reward standpoint. I think that is so fundamental to how I do things, and it's just been drilled into me. That's how I, when I'm syndicating a deal, I absolutely think of it in that way.

If it is attractive from a risk-versus-reward standpoint, then I'll move forward and be interested in it. If it doesn't, my personal decision is to stay away from it. And so, it's had a huge impact on how I think about things. Do you want me to transition to the current situation?

Choosing Investments That Stand Resilient During Recessions and Pandemic

Darin: Yes, that would be great.

Raj: Obviously, unprecedented. Now I would say if you rewind the clock for three or four months, what was known objectively was that we were in the longest expansion in U.S. history.

Going back to 2009. 11 years. Literally the longest in our history, very long in the tooth.

Darin: Everybody was saying that "Over the last two or three years, we know we're near the end of the cycle. We just don't know when it's coming and what's going to cause it." But here we are.

Raj: But here we are. I think it was entirely predictable because everything is cyclical, that there was going to be a downturn coming. That's nothing super profound. It was going to happen. We just don't know exactly when it's going to happen, but it certainly informed my investment decisions even before the pandemic.

And the reason is when the cycle turns downward and we go into a recession and it's not a question of if, it's a question of when. Because of the cyclical nature of it, you want to make sure that whatever you're investing in is going to hold up okay. It's going to be relatively resilient in that kind of environment.

There are certain investments that are much more sensitive to downturns and vulnerable and others that are going to be more resilient and hopefully, hold up better. From my perspective, I was trying to focus on those investments that I thought were going to be more resilient in a downturn. The caveat to that is that most recessions are also relatively short term. I think the average recession is something like 11 months.

The Type of Multifamily Real Estate Developments Affected by the Pandemic

Raj: It could last two or three years, but typically, they tend to be short-lived. So the main thing is just surviving that downturn and not getting wiped out. And so, by focusing on assets that are more resilient, I think it allows you to do that, to wait it out and then to eventually, benefit from the eventual recovery.

Darin: I had a personal experience with you when I called you on recently. Beginning of this year at some point on a retail development deal, which is in the north Dallas area where I live. It's in a great location and they already had some people lined up that were great tenants.

But you told me, "Darin, be careful. We're at the end of the economic cycle and retail is an area that definitely will be impacted when it turns. I don't know when it's going to turn, but if it turns during that time, you could have troubles."

Now, I decided not to invest in that deal, thankfully, but that has come to fruition. I would say, correct me if I'm wrong, but retail and office seem to be the areas, and obviously, anything to do with hospitality.

They are the most difficult areas right now. So being involved in multifamily seems to be, we're still early in this process. We're a couple of months in but seems to be pretty resilient compared to these other asset classes.

Raj: For sure. It also depends on the type of multifamily. There are people that are doing multifamily developments, which I think are going to be similarly affected negatively by what's going on.

How the Multifamily Real Estate Business Is Holding Up Against the Downturn

Raj: I think if you're investing in very high-quality new developments. What we call class A type of multifamily properties, where the rents are some of the highest in the submarket. Those are going to be more vulnerable as well to any tiny recession.

Darin: You said that you kind of prep yourself for these downturns. Now that we're in one, how do you look at the landscape going forward? Do you look at, "All right. I've got a lot of experience in multifamily and I want to continue to stay in that space. And look for opportunities that come along in that space."

Or do you look at, "Hey, some of these other areas are going to be negatively impacted more and there could be more upside in those types of real estate"? What's your take there?

Raj: First of all, we don't know. This is obviously a very unusual recession. It's not just sort of a regular cyclical type of a recession, so there's no telling how long it'll last. I know that was one of your questions. I think personally that the amount of damage that's being done to the economy is going to be longer-lasting.

I'm not one of those people that believe in a V-shaped recovery. That as soon as things get better and the public health crisis is averted that all of a sudden we're just going to go back to where things were before. It could happen. I don't believe it. I think there's going to be businesses that are completely shut down and they're not going to come back.

An Unprecedented Balancing Act

Raj: The amount of unemployment that's going on right now with tens of millions of people and many, many businesses shutting down. I think that it's going to take a significant period of time to recover. If I were to venture a guess, I would say probably two to three years.

Darin: I hear that from a lot of people that I talk to that are in a multinational corporation. They're just talking to the different divisions across the world. They're saying similar. That there's no way that this is going to turn around in six months or a year for that matter. This is going to be more like two or three years. 30 million unemployed, it's just unfathomable that we're in that position.

So I tend to lean in your direction as well on that side. I guess the biggest unknown is that the government has thrown unprecedented funds towards this. So far, two trillion. Now there's potentially another two or three trillion on the table. How will that impact the economy coming back? That's the question mark, and I don't think any of us know the answer to that.

