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January 10, 2023

How An IT Executive Built An Astounding 11,000 Unit Multifamily Portfolio With Sridhar Sannidhi [EP135]

Today we have Sridhar Sannidhi on the show! Are you looking for a way to deploy your money more efficiently and effectively?

Sridhar has been solving difficult problems in the IT space for major companies for years. He took that expertise and his relationships built over the years and matched the capital that people had with attractive multifamily investments. He's created a win-win situation for everyone involved in this process. Sridhar created an astounding 11,000-unit multifamily portfolio. Listen and learn!

Table of Contents:

Advice From Sridhar Sannidhi

An Advise From Sridhar Sannidhi
Photographer: Andrew Neel | Source: Unsplash

Darin: Sridhar Sannidhi still works his IT W2 job, even while building an 11,000-unit multifamily portfolio. He tends to team up with partners that handle the day-to-day asset management. When asked about advice he would give others, he shares that going bigger is actually easier. And when planning for CapEx, make sure to plan for the unknowns.

So a little bit on how we know each other and then we'll jump into it. So we're both part of the same multifamily mentorship group, the Brad Sumrok group out of Dallas. And I met Sridhar many years ago, several years ago. And he's just been killing it, killing it, killing it. So I'm interested in finding out how he's doing it. With that, can you share how many properties and how many units you're currently invested in?

Sridhar: I have known Darin for a while now. Since I met him and I think we met each other when I really started this one on the multifamily journey. Since then I have invested in 38 properties as a passive investor.

11,000 units as a part owner and which includes close to 3,500 plus units as sponsors. Some of them have done full cycles. At the moment I'm GP in 2,700 plus units and currently in 15 deals.

Darin: It is crazy. So share with the listeners, what's your background? What did you do before you started getting involved?

Discover How To Save Taxes and Build Wealth

Working as an IT Professional While Investing in Multifamily

Sridhar: I'm an IT professional like many Asians. I came to this country, worked in Silicon Valley, worked in Wall Street. Now I'm in Dallas metroplex area working for a large technology company.

Darin: You're still working for a technology company now?

Sridhar: Yes, I still have my W2 job.

Darin: You have a lot of properties to still have your W2 job.

Sridhar: Yes. That is the question I get from many of the listeners and many people who meet me first time. Just to give you a background, I was in Wall Street, so I used to commute two hours each way and used to work 11 hours.

Darin: Where did you live? I'm originally from Connecticut.

Sridhar: I lived in Central New Jersey, Edison, New Jersey. I used to do a two-hour commute each way.

Darin: Drive to the train, get on a train, then have to walk from the train to a big, huge skyscraper, yes?

5 Step Process Ad

Sridhar: Yes, that is correct. It's a very, very mechanical process to get into the train. Then you drive to the parks and train station, park the car, run and catch the train just to minimize that overall travel time.

Darin: I've done that. And then you get out of the train and you're going up the escalator out to the street and you just feel like cattle, right? I mean, you're just getting pushed along like everybody else. So why are you still working?

Why Sridhar Sannidhi Is Still Working

Sridhar: That's a good question. So I was working in Wall Street, I was busy, but I always wanted to do something on the side. I always had that business interest, so entrepreneurship interest. So I was initially trying to build IT companies and then some of them went to a level. Then finally I had to drop because of my busy schedules in workplace. And then I thought that I should change that routine.

First thing I did is I relocated to Dallas to free up my time. So to that original question, how I am doing both? The two plus two-hour, four-hour commute time I cut down. Also from 11-hour workday to eight and a half hour workday. So literally I freed up more than five and a half hours, six-hour time in a day. So that is my time investment for the real estate.

Darin: So you're still working the 11, 12 hours but eight hours or eight and a half hours at your W2 job. Then you've got four or five hours that you saved in the commute and work longer hours that you can allocate to the real estate.

Sridhar Sannidhi Used His Saved Time to Learn and Invest in Multifamily

Sridhar: You're right. So that four, five hours so in a multifamily syndication you can play different roles. I try not to be in asset management role which requires during the day you need to call the property managers. Keep track of all the KPIs and all that. So I try to be on that remaining portion of it. Finding the deal which I can do after hours. Also fundraising and the remaining functions of asset management, investor relations, et cetera. So I prefer to be in that part so that way it won't affect my day-to-day job.

Darin: Well you must like what you do.

Darin: You must like what you do in IT if you're still there after investing in 11,000 units.

Sridhar: Yes. And I'm planning for that exit soon.

Darin: Oh, you are planning for the exit. Do they know that? We are recording this.

Sridhar: Not yet, but I'm going to. Originally I'm planning to exit by next September, but looks like I need to prep on that. Thanks to multifamily investing. Now financially that's one thing that usually people are afraid that once you exit from the job, how are you going to manage your income and all that? Thanks to multifamily that has been taken care of. I'm financially independent from that point of view. The only thing is the passion.