Raj: Look at 2.2 trillion in terms of a fiscal stimulus. But then everything that the federal reserve is doing, which is also several trillion dollars of monetary stimulus. It's unprecedented. Even compared to the government response and in 2008, this is five times the size. It's incredible. That is going to mitigate some of the blow that the economy would otherwise take.

It is a balancing act in terms of the economy sort of spiraling downwards, and then the government response at unprecedented levels in terms of fiscal policy and monetary policy.

A Take on Negative Interest Rates

Raj: It's going to be a balancing act in terms of how it plays out. I think there's a lot more to come because I think there's going to be a lot more that's needed.

I expect that there's going to be various phases. The House apparently just passed another $3 trillion stimulus package which, we'll see what the Senate does. I think there's going to be several future rounds of stimulus, which will help.

Darin: One more topic before we get into multifamily, but what's your take on negative interest rates? Negative interest rates have been their reality in other parts of the world. There's a lot of debate domestically as to whether we should go down that path or not. What's your take on that, and how does that impact real estate?

Raj: Let's just be clear on what we're talking about. There are interest rates on the short end of the yield curve. Which is essentially manipulated by the federal reserve, which is the fed funds rate. If you're talking about the 10-year-

Darin: 10-year going negative.

Raj: If we talk about the 10-year, that's more market-driven. That's going to be based more on what the behavior of the market participants is. And if they're buying treasury bonds or selling treasury bonds. I believe that the 10-year's yielding about 60 basis points. 0.6%. I do personally believe that that's going to go negative.

Now, I don't think the fed is going to take fed funds negative. That, I would be surprised. But I do think that the 10-year's probably going to go to negative yields, which hasn't really happened in any sustainable fashion in the United States.

The Impact of the 10-Year Going Negative on Multifamily Real Estate

Darin: But it's been happening for years in Japan and Europe. And so, it's not unheard of at this point. Based on the depth of the current downturn, I can totally see the 10-year going negative. Look, I think the impact on multifamily is not necessarily going to be drastically different than now. Because interest rates are super low right now as it is. You don't think cap rates will drop with that?

Raj: I don't think cap rates will drop right away. Eventually, low-interest rates will stimulate the economy. When the economy grows and starts to experience more and more growth, that's going to cause cap rates to decline. It's a complicated relationship between interest rates and cap rates.

If you look at, until recently, interest rates have been rising for a few years, but cap rates continue going down. And so, it's a little bit of a misnomer to say that cap rates are correlated with interest rates really.

Darin: Which in most normal markets, that would not happen. But that did happen over the last couple of years.

Raj: Everything is supply and demand, cap rates ultimately are going to be determined based on supply and demand. I think the marketplace is going to assess the current situation as being at a higher risk.

As being in a higher risk environment. I think buyers will be demanding higher cap rates in this higher-risk environment. Even though interest rates are basically zero again, cap rates are going to be trending upwards for the foreseeable future.

The Search for Real Opportunities

Darin: The talk I hear, through being on different national real estate conference calls and whatnot is that the Texas market, the Dallas market, may have a 5% to 10% hit. But there's probably not a bloodbath coming. I also hear, from other avenues, that where some of the opportunities may lie are with people that have bridge loans that are coming due.

And they can't refinance, or properties that they were under three years interest only, and that interest-only period is ending. They don't have the cash flow to sustain the principal payment. That because of the agency financing requirements of having 12 to 18 months principal and interest reserves, that have just come into place.

Since going into COVID, that most likely the opportunities are going to lie in deals that have assumptions, loan assumptions. Do you agree with those standard findings that people are putting out into the marketplace right now?

Raj: There's a lot of people chomping at the bit, looking for opportunities. People in our world, syndicators, and even passive investors. I would say a couple things. One is it's too early. I think that the real opportunities happen when the amount of distress in the marketplace is relatively severe.

By the way, if everyone and their mother is looking for an opportunity, it's too early by definition. It's got to be scary. The best opportunities, if you look at 2008-2009, the people that took advantage of those opportunities were going against the grain. It was scary to do it at that time. Right now, I think it's too early is what I would say. Also, there's a big disconnect between sellers and buyers. Buyers are looking for opportunities.

The Opportunities We Look for in the Present Versus Pre-COVID

Raj: Sellers haven't accepted the fact that they're going to have to sell their property for 10% or whatever percent less than they could've three months ago.

Raj: That'll shake out, at some point.

Darin: That scary period was probably what, like a week or two when the stock market was just tanking.

Darin: Nobody knew what to believe about this COVID virus, and everybody was just trying to understand it. There was probably a week or two in there. People have invested, then market tanks and people don't have the capital anymore to invest.

Or they're just so fearful that it's just going to keep falling that they don't invest. That time has not come, which is really bizarre when we're in the middle of the worst crisis that we've ever experienced so far.