Multifamily Investing Is About Problem-Solving

Darin: You got this smile like, "I'm just financially independent." There is an ease that comes. I see it with people that all of a sudden they're doing things not because they have to. But because they enjoy it and I think there's a little bit of the hunt for the deals and the excitement. A lot of us played sports when we're younger and look, business is kind of like a sport. I mean, you can do it because you have to put money on the table, put foot food on the table. But after a certain level that's covered. And then it becomes more of just pushing yourself in competition.

Sridhar: At work my main role is a technical advisor to the senior executives. So I go to different companies.

I try to solve their problems and help them transform into latest technologies. That is kind of a fun job for me solving the problem. So helping the businesses grow. That's the same skill set here in multifamily you can use.

Darin: My first business partner was Raj Gupta. I don't know if you are familiar with Raj. Do you know Raj?

Sridhar: I know him, he is a good friend of mine.

Darin: He's a good guy. But when I first got involved he was like, "Darin man, this business is all about solving problems." I didn't really get it at first. I'm like, "It's real estate. You're buying real estate, you're collecting rent and you're paying bills. How is that a big problem to solve?" But I've seen it. I've seen it on deals that I'm in as a passive. I've seen it on deals I'm in as a general partner. It's definitely a problem-solving type of asset class to be a part of.

Tax Benefits Sridhar Sannidhi Gets From Investing in Multifamily

Sridhar: I agree with you 100%. So you take each role from an investor point of view. There are so many people who have money. They don't know how to diversify or how to better deploy that fund or resource to get decent returns in the long run. So that is one thing. And another thing is a lot of this high net worth individuals, they have tax obligations when they invest in stocks, bonds. Then the tax brackets go up and they pay even more taxes.

So when I start talking to them in a different approach, already investment they really get excited. The other day I was talking to some gentlemen and then he said with those suggestions even his own CPA did not give him that thought process. Once I asked him to think in that lines now he says that he is going to save millions of dollars on taxes.

Darin: I mean that's crazy, right? One discussion with you and this person can save millions of dollars. They may have been using the same CPA for years. But that CPA doesn't understand the benefit. Because they don't understand it, they don't present it to their clients.

Sridhar: Agreed 100%. And now the next question obviously they asked like, "What about the taxes I already filed? I said, "You can revise the previous year taxes, right?" Now he's working on with the new CPA and revising those taxes.

Darin: So talk to me about that piece because I really haven't had many people talk about that. Are you referring to let's just say 2022, somebody has a lot of depreciation expense and more than they can use. They can go back to 2021 and offset it against previous income.

Taking Advantage of the Accelerated Depreciation Loss

Sridhar Sannidhi Take Advantage of the Accelerated Depreciation Loss
Photographer: Kenny Eliason | Source: Unsplash

Sridhar: Yes, in this particular case what happened is he has been investing with me passively. He's getting K1s and then he has the income from other of his real estate investment like passive income is coming in. But at the moment the CPA is showing it in the normal income type situation. He's not taking advantage of the accelerated depreciation loss. And this gentleman is a very high net-worth individual and he pays a lot taxes. So when we had that discussion, back of the napkin type of discussion he looked at his numbers and he said, "Oh my god, I can revisit my last year of taxes."

Darin: So this is somebody that had invested with you in the prior year?

Sridhar: Yes.

Darin: Had some carry forward losses and he can actually apply that to income in that year. What I was wondering was can you actually go back. If there are losses from say 2022, can you go back and offset that against 2021 income?

Sridhar: No, not from 2022. He got K1 losses in 2021 itself.

Darin: In 2021. Okay. So they were the same year?

Sridhar: Yes.

Darin: He just wasn't taking advantage of it. You got me really excited because I was like "Holy cow." That's a whole other world if you can go backwards too, right? But yes, that's huge. So you're doing big deals, so talk about the size of the deals. Talk about who are the typical investors that are investing in these deals.

The Larger the Property, The Easier to Manage

Sridhar: So when I started this multifamily syndication, my very first deal was 96 units. Immediately I realized that the smaller the property the more tighter ship you need to navigate. The larger the property, more easier you will have more freedom on several grounds.

Let's say if you have 100 unit and if you want to do a massive marketing for new tenants, you are limited by the budget. At the same time if you go with a little bigger property, 200 plus units or something of that nature then you have bigger budgets to play with. You can easily attract new tenants because the budgets. To my point, basically economics of scale play very well. So that's why my range of property size is from 200 units to 1,000 units.

Darin: 1,000? Your largest one was 1,000 units?

Sridhar: Yes, 200 units, 1,000, that's what I tell brokers to share the deals with me. The bigger the deal, the more conservative I become.

Darin: What is the largest property that you purchased?

Sridhar: So far it's a 419 unit.

Darin: So a lot of people have said what you just said, larger a lot of times is easier. But there's a lot of people that just can't wrap their heads around it. There's a lot of people that their mind won't let them go there. That believes that that's for somebody else, I'm not worthy. I don't have the value. And I don't have the understanding to do that. I really need to start with something way much smaller and then build up from there.

The Benefits Sridhar Sannidhi Get From Partnering With the Right People

Sridhar: So that is true for some people. But when you are in a good ecosystem, when you find the right partners, the size doesn't matter. That's what I learned. So even if we have 400 units, since I'm part of a good mentoring ecosystem. I do find partners who can support me when I have to show larger net worth. And I do have partners who can show the larger net worth. I do have a successful businessman who can handhold me from the business point of view if I feel that I need some help. All those path factors really help.

Another thing is when you go with a bigger one, you do have professional management company who can manage those property easily. When there is fluctuations in expenses and all you can manage it well. For example, a 400-unit property typically we'll have four plus for main, so four people in the office, four people outside. And let's say if the economy slows down like this, we can run the show with three plus three.

So that one plus one reduction will really smoothen out your operational expenses. And temporarily if there is any high volume of work orders, high volume of other maintenance activities, you can hire a temporary worker for a couple of weeks. Make sure that the property is not impacted by little bit of downsize. So that kind of flexibility is there with the larger properties. If it is a 96 usually you go with one in the office and one in the outside then you have to bear the expense.

Why Sridhar Sannidhi Prefers Garden-Style Apartments

Darin: That's a great point. And the flexibility, you mentioned hiring temporary if you need to. But you also can leverage the relationship with your property management company. So you could end up having a maintenance guy leave another property for a week or two and then come over. And so they know that the maintenance guy is a good guy or the leasing person is strong. You could borrow them for a few weeks and then they go back to the property that they were originally working at.

Sridhar: Yes, that's true.

Darin: So let me ask you this because I heard this from another sponsor at one point. I was asking about size of deals and what his take on it was. And one thing he mentioned was when he got up to three, 400 units. That many people living that close together, there ended up being more friction within the tenants on the property. So I guess that also depends on how densely populated the apartment complex is. Compared to, you could have 400 units spread out over a really large property. Or you could have 400 units that are really highly condensed. So what's your experience there?

Sridhar: That's a very good point. So that's why we pursue mostly garden-style apartments. In garden-style apartments most of the township allow 15 to 25 units per acre. Nowadays mostly it is on the smaller side. They want to maintain that spaciousness of the property. I mean, spaciousness between the building, open space between the buildings. So that's where we prefer garden style. If it is vertically built obviously the density will come into play.

An Easy Problem

Sridhar: So once you have the building spread across I think that friction would be less. And also we make sure that we have enough parking ratios. And most of the frictions happen in the parking place. So we make sure that whatever properties we buy, we have at least one and half time to two times the number of units as parking spaces.

Darin: That makes sense. What about today? We're in an interesting environment, interest rates have gone up dramatically in the last year. Do you look at that like that's opportunity right now or opportunity coming. Or do you look at it like it's making deals harder to pencil?

Sridhar: Definitely deals are harder to pencil, but for me it is an opportunity to buy. So I am aggressively pursuing units. Usually my target is to buy 1,000 units. In 2023 I'm targeting to buy 2,000 units. So doubling. Finance wise if the interest rates are up high tomorrow we can refinance it after a year. Or year and after if the terms of the current loan are good to exit and then refinance. That is an easy problem. But the property values because of the high interest rate, they suppress, they go down.

So that is not negotiable when the market is really hot. I want to take advantage of the property price and then refinance it later to a decent price. Even if the proper interest rate goes down, the property value automatically goes up. Because net NOI increases by fall and the amounts if we go with the variable interest rate with the high interest rates.

How to Invest During a Recession

Sridhar: When the interest rate goes down within the variable nature then we will have more NOI. That in turn will give a top dollar for the property and it is easy to exit.

Darin: So finance wise even at the higher rates that we're at now, you're looking to put on floating rate?

Sridhar: Some if the deal works in a floating rate, yes, otherwise the fixed rate. We see floating rate is becoming more expensive because when the rate starts going up, the cap rate, insurance cap for the rate hike was very high. That's when we switch to fixed. But once they come to moderate levels then we will switch to variable interest rate.

Darin: So for the listener's benefit, what he is talking about here is like look, there's going to be some folks that if they want to sell, they're going to have to negotiate. There's just not as many buyers that are lining up right now. And so with that, he wants to take advantage of that opportunity and then he owns the asset. Then if interest rates are to go down, let's assume, I mean all the talk is that 2023 is going to be a recession. Typically in a recession the Fed turns around and starts dropping rates to stimulate the economy.