Raj: It's so quick. It happened so fast, and then the government stimulus and support has been equally fast, so there's certainly distress. In the sense that people have lost their jobs, I think at the personal level and at the family level. There's been quite a bit of distress, but it hasn't trickled down into the property values yet and the marketplace yet. It will.

It's very early on in the recession, and it just hasn't been that long. I think there will be opportunities. The opportunities that we look for today are very different than the opportunities we would've looked for pre-COVID. In the past, we would look at a property that, let's say, had unrenovated units.

How Investing in Multifamily Real Estate Has Changed in Today’s Environment

Raj: You know this. It might've been 90-95% occupied, but they hadn't upgraded their units, and they're what we call classic units. And it was ripe for upgrading and renovating.

Darin: And you could prove the value because three properties down the road had already done the renovations. You knew what kind of rent bump you could get.

Raj: It's a phenomenal strategy; very, very lucrative; very, very successful in the last five, six, seven years. The idea was you buy the property. You raise extra capital to do the renovations. You do the renovations. You make it a nicer product, and you raise the rent.

By raising rent, you're dramatically increasing the property value, and then you can refinance or sell and make a lot of money for your investors. That worked really, really well, but I would say that strategy is a mid to late-cycle strategy. And when we're talking about an economic boom.

That's not the type of opportunity that I would recommend looking for in today's environment, because we're not in an economic boom right now, where it's the opposite.

Darin: So what do you look for?

Raj: We're in the early stages of the next cycle. You don't want to underwrite a deal, assuming you're going to be able to raise the rent when there are 30 million people unemployed and incomes have gone down. The deals are going to be harder to come by, in some ways. But when you're underwriting them, you want to assume zero rent growth.

A Yield Play

Raj: Just keeping rent flat, and see if it still makes sense in terms of your underwriting. What it means, generally, is that you're going to have to buy cheap enough that, even without the upside of increasing rents, it's still going to generate good returns for your investors. I think it's more what we'd call a yield play, rather than an appreciation play.

I will say this, that the very low-interest rates will help. You might not have the upside from appreciation the way you would have a year ago. But because that you can get loans at three and a half, four percent right now, in long-term, with agency, with Fannie and Freddie, and lock it in long-term, and that's really going to help with the returns, but I think, to your point-

Darin: The challenge is the reserves, though, right?

Raj: Yes, from new debt.

I think there is definitely going to be an opportunity, to your point, for people/owners that have loans that are coming due, and it's not just bridge loans, even if it's agency loans that are coming due, and they either have to sell or refinance. If their income, their collections, have gone down at all, which they probably have, it's going to be hard to refinance for the same amount that they currently owe.

There's going to be a lot of opportunities in the near future. Where sellers are very motivated to sell, because they can't refinance without doing a capital call, which most sponsors don't want to do. They'll be forced to sell. At that point, we're going to be in a situation that we haven't seen in many years, which is it's a buyer's market.

Understanding Multifamily Real Estate Investments

Raj: It's going to be a buyer's market, and you're going to have motivated sellers. As opposed to the opposite where you had motivated buyers, and it was a seller's market for many years.

Darin: That sounds very similar. You know I've been in the loan trading space for many, many years. Investors that got involved with our deal, that I knew personally, that didn't really understand multi-families, asked me what the biggest risk was. I had never been in a downturn owning real estate like this.

What I did see is the same, exact thing happened on the loan side, where the loans went bad. Where the loans that came due in a terrible economy. Whether it be bridge loan or whatever, none of these multi-family or commercial real estate loans have 30-year fixed-rate mortgages.

They all have some kind of balloon feature. As the sponsor, you always want to be protecting that that reset, that refinance time period, doesn't come about in a terrible economy. That's where, most likely, the opportunities are coming.

Raj: I think you're right. I think you're going to see more and more deals done where the buyer basically just takes over the debt. Assumes the loan, and that's it. There's no equity on top of that.

Darin: Then the sponsor, as the seller, so everybody gets wiped out. Their equity gets completely wiped out, but the sponsors that put the deal together at least save their credit by not having the loan go into default.

Raj: That's a horrible situation to be in, but that's the situation where we're talking about distressed situations, distressed properties.

The Opportunity to Watch Out For

Raj: Because if they don't sell, they're going to end up getting foreclosed on. Then that's not going to help their investors out. Their investors are going to get wiped out anyway.

I think it's going to go in that direction. As a sponsor, and anybody that's listening to this that's a syndicator. I think that's going to be one of the categories of opportunities to look for. Is where you can just kind of take over the debt, and whether it's nothing on top of that. Or maybe just a small amount on top of the debt, that's going to help.

The other thing that I wanted to say is when you're looking for mostly what I was referring to as yield plays, you also want to underwrite it. I wouldn't underwrite rent growth. I would be very conservative with how you're underwriting what we call the reversion cap rate. You want to be conservative there.