If that happens then he can refinance to lower interest rates. Or if he's in a floating rate loan, it'll automatically adjust lower and then the NOI will go up. So it works very well to lock up a deal and then if rates go back the other way, it's an advantage.

Sridhar Sannidhi’s Investing Strategy

Sridhar Sannidhi’s Investing Strategy
Photographer: Maarten van den Heuvel | Source: Unsplash

Darin: Now there is a risk, and I want to get your take on this. Although everyone's saying that it's going to go the other way, what happens if inflation stays hot and rates keep going up?

Sridhar: Yes, that's a very good point. But when you underwrite the deal, the typical deal cycle is three to five years hold period. Historically, the longest recession ever recorded was I think 36 months or so during World War II timeframe. After that Fed days interfering on these recession cycles and making it shorter. In recent years, it is mostly nine months to 15 months range for most of the recessions. So with that in mind is, so when I do this thing, when most of the lenders lock in the interest rate for a year, a year and a half.

I position in such a way that two years I should be able to refinance a deal. In two years if I can push net operating income a little bit higher I improve the property and then push the rents higher. Whatever mechanism is doable in that particular deal. Adopt that and then increase the value and refinance it and move on. So if we are able to get the returns for the investors in two years in this whole cycle, then just sell it and then move on to the next asset.

Darin: Sure. Now for the listeners benefit that most loans that you get on these larger multifamily deals they have a balloon structure. They're not 30-year fixed rate loans. So there's a lot of loans out there that are structured as a 3-1-1.

Sridhar Sannidhi’s Commitment to His W2 Job

Darin: It's fixed for three years or it's floating for three years and then there's two one-year extensions. You can get with the agencies five, seven, 10, 12-year fixed rate loans. Some banks will do up to five years typically, but there's always a balloon.

That means at some point the loan comes due and you have to either sell the property before that or you have to refinance into new debt. And so that I believe is the biggest risk in these deals. You're forced to either sell or refinance in a terrible economy. And so you really want to make sure that your debt gives you enough running room, enough flexibility to ride out the difficult times.

Sridhar: Agreed 100%.

Darin: So your W2 job, you're going in and you're meeting with a lot of high-level executives consulting from an IT nature. Are some of those folks, people that invest in these deals? Do you talk about what you do outside of your W2?

Sridhar: Yes, a lot of my colleagues are my investors. I always try to keep everything open. So even my boss knows what I do in part time. So my philosophy is as long as you're open and honest and I'm not contradicting or violating company policies, I think I should be good. That's what my philosophy is. I'm maintaining that so they appreciate it. So as long as I'm doing my eight-hour job sincerely, it is not a problem from the company. That's what my boss told me. So that's what I'm doing.

How Sridhar Sannidhi Grew His Investor Database

Darin: That's awesome. And from their standpoint, that's the other thing about this business. You need to know somebody that's in the business or you don't get invited to the deals. So look, I've been around a plenty of wealthy people, business owners that have money. But I didn't know until I got involved with this group and met people like yourself. I didn't know how to get into these types of deals. I didn't know that these types of deals were available. So now your colleagues and the clients that you work with, they have a door into that world where they can not only put all their money in the stock market. But they can diversify and put it into real estate investments as well.

Sridhar: Yes, I agree 100%. And general trend is people try with one or two deals, obviously they don't want risk too much money. After seeing the result on one deal, two deal, then slowly they would increase it. So my first deal I had only 20 investors, of course the raise was small. Now I have hundreds of investors. And in my database now I have more than 2,000 investors.

Most of that grew organically and people referred their friends and family members, et cetera. That's how I grew. I did not do massive Facebook type of campaigns or anything like that until now. Now I'm thinking to extend the social media just for the reason that a few of my investors started mocking, and some of them are very close friends.

Why Investors Need to Be on Social Media

Sridhar: They started mocking me and saying that you're taking these big checks and you don't even have internet presence or Facebook presence or something like that. So I said, "Okay, I will start working on it." And that's what we are doing right now.

Darin: You know what, I mean, you be you. I mean you got to do what works for you. I know some people that are heavy on the social media side. And I am on social media. But I know plenty of people that are not. And I don't think that there's a right or wrong way.

I talked to one sponsor that talking about the referrals. He said kind of the same thing. He had one guy in one of his first deals that went and told people. They tracked that they ended up getting nine other investors in future deals because of one person's positive experience. And it's crazy, the multiplier effect it can have. This business really, I mean there's huge wealth opportunities. But for the passive and also for the sponsor it's not a get rich quick in 90 days, it's years. So when did you start investing in the multifamily world? That 96-unit deal, what year was that?

Sridhar: 2018 we started, closed in January, 2019.

Darin: So I mean three years that's not that long to now have 2000 investors. And most listeners probably understand this, but for the ones that don't, the typical minimum investment on a deal like this is 50,000. So it could be 50,000, 75,000, a 100,000 depending on the size of the deal. So it's quite a bit of capital for people to be involved with.