I think you also want a stress test, right? You want to stress test and see how's the cash flow going to be if occupancy drops, not just to keep rents the same. What if you have to cut rents by 10%?

Just because people can't afford it anymore? Let's just say this economy still continues to go downward. You may have to cut rents just so people can afford it. So you just don't want to be in a situation where, as soon as you do that, all of a sudden your cash flow is negative. The other thing that's really critical is cash reserves right now.

The Importance of Building Cash Reserves

Raj: If you're going to do a deal, you want to have a lot of cash reserves. Because there's a certain unpredictability to how bad things are going to get. Again, you want to prevent default at all costs, so cash reserves right now. Even raising more than you even think that you might need, is really important right now.

Darin: Right, those are all fantastic points. I'm glad that we went down that path. Let's transition to a deal you did earlier this year. I want to say it was 40 million-plus.

Raj: Yes, 42 and a half million.

Darin: 42 and a half million dollars. That's incredible. I don't know if you remember this or not. We were at one of the marketing get it together events all day. Then, at the end of the day, we went to this restaurant called Eureka in the uptown Dallas market. Me, you, Anna, and few other people sat down and had dinner.

You were pretty new to the group, not extremely new, but pretty new. We were talking about a large deal that got done, and it was within the group. It was a two-property deal, and it was like $30 or $35 million deal. I don't know if you remember this, but you said, "I'm going to beat that record."

Then Brad Sumrok walked by, and you stopped him at our table. You said, "Brad, how big was that deal that just got done?" He told you it was 30-something, and you said, "I'm going to beat that." I don't know if you remember that, but here we are.

Raj: I remember.

Taking Action and Making It Happen

Darin: 42 and a half million, and right now you and Anna have the record in the group. Help our listeners understand how you got the deal. What you liked about the deal, and what the capital raise was, and how long it took to raise the money.

Raj: I remember that dinner, actually, very well. I think that was the first time you and I met.

Darin: That was hilarious. I love that you did it, you know? There are not too many people that are going to be ballsy enough to go up and say that. But then, you know what? You took action, and you made it happen. That's awesome.

Raj: Yeah, I think that was probably summer of 2018, so I'd only been part of the group for maybe three months or something like that.

That was before you and I did our deal together. Yeah, I think, so that deal was 420 units. We called it the Wimberly portfolio. It was a combination of two properties that were side by side and the same seller. The seller had owned these properties since 1992, during the whole RTC thing.

He literally had owned it for, what is that? 28 years, and had hardly done any upgrades to it. Again, this is pre-COVID. We looked at that as a phenomenal and very unusual opportunity that there were really no upgrades done. These units were, more or less, in their original, classic condition.

The properties were well-maintained, and they were very highly occupied, 96, 97, 98%, but the rents were low. By low, meaning even below market, and they hadn't been upgraded at all.

The Multifamily Real Estate Business Is a Relationship Business

Raj: We looked at this opportunity as pretty rare, because most properties have traded two or three times in the last 10 years. Every time there's a new buyer, they're doing some level of upgrade and renovation, and then the next buyer, they leave some meat on the bone for the next buyer. This one, these hadn't traded in 29 years or 28 years, and so it was just ripe; 100% of the units hadn't been upgraded.

When we underwrite just modest rent increases from upgrading the property, it just underwrote really, really well. It was super exciting. It was a listed deal, and in terms of how we won the deal, I'd say, you know better than anyone. I've heard you talk about it a lot. This is a relationship business. We were actually the third-highest bidder on this two-property portfolio, and we won the deal.

We won the deal for a couple different reasons. This is for the listeners. Always remember that it is a relationship business, more than anything.

I'd say we won the business for two main reasons. One is the brokers knew us. Me and Anna, and had already closed deals with us, so they knew that we were for real. That we weren't just tire kickers, and that we knew what we were doing. That we had the ability to raise the capital.

It was obviously a very large deal, it was our largest deal. We had to raise about $13 million, which is a lot of money, but the brokers had confidence in us, that we were going to close. That we weren't going to play games, and that we would have the ability to raise the capital.

How Luck Has Played Its Part

Raj: That was one part of it, and they had a relationship with us. We were fortunate. They didn't really have a strong relationship with the two other buyers that had actually offered more than we did.

That's one aspect of it. The other aspect was just we were just, we were very lucky. The seller had a close relationship with the property management group. The property management, that company that had been managing these properties for the last seven or eight years, they had done a great job. But I also had a very close relationship, have a very close relationship, with this same property management company.

Darin: You do? From another property?

Raj: From prior several properties. I have known them since 2013. In fact, my first property, the one that I mentioned that I sold, before joining this group, to a couple of Sumrok's sponsors, that property was managed by the same property management group.

What happened is, and I didn't know this at the time, but the seller was very close friends with the president of that property management company. When the president of the property management company, this gentleman named Bruce. When he found out that I was bidding, and I was up in the running in the top three, he reached out to his friend and client, the seller, and vouched for me, vouched for us.