Two Different Paths of Multifamily Investors

Darin: So if you have 2000 people that have the capacity to invest 50, 75, 100,000 at any given point in time, you've built a good business and a good reputation with those folks.

Sridhar: Definitely. It's a lot of hard work and I attend multiple real estate seminars and all that so that helped me to grow to that level.

Darin: So I think there's two different paths. There's active and there's passive. On the passive side, there's still work to be done. You have to get out and meet people. You have to find people that are good quality sponsors, that have a good reputation that you know, like and trust. So that's the work that you have to do as a passive.

As an active, there's a lot more that's involved. There's a ton of networking and underwriting and managing and working with finance folks and brokers. But the passive side, once they wire the funds, they pretty much don't have any more work until they get the check when the property is sold, right?

Sridhar: Yes, that is true.

Darin: So for them, the biggest decision point that they have to make is who am I going to invest with? Then what deals am I going to invest in with that person? And once those decisions are made, they really can go about their day-to-day life. Then just wait for an exit strategy to happen.

Sridhar: Agree. To your earlier point that's what happens with some of my colleagues. They have the money but they don't know where to deploy.

Excess Time and Excess Money

Excess Time and Excess Money
Photographer: Morgan Housel | Source: Unsplash

Sridhar: That's when I go and meet them and say that this is another alternative you can look into. This is how you can plan it out. In fact, that helped a lot of my colleagues already.

Darin: If you think about people that have excess money, it's like having excess time. You can get in trouble with excess time and excess money. So with excess money, they could be frivolous with it. Buy some consumer goods that they're not going to get any kind of return on. They could take a high flyer on some stocks that they don't really understand.

But once you invest in one of these deals it's like you got that money working for you and you can't access it anymore. So it's almost like you lose liquidity compared to stocks. That's typically described as a negative, but in some instances it's a positive. Because once you get that cash in and you put it someplace else, you can't touch it anymore. So it prevents you from doing something stupid.

The other thing is that, it's known that people will a lot of times panic with their emotions in a down market and will sell. So stocks are down 20, 25%. There's probably people that will sell and then all of a sudden the market will go up. They'll be like, "Oh man, I wish I had held on." They don't have that option in these multifamily syndication deals. Because they lose control of when they get access to that liquidity.

5 Years vs. 25 Years

Darin: And I don't know about you, but I can tell you for the assets that I was a part of. During COVID when there was all this panic. I would bet you if people could have sold part of their investment or all of their investment, they would've taken a loss and gotten out. But they couldn't so they rode it out and then all of a sudden valuations came back to fantastic levels and they made a great profit. So I think that sometimes it can help them. It can help the limited partner.

Sridhar: So to your earlier point, just I want to give you a statistic from my personal finances, right?

Darin: Yes.

Sridhar: I've been in the industry for 30-plus years in the technology space. Like everybody I've been investing in stocks, bonds and everything. Literally for 25 years I've been doing that. I got burned during 2008 crash and all that. Net, net in 25 years, whatever I made on stocks, bonds, et cetera, including my 401k, I made that much of amount in the last five years in real estate. So amount of investment in fact and real estate said since I'm active in investor, I can even say smaller.

Darin: The amount of your capital that was at risk.

Sridhar: Yes.

Darin: Yes, it's crazy. So talk to me about the investors. I'm sure you've had these conversations. Because almost everybody that's in the sponsorship world does. I'm going to get in your next deal. And then the next deal comes and you know what, I'm not ready, I'm going to get into your next deal.

The Risk of Other Investment Options

Darin: And I'm not ready, I'm going to get into your next deal. And there's certain investors, they like what they hear in terms of the returns. But they have a hard time pulling the trigger in terms of actually getting into the game. So one, do you see that? And then two, how do those conversations go?

Sridhar: Yes, that's a good question. So usually I try to compare with some other item when I start talking to them. First thing, obviously the investment. I would say every investment bears risk. Real estate also bears risk in stocks, bonds, everything bears risk. Even though T-bills they say that it's not risky. But I argue it has some risk is involved in it. So that I clear them up in the first place. Second thing is companies are mostly you buying the share and mostly in paper-based. Some of these services companies, they don't even own any assets.

It's all based on the service income, you're paying it. Whereas here in other side you are buying a real asset, like physical asset. And as everybody knows the planet earth size is same and livable space is the same, but population is growing. So the demand is growing and supplies stays the same. Eventually the asset price has to appreciate. On the other side, if you go to stocks, bonds, et cetera, and stock side, there could be another competitor who can have a better product and then wipe you out. Even though you feel that you're investing in a good stock company, then tomorrow some competitor can wipe them out.

Sridhar Sannidhi Own Assets That Appreciate

Sridhar: We have seen Kodaks, which had great days and then now Kodak is not a major player at all. Those kind of things can happen here. The real estate, unless it's completely messed up, I have not seen property value go down over the years. So that is one thing I kind of analyzed and compare with them.

The second aspect is investing big check, is usually people get carried away. So I say that few of my friends bought Tesla cars when they were out. They pay top dollar and then they enjoyed the ride, at the same time I bought Tesla's stock.

Now their Tesla car value is much lower, my Tesla stock is much higher. Since I'm investor, it went up. Same way like I invested in multifamily at the same time. So I got more money out of my real estate investment than the money they spent. So if you're willing to buy so much on a car that is not going to last forever, so why can't you invest here? Then get some returns out of it and then take the money back and then the time, whatever is fancy, you can buy and then you save your principal?

Darin: I love that. Gas prices have come back down, but last year gas prices were just taking off. Everybody was complaining about it and I was like, "Look, I don't like paying that much at the pump either. But I'm glad that I bought ExxonMobil stock." So I was losing at the pump, but I was winning with the valuation on the stock. So owning assets is so key versus just putting your money away. And the other thing is, I don't think that people understand.

What Happens When There’s Inflation

Darin: They hear about inflation.They understand it from a food price standpoint and they understand it from paying at the pump standpoint. But they can't get their head around if I have $50,000 or $100,000 in the bank and there's 7% inflation, that next year you're really only going to be able to buy $93,000 worth of goods. But they're like, "Well, I still have 100,000." Yes, but your purchasing power is going to be less. So you need to be involved with assets that will appreciate greater than inflation rate. That's something for a lot of people can't get their head around. But I'm so glad that I did. I'm sure you're so glad that you did.

Sridhar: Yes, that's why you're having a little laugh, right?

Darin: Yes. I mean, I remember when I got involved I went and met with a bunch of different people, I'm like, "Is this real?"

Sridhar: I was like that too.

Darin: Is this real? And then you talk to a number of people and you're like, "All right." You never know when the music's going to stop. Everything's cyclical like you said. But if you look back 20, 30, 40 years, any real estate is worth more. But there's periods of maybe one-year, two-year, three year periods that real estate could be in the dumper. So you need to be able to plan and ride that out to get to the other side.

So talk about some of the learning lessons managing some of these properties. I know that you said that you don't like to be the guy who manages the day-to-day. But I'm sure you've been involved with some properties that have had some challenges, some problems that you had to solve.

Sridhar Sannidhi’s Lessons Learned

Darin: And so you and your GP team had to get together and figure out a solution. Talk about one or two of those.

Sridhar: Sure, definitely. In general I don't do asset management, but I'm a major asset manager for one property. Just I wanted to have that experience too. That's why I kept one for myself. And then others I attend the calls whenever the time permits so that way I can learn from the asset management side. The learning lessons, our first property is 96 unit. That one when we bought it there are a whole bunch of units that were completely gutted down. So it's a deep value add.

The learnings I had from that one is it's a smaller city like a Wichita Falls it is in. So in Wichita Falls, I mean population wise is 100,000, all kinds of trades. Everything is available. But when we want to do some work we always had to source from other cities. So had we known that we would've planned better. Because we have to get professionals from other cities so the project duration took much longer. Even the ones which we thought that we could finish in three to six months almost took a year. So you have to be prepared when you go into the secondary to tertiary markets for those kinds of activities.

Darin: I think that that's a very good point. And I'm in the middle of one of those right now. I knew that it was a smaller market and that there wasn't the population growth that we have in the DFW area. But I definitely underestimated the fact that it's hard to find quality people in those markets. It's hard to find quality people to be your onsite

Cheap Doesn’t Mean the Best

Cheap Doesn’t Mean the Best
Photographer: kerry rawlinson | Source: Unsplash

Darin: leasing manager, general contractors, every part of the process that you need to bring other third parties involved with. You either are giving up on quality and they're local. Or you're having to bring people in from other cities.

Sridhar: Another learning is when you want to do a CapEx item. Typically we see that certain quotes, we say, "Oh, this one looks reasonable." But I would say get multiple quotes and vet it out from the vendor performance point of view.

Sometimes cheap doesn't mean the best. You need to be very cognizant about that. They should be able to complete the project. Some people take the project by quoting the least and then never finish it. That's another learning lesson.

Darin: That's a great point. And I think that points to networking also. Is that look, if you're going to different multifamily conferences, you're meeting a bunch of different people. Some of those people are going to be investors that invest with you. But some of them are other sponsors, other people that are doing other deals. And if you all of a sudden have a relationship with them and you're in their market and you call them and say, "Hey look, I got a quote from so-and-so." And they're like, "I would not do that deal. I would not use that contractor." That can save you a ton of heartache and a ton of money for your property. Just that one phone call.