The seller ended up actually calling me, which is very unusual, by the way, to speak directly with the seller. But because of this unique situation, he actually ended up calling me, and he even told me. He's like, "Look, Bruce vouched for you. I want to sell the deal to you."

Why Should They Pick You

Raj: I mean, I've never heard those words before on another transaction, so that was pretty crazy. I think the other buyers, other offers that came in were half a million to a million more than ours. True to his word, he accepted ours. We kind of triangulated a little bit. We had the brokers vouching for us, and we had the property management company and the seller's friend vouching for us. That combination worked in our favor.

Darin: I have a lot of sidebar conversations with people that are looking to get into this space, or are in the space. But they're trying to get their first deal. I try to paint the picture that all these deals are so competitive, and who knows if that'll change going forward or not, but it's not just in Dallas. Dallas is extremely competitive, but I hear it from syndicators all across the country, that it's a similar process.

You have 15 offers. Five or six go into best and final, and then I paint the picture that there's typically three offers that are relatively close. Then the seller and the broker sit down together, and the seller says, "Who should I go with?"

In your case, one, the fact that you had already done deals with the broker, and they knew you, so they could vouch for you. But then, in addition to that, that the management company knew you, liked you, and vouched for you to the seller. Those were two things that pushed you over the edge.

How to Win a Multifamily Real Estate Investment Deal

Darin: That's where I talk to people, and I say, "You always have to think about that conversation when you're starting to go after a deal, because assume that you're going to be one of those three, and why should they pick you?" I have some people that they're new.

I tell them, "You can't win a deal unless you partner with somebody who has experience. Because there's too many other buying groups that have experience. So when you get to that discussion point, and you're one of the three, there's a high probability that one of the other two are going to have successfully closed transactions.

It's going to be less risky for him or her to recommend that buying group, so it's critical to partner with somebody that has experience." Now, you and Anna had the experience. That was no issue, but a property that's $42 and a half million, it's your largest property. It also brings in, potentially, institutional buyers, because it's a larger deal.

I'm sure that there were qualified buyers in that offering group, but the relationships pushed it over the edge, which that's awesome. I didn't even know that piece of it. Thank you for sharing that.

Raj: I will say that, just on that property, that it was… We closed in January, and so it was pre-COVID. I mentioned that when we underwrote it. We underwrote all of these renovations and upgrades and raising rents and all that, and it was phenomenal. But we were also very mindful that we were very late cycle.

Building a Safety Net

Raj: The yield curve had inverted, and there was already signs, leading indicators. That maybe the recession wasn't going to be that far down the line. We certainly didn't know about COVID, but just a regular economic downturn.

We really prepared for that by raising quite a bit extra in reserves, just to have cash reserves with no particular purpose. We're in the situation now where we have several million dollars just in cash. We're not going to be doing all the upgrades and renovations right now, because this isn't the economic environment to do that.

You don't want to be raising rent in this environment. We'll eventually do it, when the economy is better, but that might be two years from now. It might be a year from now, might be two years from now, three years from now.

In the meantime, we have all this cash, and we have a safety net that's going to keep us out of trouble. Obviously, though, we got new debt before all these new reserve requirements. We got a 3.99% rate locked in for 12 years.

I would say that I just wanted to point out that we raised a lot of extra cash, more than normal, just because of where we were in the economic cycle. We didn't know COVID was going to happen, but that's the way it is. You don't know what's going to happen, but it-

Darin: No, that was very smart. It comes from your risk profile, where you're a student of economic cycles. You knew where you were, and you just wanted to have some extra cushion. This is the exciting part. Talk about how long it took to raise… Did you say 12 and a half million?

The Fiduciary Responsibility to Preserve Capital

Raj: Over 13 million.

Darin: 13 million, so it must have been a long, drawn-out process to raise 13 million. Help us understand it.

Raj: By far, the most that we ever tried to raise for one deal.

To be honest, we're a little nervous because the money had to be raised during the holidays. I mean, we closed in January, but we had to start marketing the deal around Thanksgiving, and then Christmas holidays. We were like, "Well, people are going to be tuned out."

Raj: "Are they really going to be even looking at our emails and even thinking about investments?" Here we are, going after our largest raise ever during this very busy time of the year for most people. We planned maybe it would take four, five, six weeks. I mean, it's a lot of money, and four or five, six weeks. I mean, it's a lot of money, and we planned and we were a little nervous about it.

We tried to have some extensions built into the contract just in case. And honestly, we were shocked. But within two or three days, we had been fully subscribed in terms of soft commitments. Obviously it takes a while for all the money to be wired in and all that, but we were fully subscribed. And we started putting people on waitlists, literally within a few days. Completely unexpected.

Darin: But you know with that, talk about relationships. That, your reputation on other deals and how you dealt with investors and how you have that fiduciary responsibility to preserve capital.

All those discussions that you've had with investors that led up to that, you and Anna, and you two powerhouses combined.

How to Deal and Overcome Fear

Darin: That was the outcome. But that's an amazing feat to raise that much money in just two or three days.

Raj: Yes, we were, and we had some other partners as well that helped and we were very pleased. I think it's a combination of a lot of things, but I think the deal itself was very attractive. It was very unique and that was part of it. Then I think it's really the relationships that we've built up to your point over the years really made a difference.

We may do a few deals a year and I think there's a pent up demand, which we didn't realize. But there was a pent up demand where people were just hoping that we would have a deal that they could invest in. We were very, very pleased. And I'll tell you, it's encouraging because it tells us that we can… that was the largest deal that we had done up to this point. It told us that we could play in that space and that we could excel in that space.

Darin: So let's transition a little bit, I don't know. I'd say it's happened to me in various stages, various different decision points, but I don't know where it's occurred for Raj. Talk to me about fear and when were you fearful and how did you overcome that?

And that could be making a decision to transfer from one industry to another. It could be just going into a bigger deal. It could be a lot of different things, but we are all different. All of us have to battle fear in one way or another.

Making the Right Decisions

Raj: I think for me, going back to being obsessed with risk, even from a personal level, that's the case. It's not about not taking risks. Sometimes it's the right decision to make, but certainly, feeling it and being thoughtful about it is important. I'd answer that question in a few different ways.

I remember when I first started investing in real estate back in, really, it started in 2007 and 2008. Even though I knew investments pretty well from my background, I didn't know real estate that well.

I remember going to different, at that time. Different boot camps and trying to read books and just networking and going to the local REI like meetings. REIA meetings and things like that and just trying to be a sponge. Which, by the way, I'd recommend to everyone that's getting started.

Just read as much as you can, go to as many meetings as you can, ask, and now it's a lot easier because of social media, there are Facebook groups. But back then, there wasn't as much, but there was still quite a bit out there.

I mean, this was one of the insights that I had. I'm never going to get to the point where I just feel like, you know what, I'm ready. I'm totally comfortable. I'm ready. I've learned everything that I need to learn and I'm ready.

And you never get there because I think it's intuitively you think, okay, if I get smart enough and if I read enough and learn enough. I'm going to get to the point where I'll know enough and I'll feel comfortable investing. And my feeling is that you never get there. You never get there.

Learning the Ropes of a Multifamily Real Estate Game

Darin: How many books have you read that talk about business owners, that they have to make decisions with incomplete information? But some people aren't able to make those decisions. Some people aren't able to do that, but that's a critical component as you allude to.

Raj: So the way I got started is I got a couple of buddies, they were good friends of mine, and none of us had experience with real estate. We just decided, let's just do it. We're going to team up, and we didn't have a lot of money by the way back then. This was pre great recession.

So there were some still interesting, creative financing structures and stuff that you could employ that really aren't available anymore. But we did what we could. We hustled, and we bought, I remember within 24 hours, it was February 27th of 2008. We bought a single-family home in Chicago in a really bad neighborhood.

We bought two single family homes down on the Mississippi coast. And we bought a 16 unit apartment complex as a foreclosure in like one of the worst parts of Detroit. So it all happened. We ended up closing. Honestly, we learned so much, especially me. I learned so much just from buying those properties and then managing them.

Finding property management companies, and dealing with evictions and renovating units and trying to raise rents and just dealing with all of that. I wouldn't be where I am today if I hadn't bought that really crappy 16 unit apartment complex in the worst part of Detroit. I actually just sold it last year. I had it all these years.

How to Get Started in a Multifamily Real Estate Business

Raj: Sometimes I get asked, I'm on a panel or something. I'll get asked about how someone should get started.

Sometimes I'll just say, "Just get your first deal done." I always say, "Educate yourself." Join a program, but read as much as you can. Go to real estate focused networking events, definitely try to educate. Get coaching or whatever, join a mentor group, but also just dive in and do your first deal one way or another.

Maybe that means partnering with people, and if you don't have capital, maybe you can do something else and partner with somebody that does have access to capital.

Darin: What I heard you say was you got educated, you read a lot of books, you went to a lot of meetings, but at some point it was a trigger. At some point, you said to yourself, "I just got to do it."

So you and your buddies agreed, we don't know it all, but we're just going to do it. I think that that is a critical, critical moment in somebody's life to be able to make that decision. Because otherwise, there's always another book you can read.

There's always another podcast you can listen to. There's always another person that you can meet. At some point for yourself, as a listener, you have to say to yourself, "I'm going to do this," whatever goal you're trying to achieve.

Raj: That's right 100%. And what it is is it's an insecurity that you feel which by the way, is very normal. It's very normal to feel when you're doing something new like that and you don't feel like you know enough or have enough experience.