Sridhar: Yes. The relationships really helped, the networking and all that as you mentioned, it really helps us.

Sridhar Sannidhi Suggest That You Do a Background Check

Sridhar: That's how we started working. Any time we shortlist the vendor then we see which other syndicator use them. What kind of response they had with that vendor and are they satisfied or not? So we do that background check thoroughly nowadays.

Darin: Yes, that's huge. And being part of the same multifamily mentorship group, that's one of the values of being in a mentorship group. It’s not only learning the process. But also meeting a lot of other people that are doing what you want to do. Then asking who do you use for your attorneys? Who do you use for your property management company? Who do you use for GCs? All of that. If you were to do it on your own, you could pick the wrong person. That can cost you a lot of money and a lot of time.

Sridhar: And also people think that I have this YouTube and I can do it and learn it. But it's not the same when you execute in a large scale. So you need to have the right vendor and for the right job.

Darin: Absolutely. So CapEx, tertiary markets. Anything else to share on the learning side?

Sridhar: Another thing is, so when you do some of these CapEx always plan for some unknowns. So when you open a Sheetrock you get sometimes so there could be some different maintenance type of things just by looking at outside. You cannot simply guess, okay, how much it is going to cost and all that. So always look for some extra buffer dollars when you do the CapEx items.

Be On Top of Things

Sridhar: And also from the management point of view, be on top of things always. Like the KPIs. Set up the KPIs and make sure that the property management companies definitely understand those KPIs and performing to those.

Darin: Have you ever had to change out your property management company of your properties?

Sridhar: We were on the verge of changing one. But it so happened that that company was bought over by another company at the same time so we didn't change it. But yes, we have to be ready for that at any point in time if they keep missing the KPIs.

Darin: And I had that situation and just to be frank, I was nervous. I was scared to change property management companies. Because it seems like such a big deal and it is a big deal. But I happened to be at a mastermind with a bunch of other multifamily owners sponsors. The discussion came up and I just asked, how hard is it? And they're like, "You know what, if you're in your gut, you feel like you got to do it, you just got to pull off the bandaid."

And I did it and I'm so glad the performance of the property turned around. It made a world of difference. It's another learning lesson I put in my back pocket. So that's always an option. Hopefully any property management company that we work with is doing what they need to. But knowing that you can still make a choice to swap them out, gives you that confidence. You're not kind of under there. You just feel a little helpless if you're not the property management company.

Solve the Problem by Speaking Out

Sridhar: Yes. Another thing I learned sometimes we do all this due diligence and go with the property management company. Within the property management company, you have multiple regionals. Some regionals are really good. Regional managers are really good, so they perform really well. But if we happen to have a bad one so just speak it out. Then take it to their senior management and get them replaced. That's what we do in the first one. So majority of the cases that solves the problem for us.

Darin: That's another option. Rather than swapping out the entire management company is swapping out the personnel. So if you have somebody that's not as strong, not meeting the KPIs, then you can bring somebody else in from the company that will achieve those targets.

Sridhar: And just to give a context, some of these managers are used to working a different class of properties. With all fairness, for example, they might be working all along on a class A property. Then if we bring them to class B they don't know how to manage the Class B clientele. That creates a problem. They expect everything goes in auto mode. In class A that's what happens. Everything is auto mode.

So here they expect that and then it is not going to work because in class B, class C, they have to constantly keep on calling the tenants for collections, which may not be the case in class A. So those kind of small things will matter a lot. We need to make sure that particular property manager, that regional has good exposure to that type of class of property.

Understand the Demographics in the Area

Understand the Demographics in the Area
Photographer: Matt Donders | Source: Unsplash

Darin: That's a great point. I mean, it's a matter of does the property management company have a strong bandwidth in this market and then in this type of asset? Because there's a big difference between A, B, and C for sure.

Sridhar: Another minor item I want to emphasize is again, you need to understand the demographics in that area. And let's say if it is a particular demographic, population from a particular demographic you try to bring in a manager who knows that culture. Who interacts with them in that language and all that's also an important factor in these properties.

Darin: So you may be someplace where everybody speaks Spanish.

Sridhar: Yes, that's what I meant to say.

Darin: So you have the onsite manager that speaks Spanish. They feel like they know her and it could be him too, him or her. But they're part of their culture and they understand them and they trust them.

Sridhar: Yes. We take that one seriously. When we hire the property manager, we tell them that do you know Spanish or the whatever other language people are from? And also we try to see if they're connected with the culture. If they have some festivals or events that they feel that are very important. The managers should understand that and accordingly plan an event for the tenants. So that way they feel that they're at home. Because at the end of the day we need to give that comfort, home, and security. That's what matters. That brings more tenants and more revenue for us.

Sridhar Sannidhi’s Next Big Stretch Goal

Darin: That's huge. I can't believe you have over 11,000 units in three-plus years. So what's kind of the next big stretch goal for you then? You're going to try to do 2,000 in 2023?