From a Theoretical Learning to Experiential Learning

Raj: In real estate, it can be overwhelming. You think about, oh, I don't know all the legalities and contracts. I don't know what I don't know.

It can be a very powerful feeling, and then people end up just trying to continue educating themselves. At some point, it's important to educate yourself, but at some point, it becomes a crutch. And at some point, you're going to plateau on what you're learning. Then it has to, from theoretical learning, and then it has to become experiential learning.

The experiential learning is where the rubber really hits the road and where you really learn. I would say get to your first deal one way or another, the best way you can. If that means partnering, then partner, but I would say at some point, just bite the bullet and dive in.

Darin: Some people have asked me, "Darin, how did you fight past the fear?" It sounds like my answer is similar to yours probably is that look, I went back in my own mind and thought about different, scary decisions I made and then what the outcomes were.

I started out as a CPA with Pricewaterhouse, and then at some point, I decided that I want to get into sales. Well, everybody told me I was crazy. But then when I did that, all of a sudden my income shot up dramatically.

For you, you had to make a decision to get out of wealth management and to go into real estate. That was a scary decision, but you did that because you also saw your decision to go into the Navy.

From Navy to Wealth Management

Darin: And how that was a positive decision and how going from the Navy into wealth management was a positive decision. You can rely on some of those past experiences in your head to push you, just to nudge you over that ledge.

Raj: For sure. I think major life decisions like that require a lot of thought. But there is something to be said for having the confidence that it's going to work out. That that you're going to do okay and you're going to survive based on experience and based on relationships and things like that. But I would say, leaving active duty in 2004.

Because I love the Navy and I love the JAG Corps and I loved everything about it. That was a very hard decision. And at that point, it was just a personal decision. My wife and I wanted to start a family and start having kids. The Navy lifestyle is just to keep moving every few years.

Also, her parents and my parents, our families are here in the Chicago area. We were halfway across the world for four years. And we just decided that it was time to come home and settle down and start a family.

But what I did is because I loved the Navy so much, I love wearing the uniform so much. I decided to stay and affiliate with the Reserves. That was my way of not completely walking away from the Navy. And so stayed in the Reserves from 2004 til now.

Setting the Next Big Goal

Darin: That's awesome. So what's next for Raj? You just do a 42 and a half million dollar deal two years ago. We're having dinner and you say that you set that big goal. All the books that I've read say once you hit that goal, you got to set the next one. So what's the next big one for Raj? What's coming down the pike?

Raj: I think we want to keep doing what we're doing and keep doing it better. And I think it's not just about doing bigger and bigger deals, that's not necessarily going to continue happening. There's a limit to moving onto a 50, 60, 70, 80 million dollar deal.

Darin: It doesn't always have to be bigger. But what I've heard from you and what I know of you, because I know you pretty well, is Raj can go after a challenge. So just doing what I'm doing, I don't know, I guess I'm pushing on you a little bit. What else is out there for you?

Raj: Well, I think that's fair enough. I think certainly keep doing what we're doing. Keep going after deals. I think what's going on with COVID changes the landscape completely. And I want to stay at the forefront as a thought leader in the space.

Darin: All right. I'm jumping in again.

Raj, when are you going to write a book?

Raj: Ah, there you go. I'll say that and you know this because we've talked about it a lot. Coming back to being a student of the economy and making a lot of investment decisions and things like that, I just feel like I have a lot to share and things that I've learned.

Putting Yourself on the Hook and Holding Accountable

Raj: My background's a little bit different than a lot of people that do real estate syndication. I wasn't necessarily ready to talk about this, but it's something that I've been thinking about for a few years.

Darin: Well, sometimes you got to just say it right put yourself on the hook and put yourself accountable.

Raj: I think it is a goal of mine to probably do that.

Darin: 2020, you're going to write a book?

Raj: Maybe start the process towards the end of the year, I think. But I will say this and I appreciate you inviting me to your podcast. But one of the things that I am going to do is make more of an effort getting out there.

Writing a book is part of it, but just being out there, sharing ideas. Being a thought leader and sharing more of my views on different podcasts and just trying to be as helpful as I can. And again, I think I have a little bit of unique background.

Darin: I think you have a wealth of knowledge and that's why we spent so much time together here today. Because there's just so much to pull out of Raj and there's just so much that can be shared. That goes back to your service in the forces and your service mentality when you thought of success, it wasn't all about the money. It was about also giving back. I know writing a book is a challenge, especially writing your first book. But buying your first 100 unit deal is a challenge. And you accomplished that.

Leaving a Legacy in the Multifamily Real Estate Business

Darin: So we talked a while ago about the book, and I think that you should write a book because there're so many people that you can help. You can be on podcasts, but they may not see the podcast. They may not listen. But putting yourself out there with a book, and it's also a legacy thing. It's a legacy thing for your family, your kids to see. If you didn't have a lot to share with the world, I wouldn't push you on this, but I just, I appreciate you as a person.

I appreciate you as a business partner. I think you have a lot to offer. So I would love it if you would commit to doing it on the show right now to the audience and then we see it come to fruition. Because I know if you say it, it will happen. But you've given yourself a little bit of an out so far.

Raj: Fair enough. I think first of all, Darin, I mean, you're a great friend and I appreciate your support and, no, you're right. And you know, me personally and you know that this is something that I've felt compelled to do for a while. It's just like you say, it's a matter of making a decision and focusing on it. So, okay, I will commit to you as a friend and to our listeners-

Darin: All right. Yes. When?

Raj: I think I will start the process towards the end of this year.

Darin: So will it come out in 2021?

Raj: Probably '21.

Advice for Hesitant Investors

Darin: I look forward to it my friend. I look forward to having you back on the show and telling everybody, "Check out this book." So two more things, and then we're done. Passive investments, have you invested passively into other people's deals?

What's your advice to people that are listening that haven't done any real estate investments. They've heard of the idea of passively investing in a larger deal, but they don't know how to do it. How do they find out about deals and how do they find out about people that are putting deals together. What's involved and how can they get involved?

Raj: It's like a lot of things in life. I mean, if you want to get into something, you just got to dive in and my advice would be to educate yourself. But go to different groups that specialize in this stuff. Then you'll meet people that are sponsoring deals and you exchange cards, at least in the old days you exchanged cards.

What happens is when I meet somebody and they are interested in investing, I'll add them to my list. Or when there is something to raise money for. If I have a relationship with this person, I can inform them of the deal, and they don't have to invest.

But what I would say is, I've given this advice out before to others that are looking to get into investing is, listen to as many. Look at as many deals as you can listen to as many webinars as you can. You don't have to invest in everyone. But you know what you're going to see is you're going to see a lot of different sponsors that have different approaches?

Exploring Your Options and Identifying the Approach That Works for You

Darin: That have different backgrounds, that have a different business strategy. You're going to look at assets and deals, different geographic locations. And you're going to see how they answer questions on the webinar. You're going to see what kind of underwriting assumptions they made and what kind of growth assumptions they made.

You know what, and even if you don't invest, you're going to learn. You're going to learn about how sponsors are different from each other and how deals are different from each other. And you're going to get a better sense of what kind of things you like and you're more comfortable with. Or get you more excited and what other kinds of things you don't like.

I think I would highly recommend that just meet as many sponsors, like syndicators as you can that are putting these deals together. And the way to do that is to join different Facebook groups, listen to these different podcasts like yours.

Because you're going to have a lot of guests on that are probably in the business of putting deals together and syndicating. And your listeners are going to have the ability to reach out to these guests. Hopefully, get on their distribution list and find out about what kinds of deals they're doing. Also going to meet up groups, so there are different meetup groups in everybody's local city.

If you haven't downloaded the app, Meetup, you should. It's M-E-E-T-U-P. Then just put in multifamily investing or apartment investing and find some meetup groups in your area. As Raj mentioned, when you go to that group, it's going to be a mix of some people that are syndicators and some people that are just passive investors.

Taking Multifamily Real Estate to the Next Level

Darin: You want to talk to both of them. And so you want to talk to the syndicators and exchange cards like Raj said. So that next time they send out an email on their deal, you get to see it and you get on their, watch their webinar.

You also want to talk to other passive investors and say, "Who have you invested with? Where have you had success? And who do you like doing business with?" So those are all great ways to get out there and learn how to get your first passive deal. So with that, Raj, I know that you and Anna just, you've partnered up on, you've said five deals.

Raj: Five properties.

Darin: And you now have just come out with a new website and a new company name. Where can listeners reach out to you if they want to reach out to you?

Raj: I appreciate that. Just a few days ago, Anna and I launched our new company and new brand, and it's called Impact Prosperity Partners. The website is www.impactprosperity.com, and very excited like you were asking me about what's next for us. This was a big step for us because up until now, we've done well in the sense that we've done deals and syndicated and all that.

But to really just try to take it to the next level, creating a website and trying to put some good content on there, it's all very exciting. So it's impactprosperity.com. I can be reached at raj@impactprosperity.com.

Afternote

Raj: There's also, for anybody that goes to the site, on the homepage, you can opt into a newsletter. It's a free newsletter that we're going to be sending out to people. I would love it if you can put your information there, and happy to take emails as well, if anybody wants to reach out and talk to me directly.

Darin: That's awesome. Well, I've invested passively into one of yours and Anna’s deals. I've also partnered with you as a general partner on together. I highly recommend Raj, I'm incredibly honored to have you on as the first guest of the podcast. I'm sure that when you get your book completed, we will have you back on the show.

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