Sridhar: Yes, 2,000 in 2023. And I started construction, also ground up construction. Because I wanted to give choice to my investors. Some of them they don't care about cashflow that much. They want more appreciation. So that's another reason I went into construction. In construction class C properties I can build at a very high cap rate.

Darin: So talk about the profile between buying an existing cash flowing deal versus a ground up construction. Both from an investor profile perspective, cash flow perspective, and how the risks of the deal kind of change.

Sridhar: Sure. The construction typically there's a lengthy process when you buy the complete raw land and then you need to work on the zoning. Then permits and then planning and architecting and then eventually building it and delivering the units. So usually we go in the middle. We go for the zoned land. Usually from agriculture zoning to commercial zoning is a little challenging. That's why we buy the zoned land. So we minimize some risk there.

From that point onwards, still the construction projects are a little higher risk than existing projects. But during the construction phase, you may not get the cash flow. So until we start getting few buildings and then start renting it out and we start getting income we cannot distribute. Otherwise, if you start distributing from day one it's taking from one side and giving it to the other side. That is what happens.

How Sridhar Sannidhi Double His Investors’ Return

Sridhar: Existing one from day one you can do the cash flow. As far as the cap rate goes, the construction one I can build a class A in a very good neighborhood at five cap. Whereas in Class A if you go to a good suburbs nowadays you get it for three and half to four cap class A. It means you're paying premium. So for building a new brand unit we can build for $180,000 unit class A. But if you want to buy in the market it can vary anywhere from $250,000 a unit to 350,000 or 400,000 a unit.

Darin: So what will happen when those units come available? Because if you have nicer units, newer units that have a lower cost basis, I would think that that's going to put pressure on the rents for the Bs and Cs.

Sridhar: Yes, but when we complete that, we try to be at par with the class As in the vicinity. So that we always compare with class A even though our cost basis is low. That gives us more profit. In other words, the overall return is high. So in three years we can double the investor return easily if the terms work. Whereas for existing one, it may take almost five years to double the investor return. Unless the market is completely favorable to us.

Darin: And on the construction side, what's the business plan? Is it just to lease it up and then sell it right away? Or is it to operate it for a year or two?

The Plan on the Construction Side of Business

Darin: Because there are developers where their business plan is buy the raw land, get it zoned. Get all the permits and then build it, lease it up. They just want to be out and move on to the next deal. So are you building it and then also operating it for a period of time?

Sridhar: So the initial plan when we launch it is stabilize and sell. But for select two markets we decide to refinance and continue to hold them. Because it's difficult to buy the property, class A property in this kind of market. For example, we are building one in Melissa. That kind of market it's difficult to buy one. We may refinance it because the first investor, they may want to exit the property. They want to see their returns so we may refinance it and then get the market value.

Based on that we will form a second entity to take over from the first entity. Then give the returns to the first investors. Whoever wants to continue the journey with us they can join in the second one. Then we will continue to hold, like that we plan. So it all depends on project to project, it's not a common strategy for us.

Darin: Awesome. So well I applaud you. What do you like to do outside of work for fun?

Sridhar: So I like road trips a lot. I drive crazy 10 hours, eight hours, whatever the road trips I do.

Darin: Where do you go?

Sridhar: I like nature. I go to different places and all the national park types .

Darin: Give us some examples.

What Sridhar Sannidhi Like to Do for Fun

Sridhar: For example, Yellowstone National Park, I like Yosemite National Park. I go and spend time or go to places like Costa Rica where nature is still intact. Those kind of places I try to go and venture.

Darin: We live in the Dallas market and there's certain place I used to live, I've been here like 11 or 12 years. But I used to be in south Florida and then I was in Connecticut. I grew up in Connecticut. All pretty heavily populated areas. You were in New Jersey. When you get out to certain areas of the country, you're like, "Holy cow, there's still a lot of land out here."

My wife and I went up to Montana to go to Glacier National Park. We took our RV and we were driving through Montana and it was like nothing for hours and hours.

Here in Dallas you just see more people moving in and it's just getting more crowded. I appreciate you coming on the show and sharing. I definitely learned from you. And I knew you were killing it. But I did not know that you've done 11,000 units in the last three-plus years. I applaud you for that and I'm sure you've made your investors some pretty good money over the last several years.

Sridhar: Thanks for having me on the show. It's always nice to chat with you. I know we have nice conversation and different topics.

Darin: Absolutely. So how do people get to know you? Your website or where would you point them?

Sridhar: My email address is sridhar@growwealth2retire.com. Website is www.growwealth2retire.com.

Darin: I would highly recommend you reaching out to Sridhar. Good guy and super successful. Listeners, I hope you enjoyed that one. Until next week, signing off.

How to Reach Sridhar Sannidhi

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